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Month: February 2016

Ontario Bankruptcy Legislation Updates: The Execution Act & 407 ETR

Reading time: 32 minutes

At the end of 2015, updates and clarifications were made to existing Ontario bankruptcy laws that directly affect indebted consumers. On November 13, 2015 the Supreme Court of Canada put forth a ruling about the 407 ETR (a toll route in the Toronto area) concerning the treatment of 407 debts in a bankruptcy or consumer proposal. Another big change came on December 1, 2015, as the Execution Act in Ontario was updated.

I’m joined once again by licensed insolvency trustee, and co-founder of Hoyes Michalos, Ted Michalos, to discuss how the changes, as well as the Supreme Court’s ruling, will affect Ontarians looking to deal with their debts.

Disclaimer: Our discussion about updates to the Execution Act are the interpretation of ourselves and the lawyers we’ve spoken with about the new rules. This is new legislation that has not yet been tested in court, and as such, a judge could rule differently than we’ve interpreted the information on today’s show.

What Is The Execution Act?

The Ontario Execution Act sets limits as to what can and cannot be seized and provides protections for people who have been sued or filed a consumer proposal or bankruptcy. When a person is sued, the court issues a Writ of Seizure or Writ of Execution that allows the person suing to freeze a bank account or seize the individual’s car. However, the Execution Act places limits and protections on another person’s ability to take everything you own. Ted explains that

if there was no Execution Act, if there were no protections and that piece of paper from the court would let you basically go to somebody’s house and clean it out.

Changes to the Act include areas like motor vehicles, clothing, household furnishings and appliances, and protection of home equity in a bankruptcy.

Pre December 1, 2015		As of December 1, 2015
Necessary and ordinary apparel	$5,650	Necessary clothing	No limit
Household furniture, utensils, equipment, food and fuel	$11,300	Household furnishings and appliances	$14,180
Motor vehicle	$5,650	One motor vehicle	$7,117
Tools of the trade	$11,300	Tools of the trade	$14,405
Farming	$28,300	Farming	$31,379
Principal residence – no amount prescribed	$0	Principal residence (house equity)	$10,783 (seizure restriction, not an exemption)

Where certain protections existed before December 1, 2015, “necessary and ordinary apparel” as an example, it has become unclear whether specific items fall under new “necessary clothing” category, such as a wedding band. Keep in mind that in a bankruptcy or consumer proposal it is unlikely that something like a wedding band, that generally has little financial value and holds significant sentimental value would ever be seized.

The Supreme Court of Canada Ruling About 407 ETR Debts

On November 13, 2015, the Supreme Court of Canada ruled that 407 ETR debts can be discharged in a bankruptcy. You may be wondering why these debts, that are similar to others including credit card debts, income tax debts, or personal loan debts, could not be included in a bankruptcy to begin with. The answer is, they have always been dischargeable in a bankruptcy, but until now, the privately own company put pressure on debtors to pay up, even after filing.

They did this by making it a practice to refuse the renewal of a license plate for non-payment – even if the individual filed bankruptcy. Ted argues that

the 407 has always taken the opinion that, well sure, the debt may be dischargeable, but using our road is a privilege and we’ve got the right to deny that privilege to you if you don’t pay it. And that fundamentally thwarts the protection of the Bankruptcy Act.

If you’re a current client or if you’re considering debt relief options and have questions about any of the information in today’s show, we recommend contacting a Licensed Insolvency Trustee to discuss how these Ontario Bankruptcy changes might affect you.

Listen to the full podcast for more about specific exemption changes including:

Motor vehicle exemption changes
Clothing exemption changes
Household furnishings and appliances exemption changes
Tools of the trade exemption changes

Or you can read the transcript for episode 78 below.

Resources Mentioned in the Show:

FULL TRANSCRIPT show #78 with Ted Michalos

Doug Hoyes: Over the last three months there were many significant changes to the law in Ontario. And so, today we’re going to discuss both of them. To help me through it I’ve got my partner and Hoyes Michalos co-founder Ted Michalos here. Ted, how are you doing today?

Ted Michalos: Fine, Doug, thanks for having me.

Doug Hoyes: So, issue number one. On December 1st there were changes made to the Execution Act of Ontario. Why should anyone care? What’s the Execution Act? What’s it all about? What’s the story there?

Ted Michalos: Well, so the most important thing about the Execution Act is that it sets limits or rather protections for individuals when they’ve been either sued, or I guess when they file bankruptcy it’s the same sort of thing. So, the Execution Act says these are the things that cannot be taken away from you the basic minimum, I guess needs for living if you want to take it that way, that every person’s entitled to keep regardless of who they owe money to or what they owe money for.

Doug Hoyes: So, we’re not just talking about bankruptcy. We are talking about someone who isn’t bankrupt may still fall under the purview of the Execution Act if they were to get sued for example.

Ted Michalos: Yeah, like the most common application of the Execution Act is somebody owes another person a debt, they are sued. So, the person doing the suing receives a judgment against the individual that they sued. The court then issues a Writ of Seizure or Writ of Execution. And that allows the person that did the suing to try and freeze a bank account, or clean a bank account out, seize somebody’s car I suppose. I mean if there were no, if there was no Execution Act, if there were no protections, then that piece of paper from the court would let you basically go to somebody’s house and clean it out.

Doug Hoyes: So, Joe owes me money, I take him to court, I get a judgment against him, which is just a piece of paper signed by the judge that says Joe owes me $10,000 and I see that Joe has $1,000 car in his driveway an old beater, if there was no Execution Act then theoretically I could just go take it.

Ted Michalos: That’s exactly right.

Doug Hoyes: Okay, so the execution act if it’s $1,000 car I’m not going to be able to take it. If it’s a million dollar, I don’t know, brand new Tesla or something if there is such a thing as a million dollar car, then I assume I’m not able to take it. So, obviously the Execution Act sets limits.

Ted Michalos: Exactly. It provides people with protection under the law.

Doug Hoyes: So, let’s talk about changes then. So, let’s start with the example you just gave a car or a motor vehicle as they call it. So, first of all the act says motor vehicle, which is more than just a car I guess.

Ted Michalos: Yeah, it could be a car, it could be a truck, it could be a motorcycle. It can’t be something like a trailer, it can’t be something like, well actually no, I don’t believe it can be something like a jet ski. I think it’s got to be a motor vehicle for the purposes of transportation on public highways.

Doug Hoyes: So, a motor vehicle obviously has to have a motor, that’s why a trailer doesn’t count.

Ted Michalos: Right, or a bicycle for that matter.

Doug Hoyes: Doesn’t have a motor. So, if I have a truck with a trailer, well the trailer doesn’t fall under this because it doesn’t have a motor. So, under the old rules the exemption limit was $5,650, what’s the new limit?

Ted Michalos: $6,600 even.

Doug Hoyes: Okay, so what does that mean?

Ted Michalos: So, it means that an individual is entitled to keep a motor vehicle worth up to $6,600. Now, that’s actually a bit of a misdirection, too. They’re allowed to have value in the vehicle up to $6,600. And I’ll tell you what the distinction is. So, if I’ve got a $2,500 beater, that’s worth less than $6,600. Obviously I get to keep it; it’s protected under the law. Let’s say I’ve got a $20,000 car and I’ve got a loan outstanding against it. So, if the loan is for $15,000, effectively I’ve got $5,00 worth of value in that car. Well, $5,000 is still less than the $6,600 so I get to keep it. It’s protected under the law.

Doug Hoyes: So, the loan is an important distinction, then. So, it’s not the value of the car that matters, it’s the equity in the car that matters.

Ted Michalos: That’s right, it’s the amount of your ownership interest – how much of that car do you actually own?

Doug Hoyes: Which means if I sold the car, how much would I actually get? So, if I have a $15,000 car with a $10,000 bank loan, I could sell the car but I’d first have to pay off the $10,000 bank loan. I’d end up with $5,000, therefore, it’s exempt.

Ted Michalos: That’s right. Now the law’s a little funny. It says that the car could be seized, so a creditor could come along and take the car. But then they’re required to first pay out any other registered liens, so the loan would get paid first and then the up to $6,600 would be paid to the fellow that had the car. And so, why would a creditor go and take a car that had less than $6,600 worth of value in it? ‘Cause they’d get nothing for doing all that work.

Doug Hoyes: Which is why in real life we very rarely – we never see that. That’s not something that happens.

Ted Michalos: That’s right, particularly in bankruptcies now, cars are almost never seized from people because they’re either driving something lower than $6,600 value or they’ve got a loan outstanding on it and they want to keep the car, so they keep making their loan payments.

Doug Hoyes: Yeah, it would be very unusual for someone with a brand new $30,000 car to be going bankrupt because if they had $30,000 to buy the car then presumably they wouldn’t be in that same financial situation. So, okay so, someone goes bankrupt then, how do you know what the car’s worth?

Ted Michalos: Well, so we start by the individual’s got to tell us what it’s worth. And so they’ll get probably something called a fair market letter. A used car dealer or someone will tell them what they think they would give them to take that car off their hands. We’ll then cross check that to things like the Black Book, which tells you the wholesale value of a car to see if it’s reasonable. At the end of the day the only way you really know what something is worth is by actually selling it. But frankly, if there’s any doubt, it’s – the bias goes toward the individual who has the car. ‘Cause if a trustee ever seizes and sells something we always get less than what they think it’s worth because it’s a trustee selling it and people are looking to get a deal.

Doug Hoyes: Yeah and we’re selling it at an auction or something like that, we’re not getting full value. And in most cases there’s not a whole lot of judgment involved. If you’re driving a 20 year old car with 200,000 clicks on it, it’s unlikely that it’s worth more than a couple of grand. And so, it’s only if it’s right around the limit that it would matter.

Ted Michalos: There is one way that people get caught. This exemption allies to a single vehicle. So, somebody that’s got two vehicles registered in their name maybe I’ve got a pickup truck that’s worth $2,500 and I’ve got a motorcycle that’s worth $1,500 I can only apply the exemption to one vehicle. So, I apply it to the pickup truck, the motorcycle is still at risk because that’s a second vehicle. Doug Hoyes: So, one motor vehicle is what applies. So, I could have two old cars worth $2,000 each, only one of them is exempt under this legislation. Ted Michalos: Yep.

Doug Hoyes: Okay. So, if anyone’s listening and they have a car, then the thought process is what’s it worth? So, check the Black Book, get an appraisal, ask the car dealer what they’d give you for it if they returned it. If it’s worth less than $6,600 there’s no issue. If there’s a loan against it, well what’s the payout on the loan, you deduct that from what the value of the vehicle is if that’s less than $6,600 in a bankruptcy we’re not going to take it.

Ted Michalos: Right. It’s almost always less than zero when you do the math you were just talking about.

Doug Hoyes: Yeah. I can’t remember too many cases where someone has a loan or a lease agreement that leaves a whole lot of equity at the end. Okay, so that’s cars now there’s other things mentioned in the Execution Act. One of them that I find interesting is clothing. So, under the rules as they existed before December 1st, 2015, ‘necessary and ordinary apparel” was exempt up to $5,650. Under the new rules there’s no limit. But the rules say necessary clothing. So, what’s the difference, tell me about that.

Ted Michalos: Well, the problem we’re having with this is necessary clothing hasn’t been defined anywhere. So, under the old regimen, we assumed things like jewelry, athletic equipment, things that you could put on your person, could be broadly spoken and included in that exemption. Now, saying necessary clothing I don’t think you could justifiably say somebody’s jeweler is somebody’s clothing. I don’t think you could say that somebody’s hockey equipment is necessary clothing.

Doug Hoyes: Yeah the word is clothing. So, what is clothing? Well, I guess we’d have to get the lawyers involved to figure it out. And the reason we don’t know the answer to this is because it’s never gone to court to be figured out.

Ted Michalos: It’s just too new a law. I mean the change was made December 1st, 2015.

Doug Hoyes: Well, and even the word clothing, which existed in the – well, I guess the word was apparel before. But even though that word has existed, it’s unlikely that anyone is going to have enough clothing that it’s worth if for some creditor to go to court and spend a bunch of money on lawyers to figure this out.

Ted Michalos: That’s right.

Doug Hoyes: So, our interpretation of the rules, and again I want to stress that, this is our interpretation, it’s a new rule, like you said, and it has not been tested in court. So, someone could go to court and the judge could say something different than what we think. But our interpretation of it is if it’s clothing and if it’s necessary clothing, well then you don’t have to worry about it. It doesn’t matter how much it’s worth.

Ted Michalos: That’s right.

Doug Hoyes: If it’s apparel then, too bad, you’re out of luck. So, that’s something you’re going to definitely want to discuss with us now. I don’t think your old hockey equipment is something we’re going to ever take anyways.

Ted Michalos: It seems unlikely.

Doug Hoyes: Because we don’t want it. But it is an issue that needs to be raised. Now I guess the logical question then would have to do with jewelry, then. So, is there a place where jewelry comes under the Execution Act?

Ted Michalos: Yeah. I’m of the opinion that it isn’t protected anymore. At one point there was a general exemption for personal possessions. That’s been out of the law for quite a long time. But people have still been using the concept. So, you could simply say these are my personal items that I want to protect. And things like a wedding band would fall under that. I don’t think there’s any place in the Act now where a wedding band would fall.

Doug Hoyes: No and I agree with you. In fact I sent a letter to the Attorney General for Ontario who is the person who is responsible for laws. And she did write me back a perfectly nice letter saying –

Ted Michalos: She doesn’t know either.

Doug Hoyes: You can go to our website at hoyes.com and do a search for that letter. I’ve posted it up there. Essentially what she said is, well, this is something that is handled through the courts and I can’t advise on any specific situation. So, again it’s very unusual for someone to come in to see us who has a million dollars worth of jewelry. And even your wedding ring, which obviously has great sentimental value and which you paid full retail for, in a liquidation scenario it’s worth a lot less anyways.

Ted Michalos: It’s no worth much to anybody except for you and your spouse.

Doug Hoyes: Yeah and I mean you sell it to a jeweler and they’re melting it down and it’s worth whatever the gold content is. So, our advice then is when you come into see us well tell us what you’ve got. We’re going to ask you that anyways, what jewelry do you have? And in most cases it’s not going to be a significant enough number to worry about.

Ted Michalos: Yeah, the goal of this part of the conversation isn’t to scare people. I don’t want you to start thinking we’re going to start cleaning out your jewelry boxes. It’s just to make you aware that the law was changed, and unfortunately, the changes weren’t drafted very well. There’s a lot of ambiguity in this new law and we’re going to talk about some more of them right now, I’m sure.

Doug Hoyes: Well, okay so let’s hit really quickly two other ones. There used to be household furniture, utensils, equipment, food and fuel – which is exempt up to $11,300. That limits been up to $13,150 but now it includes household furnishings and appliances. I guess that’s really not a whole lot different than what the first rule was.

Ted Michalos: Yeah, my concern is that, well, so again things like your children’s toys, is that an appliance of furnishings? The sports equipment, if it didn’t fall under clothing so maybe you’ve got a mountain bike or something that you use for keeping yourself fit, I don’t think that’s furnishing or an appliance. It’s just I’m not sure where things like that fall. Now, somebody could be saying well, if you’re falling on hard times or you’ve got a debt and somebody sued you maybe they should have the right to take those things. I’m not sure I agree with that. If you take away an individual’s minimum requirements to live, and we’ll argue over what that is, it’s less likely that they’re going to comply with the law and I don’t know, that’s not the kind of caring society that we all think we live in.

Doug Hoyes: Yeah. Who are you serving by doing that? And I think again, the law says what it say but in real life when I look at your used hockey equipment, I’m saying to myself, you know what? It’s not worth it, it’s certainly not with it for me to take it. So, our advice is be upfront with us but let’s work out a way to make this all work out. So, tell me about tools of the trade, then, what does that mean? What’s the deal there?

Ted Michalos: So, tools of the trade are things, assets, stuff that you own that you actively use to generate income. So, I’ll give you a great example. Let’s say I’m a courier. I pick up and deliver packages for people. Well, a tool that’s right for me would be my car, probably my cell phone, my computer. Now let’s say instead of being a courier, I work down at the auto parts plant, I make widgets. I use my car to go back and forth to work. If I don’t have my car I can’t get to work but it’s not a tool of the trade. I don’t use it at work, I use it to get to work and that’s a pretty big distinction.

Doug Hoyes: So, a tool of the trade is something you are using to earn an income while you’re earning that income.

Ted Michalos: That’s correct.

Doug Hoyes: So, if I’m an Uber driver.

Ted Michalos: Well, if you’re an Uber driver I’d argue that your cell phone, your computer and your car presumably could be a tool of the trade.

Doug Hoyes: Now presumably I’ve got the exemption of the car anyway so it may not be an issue.

Ted Michalos: So, you’ll notice this is a higher exemption so you might want to use this.

Doug Hoyes: Yeah, so it would depend I guess if I’ve got a $10,000 car. And again, we are merely speculating here. There has never been to my knowledge a court case in Ontario under the new rules with an Uber driver’s car. It has never happened and it will be a year or two or three before something like that could even appear in court. So, our job is to – we’ve done a lot of research on this, we’ve spoken to many lawyers and revised our opinions as we learned more and talked to more people. This is what we think. Right now we’re in February of 2016 as we record this, this is what we think the law is today but we want you to come in and talk to us about your specific situations so we can give you the most up to date guidance. Now there was one more change in the rules that was probably the biggest change so we’re kind of burying the lead here talking about it last, but that is the principle residence. And I don’t want to call it the principle residence exemption ’cause I don’t think that’s the right way to say it. But in Alberta for example, they have what’s called a homestead exemption. And so, if you go bankrupt or have any of these other legal situations that we talked about, your homestead, which would be your house and some land associated with it is exempt up to I believe it’s $40,000 but don’t quote me on that number.

Ted Michalos: That’s right.

Doug Hoyes: In Ontario, we’ve never had anything like that. So, if you went bankrupt and you had a house that had $1 of equity, well you had to give us the dollar or give us the house, that was the rule. Don’t think we ever took a dollar from someone for their house, but legally that’s what the rule said. Now, what do the new rules say?

Ted Michalos: So, the new rules say that a creditor cannot seize or force a sale or property that has $10,000 or less of equity in it. So, when the law was first announced in December, people read that and said great there’s a $10,000 exemption protected in Ontario now. That’s not the case, at least that’s not the way we see it or the lawyers that we’ve talked to. What it says is if you have $10,000 or less of equity in your house than a creditor, or a bankruptcy trustee, can’t force you to sell the house. So, they can’t go after that less than $10,00 in equity. If you have $10,000 or $10,001 of equity then the creditor can force the sale of a house, or the trustee has to deal with it if you file bankruptcy.

Doug Hoyes: So, why did they do it that way? And I know I’m asking you to explain the government, so this is going to be impossible for you to do.

Ted Michalos: I’ll try to keep it polite.

Doug Hoyes: But I’ll ask anyway. So, you’re describing two different methodologies here. If I own a car, a motor vehicle, you said that if it’s worth a little more than $6,600 I get to keep the first $6,600. But in the case of a house, if it’s worth $1 more than $10,000 I don’t get to keep the first $10,000, the whole thing is at risk. So, what’s the deal there?

Ted Michalos: Yeah, I don’t quite get why the government worded it this way. Obviously, it was done deliberately; they could have simply copied the homesteader law from Alberta or some other places across the country. They only thing I can consider is that they wanted to either protect very low income Canadians who got into a home that’s not worth a lot of money or new home buyers. So, they haven’t built up any equity in their house yet. Because it took them a lot of effort and time to get that down payment to buy the house, if it was immediately taken from him then who knows how long it would take them to do it again. Those are the only two explanations that I could come up with. I don’t like either of them.

Doug Hoyes: Yeah and it could also be that they didn’t think it through completely.

Ted Michalos: Well, that’s the real answer.

Doug Hoyes: Yeah. I mean it would sound like yes it is protection for the person who is just starting out, who has very little equity. Do we really want to be having a creditor faced with somebody who has a couple of thousand bucks worth of equity in their house going to court, going through the whole foreclosure proceedings, kicking them out, you know, for a couple of grand, really? It almost doesn’t make any sense. Now, in the past, if someone came into see us and they had equity in their house, our natural thought would be, okay, you don’t want to go bankrupt ’cause that puts it at risk, we would suggest file a proposal. File a consumer proposal. And in a consumer proposal your assets are protected, you don’t lose them. Now obviously you’re making payments in the proposal sufficient that the creditor’s agree to it. So, with this new rule does that change the world of proposals at all?

Ted Michalos: I don’t think it’s changed much of anything. For the folks that had less than $10,000 worth of equity in their home probably wouldn’t be using their house as the only reason they’re filing a proposal. So, just briefly folks the concept behind a proposal is you offer to repay a portion of your debt. There are two caveats: it has to be more than your creditors would be entitled to in a bankruptcy and it’s got to be enough that the creditors will agree to the offer. Well, so in a bankruptcy if you had less than $10,000 of equity in the house it’s questionable whether or not the trustee would force the sale of the house. They might have you simply pay that equity over three or four years. Well, so, that hasn’t changed the calculation that we’re going through now to determine how much a proposal would be worth.

Doug Hoyes: Yeah and you’re right. A proposal as an alternative to bankruptcy. In a bankruptcy I am going to lose a portion of my income if it’s over the limit. I’m going to lose assets that aren’t on this list of being exempt. So, most people who would have a house with 20 or $30,000 in equity probably earn more than the minimum threshold set by the government. So, they are going the proposal route because of both their assets and their surplus income. So, do you find it changes the math a tiny little bit, a huge amount, not really much?

Ted Michalos: There’s a very small segment of the people that we see that this has had an impact on. The folks – so the equity in their house is $9,500. So, now in the bankruptcy that’s not something we can go after, so conceivably it reduces the amount they’d have to offer in a proposal. There aren’t that many people that fall into that category. You either have equity in your house or you don’t. Unless you’ve only just bought it so again now we’re back to the example of somebody’s only had it for a year or two.

Doug Hoyes: Well, in a lot of cases it’s the creditors, the people you owe money to, who are driving what you’ve got to pay in a proposal. So, I might have $5,000 in equity in my house and I might have 5 or $10,000 worth of potential surplus income, but I may not be able to offer a $15,000 proposal that particular bank who we’re dealing with who shall remain nameless, ’cause we don’t want to pick on any particular banks, they might say no, no our minimum in your case would be $20,000 or $25,000.

Doug Hoyes: So, again, as we wrap up this segment, the message is there’s a whole bunch of new rules, it’s a bit of a moving target, come in and see us, we’ll walk you through in your specific situation. Don’t try to read this on the internet and figure out how it will apply to you. I don’t believe in doing heart surgery over the internet either. Come in and see us, it won’t cost you anything. We’ll walk you through it. Great, thanks for being with me Ted, we’re going to take a quick break and be back with the next segment, you’re listening to Debt Free in 30.

Let’s Get Started Segment

It’s time for the Let’s Get Started segment here on Debt Free in 30. I’m Doug Hoyes and I’m joined by Ted Michalos and we are talking about new Ontario legislation.

What we’re going to talk about now isn’t specifically legislation but it is a Supreme Court of Canada ruling that was released on November the 13th of 2015, so a few months ago. And we are now finally understanding the implications of it. It is the case of 407 ETR highway, which I’m sure everyone is familiar with in our listening area. It is the toll road in the Toronto area. It’s a privately owned company. It was built by the government, but was sold to private interest. And you have to have a transponder, you have to pay a certain amount per kilometer that you drive on it. If you do not pay your toll fee, the ETR has the ability to go to the Ministry of Transportation and say hey, don’t renew the guy’s license, his license for his car vehicle, his vehicle license. So, it doesn’t affect your driver’s license, but you can’t renew the plates on a car if that car, via you, owes a bunch of money in tolls. And obviously that was a rule that was put in there to protect the owners of the highway ’cause otherwise, hey if there’s no consequences for me never paying, I’m never going to pay. So, we understand why it was there. So, Ted, tell me over the last few years what you’ve seen happening with people who end up coming to see you and they need to go bankrupt or do a proposal and they’ve got 407 debt.

Ted Michalos: Now this is a good example of some of the things that are wrong with our legal system. It’s generally been held for a number of years that a 407 debt, the toll for using the road, is a debt that’s dischargeable in bankruptcy. It means it’s no different from a credit card, a payday loan debt, an income tax debt. You owe money and you’re getting relief from the Bankruptcy Act so you don’t have to pay it. The 407 has always taken the opinion that, well sure, the debt may be dischargeable, but using our road is a privilege and we’ve got the right to deny that privilege to you if don’t pay it. And that fundamentally thwarts the protections of the Bankruptcy Act. The Bankruptcy Act says look if you’re dealing with your debts through the bankruptcy act you’re using the legal rights that you have as a Canadian to deal with this debt then people can’t do something else to force you pay theirs. And the 407 was saying no, you want to renew your plates, you’ve got to pay this debt, even though it’s going to be dealt with in the bankruptcy.

Doug Hoyes: And the whole point of bankruptcy, obviously, is to eliminate your debts. That’s the whole reason you’re doing it. And the government has thought of specific exceptions to that. If you owe child support you still have to pay it. Bankruptcy is not going to get you out of that. And there are some other exceptions to that as well. But there is no exception that says the 407 is special. And so it is always been our opinion that, no, that’s a debt that goes away. And going away means you can’t also be denying their plates at the same time.

Ted Michalos: Well and they lost the challenges in the lower courts. But again, what I was alluding to earlier, one of the flaws of our legal system, they simply appealed it to the higher court and as long as the matter was before the courts, the continued to follow their flawed policy. I believe they knew they were wrong all along. But because the court hadn’t issued a final verdict on it they just kept doing the wrong thing and getting away with it.

Doug Hoyes: Yeah, I agree. I think this was a slam dunk right from the beginning. But you keep appealing, you keep appealing. And so what has happened is over the last, I don’t know, four or five years that this has been before the lower courts, there have been lots of people who have gone bankrupt who have owed 407 money, you’ve dealt with lots of them.

Ted Michalos: Yep.

Doug Hoyes: They come into see you and they go okay I owe $400 for the 407 and you say fine we’re going to list it in the bankruptcy. Well, but my plates are going to come up for renewal in six months, what do I do? Well…

Ted Michalos: Then if you wanted to renew the plates, you pretty much had to pay the bill.

Doug Hoyes: Yep, it was if you owed a lot of money and the car wasn’t worth much, fine I’ll just get another car, I guess. But for most people that’s not an option. So, there were a lot of people who got caught in this and ended up paying the money even though –

Ted Michalos: Legally they shouldn’t have.

Doug Hoyes: In hindsight yes, but practically they had no choice. So, on Friday November 13th, because Friday the 13th is always a good day. The Supreme Court finally issued their ruling on this and they said no 407, that duck ain’t going to fly, it’s a debt, it goes away in the bankruptcy just like every other debt. So, what does that mean for people that went bankrupt last year and ended up paying the 407?

Ted Michalos: At this point, I don’t think they’ve actually set out a regiment for how to deal with that yet. We’re talking about millions of dollars, thousands of people.

Doug Hoyes: Yeah, it would appear that they’re basically out luck, sorry guys. The money has been paid and we know it took five years through the court system just to get this particular piece of the law changed, how are you going to get that money back? Well, my advice would be don’t be holding your breath on it. Now, if you are currently bankrupt then what’s the 407 doing now?

Ted Michalos: So, the 407 has said that they will take your name off the denying license renewal list when you’re discharged from the bankruptcy, is that right?

Doug Hoyes: That’s correct. So, that’s very interesting.

Ted Michalos: That’s still wrong.

Doug Hoyes: That’s still wrong. So, if you owe money to a credit card and you go bankrupt, the credit card company immediately is required to stop phoning you, stop any legal action. It’s stopped.

Ted Michalos: Stop charging interest.

Doug Hoyes: Stop charging interest.

Ted Michalos: The debt is frozen, it’s done.

Doug Hoyes: It’s done, the 407 obviously not so much. So, again our advice with the 407 is come in and talk to us we’ll explain how it works, but as of this point in time, if you file a bankruptcy or a consumer proposal, the debt will be dealt with in that procedure. That was the Let’s Get Started segment right here on Debt Free in 30.

Doug Hoyes: Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show Ted Michalos and I discussed the changes to the Ontario Execution Act that prevents creditors or a bankruptcy trustee from seizing certain assets. That’s the 30 second recap of what we discussed today. As I said on the show the rules we discussed are new so no one knows for sure exactly how they’ll be viewed by the courts, so it’s likely some of these rules will evolve over time. If you’re listening to this show on the radio, or on our podcast when it was released in February 2016, the information is current. But if you’re listening to this podcast many months after February 2016 you should definitely consult a licensed insolvency trustee or a lawyer before making any decisions if you think any of these rules may impact your situation.

Payday Loan Lenders Tempt You With Good Customer Service

Posted in Loans and Borrowing

By Scott Schaefer, CA, LIT

Reading time: 4 minutes

A welcome banner to show good service for payday loans

I recently participated as a speaker at a Financial Health and Literacy Workshop put on by the Guelph-Wellington Task Force for Poverty Elimination. While the purpose of the meeting was to provide information for community members working to help vulnerable and low income households navigate financial systems and improve financial literacy skills, there were takeaways valuable to anyone facing financial stress. Not surprisingly one of the topics raised was payday loans. While we know from experience that many people we see are stuck in the payday loan cycle, the conversation turned to why this might be true. We know that people taking out payday loans may not fully understand the true cost of a payday loan, largely due to the way payday loan companies post the cost of a loan. What I found more interesting, however, was the focus on the payday loan industry’s customer service strategies.

Payday Loan Lenders Welcome Customers With Open Arms

It turns out many consumers are attracted to payday loans because of the industry’s ability to make people feel welcome. When you walk into a payday loan store, you are welcomed, you will be called by your first name on repeat visits, you will be assured that the salesperson at the counter can help you, and you will walk out quickly with cash in hand.

Payday lenders extend this perception of good customer service with a very simple application or qualification process. All the borrower needs to show is that they have a steady income source and have a bank account to be able to provide a postdated cheque or pre-authorized payment for repayment. The entire borrowing cycle can take 30 minutes or less. Online payday lenders make the process even easier.

For someone with bad or poor credit, maybe a few late payments or bounced cheques, this is much better than the customer experience they expect to receive from their bank. Banks do sell debt, but their target demographic is someone with steady income who will be able to carry a balance and make interest payments. While mystery shopper studies discussed at the workshop confirmed that it is often the low income earner who receives poor service from their bank, anyone in financial trouble who is seeking a loan to solve an immediate cash need is likely to receive a poor outcome if they visit their local bank branch.

Now consider the fact that most payday lenders offer fast and easy loans online. Your local bank certainly does not provide this same level of service. This good customer experience is one of the primary reasons people use payday loans to cash their cheques and borrow money. Their short term cash crunch is fixed, quickly and easily, and they are made to feel like a valuable customer, not someone in financial trouble. They ignore the high cost of borrowing through a payday loan because the process is simple, fast and easy.

Even if they understand the high financial cost of a payday loan, it appears payday loan borrowers are willing to pay for a better customer experience. This willingness to pay for fast and easy access to money, without being made to feel unwanted or rejected, may be why payday and quick cash loans are still a growth market, even among middle income earners and seniors.

Most people appreciate that payday loans are not a good form of borrowing and that it’s a business that exists because people feel they have no other borrowing options. The customer service approach used by payday loan lenders lessens the negativity they would otherwise feel and makes it easier to fall into the trap of the payday loan cycle because they continue to be welcomed with open arms.

If you find yourself continuously relying on payday loans, start by looking for lower cost borrowing options. In the long term however you need to reduce your need for short term borrowing. This means finding a way to balance your budget.

If you are using payday loans to keep up with other debt repayment, it’s time to talk to a licensed insolvency trustee near you about how to deal with your overall debt problems.

Lobbying to Clarify and Retain Exemption Protection for Debtors

Posted in Assets & Property

By J. Douglas Hoyes, CA, LIT

Reading time: 5 minutes

I strongly believe that the bankruptcy process should be fair for all parties. So, when I observe what I believe to be unfair treatment, I speak up. On December 1, 2015, new laws came into effect in Ontario that increased the protection for debtors filing bankruptcy. You can read my full report in my post on Ontario Bankruptcy Exemption Law Changes Will Protect Home Equity. In summary, the Ontario government made changes to the Execution Act which increased the exemption limits on certain assets.

For example, under the old rules a motor vehicle was exempt from seizure up to a value of $5,650, while the new limit is $6,600. That means you can now go bankrupt in Ontario and keep a car with no loans up to a value of $6,600. That’s good news for debtors because they are now less likely to lose their car in a bankruptcy.

So, what’s the problem?

The problem is that the new rules change the wording of some sections of the Execution Act, and as a result, some assets are less protected than they were under the old exemption rules.

Necessary and Ordinary Apparel now Necessary Clothing

For example, under the old rules “necessary and ordinary apparel” were exempt from seizure. The new regulations narrow this definition to “necessary clothing”. Why does this matter? Under the old rules, if you owned jewelry, like a wedding ring, your trustee would consider your wedding ring to be part of your “ordinary apparel” because you wear it every day. So, provided that it was a standard wedding ring, we would consider it to be exempt property, meaning you could keep it if you went bankrupt.

However, under the new rules, only clothing is exempt, not apparel. Since a wedding ring (or necklace, or earrings) are not clothing, they are not considered to be exempt from seizure by the trustee.

Household Furniture, Utensils, Equipment, Food and Fuel now Household Furnishings and Appliances

Here’s another example: under the old rules, “household furniture, utensils, equipment, food and fuel” were exempt. The new rules narrow this definition to “household furnishings and appliances”. “Equipment” and “food” are no longer on the exempt list.

Does this mean that your trustee must seize your children’s toys or your sports equipment because it is no longer protected in a bankruptcy? What about your food? That seems crazy, but that’s what the rules say.

My point is that the new rules, perhaps unintentionally, have removed previously available protection from bankrupts.

So who is going to fight for the rights of bankrupts?

Me.

Asking for Clearer Exemption Rules

On November 19, 2015 I sent a letter to The Honourable Madeleine Meilleur, the Attorney General for Ontario, who is responsible for all legislation in Ontario, including the Execution Act. I asked her to consider amending the legislation to restore the protection previously available to debtors. Specifically we asked that an exemption specifically covering small personal belongings be added to the legislation:

“we request that the Execution Act, Ontario Regulation 675/05, Exemptions be amended to include an exemption for personal property… We further submit that a prescribed amount of $6,600, comparable to the prescribed amount for a motor vehicle, would be sufficient to protect personal property of the vast majority of debtors.”

You can read my full letter to her here.

I am pleased to report that I did receive a response from Ms. Meilleur.

Unfortunately, her response is that the government is not considering any changes at this time. She advises that she cannot provide any specific advice, but does advise that “the amendments provide a mechanism by which a debtor can claim an exemption under the act and, in the event of a dispute, the matter can be referred to the courts for a determination”.

So where does that leave us?

I agree with Minister Meilleur’s comment that ultimately it will be up to the courts to interpret these new regulations. Personally, I would prefer that the government be more specific in drafting their regulations to minimize the need to ask the court for directions.

I will continue to personally monitor this situation and lobby the government as appropriate, and perhaps even make an application to court to obtain the necessary protection for debtors.

Will every bankrupt person now lose their wedding ring?

No. At Hoyes Michalos we have two strategies for dealing with these new rules.

First, where possible, we suggest filing a consumer proposal rather than bankruptcy, since a proposal protects your assets. However, we will only recommend this approach where is makes sense for the debtor as a whole.

Second, it is our standard practice to have all debtors provide us with a list of their household items, including jewelry, so that we can determine a strategy to allow you to keep your wedding ring. In most cases, rings do not have significant value. They have great sentimental value, but if you try to re-sell a wedding ring, you will discover that it’s generally not worth more than the melted-down value of the gold, which is not a significant amount. Since in most cases a bankrupt is required to make a contribution towards the cost of their bankruptcy, it is usually possible to include the value of the jewelry in this base contribution. So, for most bankrupts, the cost of bankruptcy will not increase under these new regulations.

Confused? Don’t be. We offer no-charge initial consultations so we can review your situation and give you specific advice before you decide to file a consumer proposal or bankruptcy. Contact us and we will walk you through the process.

And as mentioned, I will continue to monitor this situation, so stay tuned for further developments.

Are You Prepared For The Unexpected?

Posted in Money Management

By J. Douglas Hoyes, CA, LIT

Reading time: 32 minutes

Getting sick or injured is common and it can often mean missing work for a few weeks or for a prolonged period of time. To cover any missing income, people tend to turn to credit to survive, leading to more debt than they can handle. I’m joined by Promod Sharma, an actuary at Taxevity in Etobicoke, Ontario. Promod is here to talk about life and health insurance, why everyone needs to have it and how to decide which coverage is best for you and your family.

Disclaimer: As always, Debt Free in 30 is not a commercial for the products discussed on the show and none of my guests are being paid or have paid me to be interviewed. I choose guests based on the practical information they provide to help you with your finances and debt.

Types of insurance

There are many types of insurance and each kind of coverage serves a different purpose. Promod’s focus is on life and health insurance. Life insurance is fairly straight forward: it pays out if the insured individual dies. Health insurance can, however, give you coverage in three different categories:

Disability Insurance – replaces your income, up to approximately 60% or 70%, if you’re unable to work because of illness or injury. The pay out cap for disability insurance ensures that people don’t try to profit from being ill.
Critical Illness Insurance – a lump sum is provided if you are diagnosed with a critical illness such as cancer, heart attack or stroke.
Long-Term Care Insurance – Generally for people later in life who are unable to accomplish daily activities like eating or bathing, and those with cognitive impairments like Alzheimer’s.

What kind of insurance is right?

Promod explains that the kind of coverage you choose depends on many factors including age, health, the risks you’re facing and any financial obligations. He points out that

what people tend to do, which is backwards, is they tend to focus on getting life insurance first. And life insurance can be very beneficial, I’m not dissuading people from getting it, but if you’re single then you don’t necessarily need it. And people tend to get it because it looks cheap, but that’s because the chances of it paying out are very small.

Simply put, your insurance coverage should be tailored to you.

Should you acquire insurance through your bank?

Promod suggests that going to your bank isn’t always the best option. He argues that

generally, you’re better off buying insurance from an insurance company instead. What happens is if you buy from a bank, you’re buying what is called creditor insurance. It is designed to protect the creditor (the bank), but you are paying the premiums. And you may want to benefit your family instead.

Using the example of a mortgage with a five year amortization, Promod clarifies that through a bank, your rate will stay the same while your amount of coverage decreases as you pay down your mortgage. He offers an alternative like Term 20 Insurance that maintains a level premium and offers protection for a 20 year period.

How do you choose an insurance advisor?

Just like choosing the right bankruptcy trustee, it’s important to choose an advisor that will help you make the best decision for you and your family. Promod lists three elements to look for when researching an insurance provider:

Personality – Do you like the advisor?
Qualifications – Are they able to do the work and recommend a product that’s right for you? Look for things like designations, experience and whether they’re keeping current with their learning. For example, do they frequently update their website if they have one, do they have a podcast, videos or other mediums that showcase their knowledge?
Heart – Do they care about you or are they looking to make a profit?

Why you should prepare for the unexpected

We don’t like to think that illness, injury or even death could happen to us at any time. The reality is that we’re human and not indestructible. All we can do is plan for the worst case scenario in the event that it happens to us. Unexpected events like a job loss, illness or divorce are the leading causes of bankruptcy in Canada. I often advocate for the creation of an emergency fund to deal with unexpected expenses, and having life or health insurance is another possible option; it’s a financial safeguard you might want to explore.

Listen to the full podcast for more information about:

Post Claims Underwriting
Term Life Insurance vs. Permanent Life Insurance
Actuary designations

Read the full transcript below.

Resources Mentioned in the Show:

Doug Hoyes interviewed about debt relief options by Promod Sharma:

FULL TRANSCRIPT show #76 with Promod Sharma

What causes financial problems? In many cases it’s as simple as overspending, but when we do our Joe Debtor study and look at the numbers 15% of our clients tell us that the primary cause of their financial difficulties is illness, injury and health related problems. 15% is a significant number but it’s probably a much larger number than that because we’re only tracking the primary cause of their insolvency. So, we’re looking at people who had a significant illness or injury and missed many months, or even years, of work.

It’s very common for someone to get sick or injured and only miss a week or two of work, but if you’re living paycheque to paycheque that can put a significant dent in your finances. Despite that fact that we have free healthcare here in Canada we all know that if you have medical problems there are lots of costs you incur personally, like medication and other supplies. And if you’re off work your income can be reduced if you go on sick benefits and if you’re self-employed you may not have any income at all when you’re not working.

So, what happens? Well, during your period of convalescence you use credit to survive and cover your day to day expenses. Once you return to work you’ve got more debt than you can handle or maybe you can’t return to work full-time and you don’t have the income to deal with your debts.

So, what’s the solution?

Well, an obvious answer is that you should have insurance to cover those unexpected life events. We all understand life insurance. If I have a young family and a mortgage, getting life insurance to pay off my mortgage if I die is a prudent strategy. Medical and disability insurance also sounds like a good idea, but what’s the cost? Is it even affordable if you can’t get it through work? And what are other strategies that you can use to plan for unexpected life events?

That’s the topic here on Debt Free in 30 so let’s get started with my guest. Who are you? Where do you work and what do you do?

Promod Sharma: My name is Promod Sharma, I am an actuary and I work at Taxevity in Etobicoke.

Doug Hoyes: Great, well thanks for being here today Promod. And we are actually recording this in your office here in Etobicoke. You said the name of your company is Taxevity. So, you’re going to have explain that to me. So, is that like. you know, tax and levity; we’re all happy about paying tax? What’s this taxevity thing?

Promod Sharma: No, it’s not quite that. If you look at the four actuarial risks there’s mortality, morbidity, disability and longevity. Taxevity is basically built on those words because if you look at life insurance in particular it also helps with a lot of tax issues.

Doug Hoyes: Got you so that’s where it comes from taxevity. And that’s also your website, right taxevity.com?

Promod Sharma: Yes it is.

Doug Hoyes: So, let me start by giving my standard disclaimer this show is not a commercial for Promod or his company or insurance in general. None of my guests pay to be on the show and I don’t pay any of them to appear. I choose the guest based on who I think has practical, valuable information for my listeners. So, with that disclaimer, let’s talk about insurance. So, I’m going to talk about the easy, softball questions and then we can get into the tougher ones, okay. So, first question do we all need insurance?

Promod Sharma: Yes.

Doug Hoyes: Okay, that was pretty easy, quick and to the point. So, let’s get into some details, then. What kind of insurance do we need? So, you kind of talked in the intro there about the different types. So, there’s life insurance, I mean obviously there’s insurance like car insurance and things like that. I mean that’s the law you have to have that, house insurance, we all understand how that works. But in your area of expertise there’s really two main categories, right, life and health?

Promod Sharma: That’s right. So, we’re looking at the asset being a human life.

Doug Hoyes: Okay and so life insurance I think we can all conceptually understand what that means; it pays out if you’re dead. That’s what life insurance is. Let’s talk about health insurance, then. So, what are the different categories of life insurance?

Promod Sharma: Well, the big ones are disability insurance which replaces your income, critical illness insurance, which provides a lump sum if you get cancer, heart attack or a stroke, something like that. And also long-term care insurance for people who in their later years when they’re unable to do activities of daily living like eating and bathing or have cognitive impairments like Dementia or Alzheimer’s.

Doug Hoyes: So, does my age matter in what type of insurance I should be getting or is it no, you should have all of these three types no matter what your age?

Promod Sharma: Well, age is certainly a factor. For someone who is younger and has a family then life insurance would be pretty important. For someone who’s retired life insurance may not matter as much. For a working person disability is important because their ability to earn an income is often their greatest asset. When someone is retired they don’t necessarily need that. But long-term care insurance could be beneficial. So, there is some overlap, but you don’t necessarily need all types of insurance at all times.

Doug Hoyes: And I guess that’s why I need to talk to someone like you to figure out what do I need? So, if I’m 20 years old, 40 years old, 60 years old, 80 years old there’s a different span there.

So, let’s start with disability insurance then because when people come in to see me as I said in the introduction they’ve got a lot of debt and I ask what happened and they say, well unfortunately, I got injured at work; I had some major illness, I was off work for a period of time. And even though I didn’t have to pay be in the hospital, I had to pay for all these other things and as a result I didn’t have the money, I didn’t have any insurance, I ended up racking up a lot of debt to do that. So, disability insurance would be a way to give me some income while I’m not working, am I explaining that succinctly enough?

Promod Sharma: Yes, that’s a pretty good description. If you’re not able to work because of illness or injury then this is a way you can get some money. And so, there’s a limit to how much insurance you can buy because insurance companies don’t want you to profit from being ill. So, the most you could get in disability insurance might be say 60 to 70% of your income. But that can be expensive. You might want to have a small baseline of maybe say a couple of thousand dollars a month just as a precaution in case something does happen. And if you’re working for a company you might have some insurance there too.

Doug Hoyes: So, we’re going to get back into the nitty gritty but let’s kind of pull back and look at the big picture here. So, I come to you and I say I want to be prudent. I want to look ahead to all the things that can go wrong and be prepared for them. So, that’s what insurance is for, obviously.

Promod Sharma: Yes.

Doug Hoyes: If everything goes perfectly I guess I’ve spent all this money and I didn’t need it. But if things don’t go according to plan then it’s a good backstop. So, if I’m a multi-billionaire and I have 100 million dollars sitting in the bank, disability insurance probably not a big deal, right? And so all those people who are listening to us today who have a multi-billion dollar bank account I guess you don’t have to listen to the rest of the show. But for the rest of us, the thought process you’re going to go through when someone sits down with you is to start by looking at what they’ve got and what their needs are? Is that the starting point when it comes to determining how much of these different types of insurance products they’d need?

Promod Sharma: Yeah, basically what I would do is sit down with people and look at the risks that they’re facing. And you can estimate those based on their ages for instance. And what you can do then is look at the biggest risk, which for people in their working years is typically disability, and then you can look at what it would cost to cover that.

What people tend to do, which is backwards, is they tend to focus on getting life insurance first. And life insurance can be very beneficial, I’m not dissuading people from getting it, but if you’re single then you don’t necessarily need it and people tend to get it because it looks cheap but that’s because the chances of it paying our are very small. People just don’t die the same way that they use to in the past.

Doug Hoyes: So, if I’m 20 years old – I guess no matter what age I am the chances of me dying this year are pretty low.

Promod Sharma: Yes. ‘Cause what happens is when people reach retirement, they don’t necessarily keep their insurance. So, if you look at risks during working years, then a disability or a critical illness would be much more likely and those kinds of insurance would cost more because the chances of a payout are much higher.

Doug Hoyes: Now, professionally you’re actually an actuary, is that correct?

Promod Sharma: Yes. I’ve spent my whole career in the world of life and health insurance, designing products, helping advisors sell them and now helping the public directly.

Doug Hoyes: And so, you can crunch the numbers and look ahead to see to kind of prove the point you just made that somebody who is 20 years old has a much greater risk of having a medical problem than of dying.

Promod Sharma: Yes, exactly. And when people think of disability they think of, oh, I got into an accident. But big causes of disability are things outside of our control for instance cancer, who can predict against that? And also things like musicale skeletal issues like arthritis.

Doug Hoyes: And which limits my ability to work.

Promod Sharma: Absolutely.

Doug Hoyes: And as a result will hamper my income. So, okay so looking still at the big picture then I come in to see you and I say to you here’s my age, here’s what I earn at work, you also care about what my living costs are, then.

Promod Sharma: Absolutely. And what are your obligations. So, if you’ve got a mortgage for instance that may be something you may want to cover. If you have children then there’s money you may want to set aside in case something happens to you.

Doug Hoyes: So, let’s make the plan then for the mythical person who’s listening to us today. So, you mentioned mortgage so let’s start there. I have a mortgage, so, what’s your advice related to that? I assume your advice is going to be well just call your bank and get them to give you mortgage insurance. Is that correct or is that not a good idea.

Promod Sharma: Well, you could call the bank to get an idea of what mortgage insurance would cost, but generally you’re better off buying insurance from a insurance company instead. What happens is if you buy the insurance from a bank, you’re buying what is called creditor insurance. It is designed to protect the creditor – the bank, but you are paying the premiums. And you may want to benefit your family instead.

Doug Hoyes: And that’s a very key point then. So, I want something that benefits me, not benefits somebody else. So, what you’re saying is if I go to the bank that holds my mortgage and I get them to sell me life insurance on the mortgage, what I’m really doing is protecting the bank.

Promod Sharma: Yes. They want to make sure that if you’re not able to pay then they get their money. But you’ve got other obligations likely if you’ve got a mortgage chances are good that you have a family. And you want money to protect them also rather than just have money to only go to the bank.

Doug Hoyes: And so, if I get mortgage insurance through the bank, the mortgage insurance covers the mortgage, which reduces every year as I pay off the mortgage.

Promod Sharma: And the good news is that you get to pay paying the same premium even though the amount of insurance is the same every –

Doug Hoyes: That’s how it works, eh?

Promod Sharma: Yeah.

Doug Hoyes: Oh okay. So, if I’ve got a mortgage with a five year amortization for example, the bank will say to me okay well we’re going to tack on an extra I don’t know what it is, 10 bucks, 20 bucks a month, whatever the number is. That number’s going to stay the same for the whole five years?

Promod Sharma: Yes, even though the amount of benefit that would be paid out would be decreasing.

Doug Hoyes: Because I’m paying off the mortgage.

Promod Sharma: Right.

Doug Hoyes: So, you’re saying a better option would be to investigate getting life insurance outside of the bank.

Promod Sharma: Yeah so something like Term 20 insurance could be a really good choice. So, that way you’re paying a level premium and you have protection for a 20 year period.

But the big issue with insurance from the banks is that they do what is called Post Claims Underwriting. You don’t really know if you are insured until the time you make a claim. If you buy insurance from an insurance company, they do the underwriting upfront. And so, if you qualify you’ve got the peace of mind of knowing that you have the insurance in place.

Doug Hoyes: So, that makes no sense to me what you just said there. I don’t – I’m paying the insurance, but I don’t know if I have insurance until I’m dead?

Promod Sharma: Yeah, it doesn’t make a lot of sense, but what happens is to do underwriting on someone costs hundreds of dollars.

Doug Hoyes: And what is underwriting mean?

Promod Sharma: That’s the process of deciding what to charge for the risk. And that means having to maybe have a paramedical fill out medical questions, go to the doctor, get an attending physician statement etc. So, that takes time and money. So, insurance companies go through that process because they want to know that they’re charging the right amount for the risk.

If you look at a bank they sell lots of mortgages. If they had to spent several hundred dollars extra on each time – on each situation where someone’s buying mortgage life insurance then that adds to their costs. And very few people die anyway. They find it more economical to do the underwriting at the time of the claim. And if it turns out that they would not have covered you then you get your money back. But that’s not the same as getting a death benefit.

Doug Hoyes: Wow, so you’re saying it’s possible that I go to the bank, I pay my X number of dollars every month and then when I get hit by a bus the bank might say, sorry you’re not covered.

Promod Sharma: Yes, they wouldn’t say it’s because you got hit by a bus, but maybe there’s something that if they had done underwriting that issue it would have excluded you from getting coverage. And if you read Ellen Roseman’s column, then she covers cases like this where people think that they have insurance from the bank because they’ve been paying premiums and then it turns out they don’t. And that’s a very bad situation.

The other thing is that it’s probably cheaper to get insurance that is not from the bank anyway. We know how great the banks are at making profits but –

Doug Hoyes: We do, we do. I don’t know, I guess I’m hung up on this point that I’m paying for something that I don’t get. So, what you’re saying is it could be that after the fact the bank says oh wait a minute in that 50 page form you signed, there was a clause on page 32 that says because you smoked as a teenager you’re not qualified for insurance. Is that an example of how it could happen?

Promod Sharma: Yeah, I don’t have a specific example like that. But yeah there are criteria that they use. And the reason I don’t know is because that’s a product that I would never touch. And it’s one of those products where you wonder why it’s even legal to sell that. ‘Cause you figure that if you’re paying for something then you’re getting some sort of protection, you don’t want to find out after the fact that no, you don’t have the protection after all.

Doug Hoyes: So, instead of that I can go to someone like you and I can actually buy life insurance and the proceeds of that when I die will be paid either to my estate or my beneficiaries, my wife, my kids, whatever.

Promod Sharma: Yes, you have control over where the money goes.

Doug Hoyes: I get to decide. And I’m deciding what the amount is, obviously I pay more if I’m getting more insurance, but if I decide, okay, I’ve got a mortgage that right now has a couple of hundred thousand left owing on it, I could go and get life insurance for $300,000 for $400,000.

Promod Sharma: Or maybe even a million because if you look at your family then there could be a large amount of money that’s needed to help them get through life when you’re not there.

Doug Hoyes: And even a million dollars of life insurance it’s not going to cost me massive amounts of money. Life insurance is relatively inexpensive. Is that correct?

Promod Sharma: Yeah there are two forms of life insurance. There’s term insurance, which is for temporary need, that tends to be quite affordable. And there’s permanent insurance, which is more for estate planning. So, for a younger person the term insurance is generally what they need. It gives them the most benefit for the lowest cost.

Doug Hoyes: And term insurance would be kind of analogous to what I have on my car. I pay for one year and at the end of the year it’s not worth anything. And then the next year I buy it again. It’s the same with term insurance, is that right?

Promod Sharma: Yes, it`s the same idea. But what happens with car insurance is that your premiums can change. With life insurance the premiums are usually guaranteed. And generally they will be level for say a 10 year or a 20 year term or a 30 year term. And that makes the cost that much more affordable because if you had to pay on a one year basis each year, the price will go up because our chances of passing away are higher as we’re getting older. What insurance companies do to make the products more affordable, is they average out the cost say over the first 20 years and charge that all the way through, rather than charging more every single year.

Doug Hoyes: Got you, so it spread it out then. Okay, so life insurance we understand, disability insurance, then, the thought process that you would go through if you were advising me is what are my expenses that I would need to cover and then what other resources do I have if I have other sources of income, maybe my wife also works something like that. Then I would factor all those things into it. And you said I could never buy too much disability insurance?

Promod Sharma: That’s right because the insurance company doesn’t want you to be worth more when you’re not working than when you are. So, if you were able to get 150% of your income by being disabled, why would you ever go back to work? That’s why the most you could get would be maybe 60 or 70%. So, there is some pain, but at the same time you’re covered pretty well.

Promod Sharma: Got you. So, if I have a job now where I make $3,000 a month, then maybe I’m going to get disability insurance that would pay me $1,500 a month or $2,000 a month or something like that. So, it’s covering my basic costs, okay at least I know the rent is going to get paid, the groceries are going to get paid. But I also need to have some other resources, some other savings to cover that extra or I’ve got to cut my expenses during the period that I get disabled. That’s really what the whole thought process is, then.

Promod Sharma: Yes. And some people can be disabled until they retire. So, it might be $2,000 a month but look at that over a year, that’s $24,000. Over 10 years that’s $240,000. The numbers get really big fast.

Doug Hoyes: And that’s why these other types of insurance exist. So, you said critical illness insurance. So, that’s where I get diagnosed with a critical illness. Something in your example was cancer for example.

Promod Sharma: Yes.

Doug Hoyes: And so I get diagnosed with cancer and I get paid a lump sum of money?

Promod Sharma: Yeah what happens is – so, it has to be the right cancer that meets the definition in the contract, naturally. And then you survive 30 days and then you get a lump sum to use as you wish.

Doug Hoyes: Got you, okay. And so that protects me against the catastrophic things. And then long-term care is something that will be more important as I age then.

Promod Sharma: Yes ’cause what happens, what can happen, is that as we get older we may not be able to perform the activities of daily living, things like eating, bathing etc. And if we look at what support is provided to us from the government, then it may not be of the amount or quality that we want. If we have some extra money then maybe we can get more home care or we can go into a better facility, etc.

Doug Hoyes: And I guess to sum up the segment again, I guess that’s why you recommend that someone talk to an advisor who can pull all these pieces together. How much life insurance do you need, disability, critical illness, long-term care based on your circumstances and figure out what the right package is for you?

Promod Sharma: Yes, I know that’s self-serving to say but you, if you go online you will find some information but you won’t get the advice that lets you combine all of these things to make the optimal decision for your case.

Doug Hoyes: And that’s why you need to pull all the pieces together. Excellent, we’re going to take a quick break and come back to wrap it up. But just before we do so the website is Taxevity.com. Is that how you pronounce it?

Promod Sharma: Yes it is.

Doug Hoyes: Tax for tax and then evity for –

Promod Sharma: The tail end of longevity.

Doug Hoyes: The tail end of longevity. So, you’re kind of incorporating both the tax end of it and the longevity end of it. Taxevity.com. Thanks for being here. We’ll be right back with the next segment here on Debt Free in 30.

Let’s Get Started Segment

Doug Hoyes: It’s time for the Let’s Get Started segment here on Debt Free in 30. I’m Doug Hoyes and my guest today is Promod Sharma who’s an actuary with Taxevity. His experience is in the area of insurance products, which is what we’ve been talking about today. And in particular how do I protect myself so that I don’t end up with a whack load of debt because I was off work for a period of time and had to use credit to survive?

So, in the first segment we talked about having an advisor, and so, obviously, I can go online and find a cheap life insurance and buy it that way. But you’re of the opinion, and as you said it’s kind of self-serving, but you’re of the opinion well no, there’s an advantage to having an advisor because they can look at the whole picture. Maybe life insurance isn’t your priority when you’re 30 years old, maybe it’s disability, critical illness or so on. How then should I go about picking an advisor? Is there a process? How do I know whose good? Is there licensing? What’s the process there?

Promod Sharma: Yeah, it’s not that straight forward to pick an advisor. There are lots of them available. What I suggest people do is look at three different elements. First of all personality; do they like the advisor? If not, just don’t bother because there’s lots of other choices if your gut is telling you there’s something about this person that’s maybe off.

Another element that’s maybe important is do they have the ability to do the actual work? Because you are hiring them to do something and this is where designations can make a difference. So, there are people who are CFP’s, Certified Financial Planners or Chartered Underwriters etc. Those are signs of education because to sell insurance all you have to do is pass a multiple choice exam. The requirements are pretty low. And then also, they’ve got their experience but have they passed their best before date? You want to look for signs of current learning. And that you could see by seeing whether they have a blog or a podcast or videos etc., something that demonstrates their abilities.

And then the last part is probably the most important, their heart. If you look at financial literacy in Canada we know it’s an issue. And insurance is even more complicated. So, is the advisor being transparent in helping people make better decisions or is the advisor profiting from the ignorance that the public has? If someone has the right heart then you know that they’re doing things for you.

Doug Hoyes: And so, how do I profit from the ignorance of the public if I’m in your business.

Promod Sharma: Well, one of the ways would be to sell the wrong product. So, for instance to sell permanent insurance rather than term insurance; permanent insurance is much more expensive and it pays higher compensation. And in permanent insurance there’s whole life insurance, which pays more than universal life insurance. So, there are different things like that or there can be add-ons that are put onto policies that cost a lot but don’t provide much benefit.

Doug Hoyes: So, your commission is higher if you sell permanent insurance as opposed to term insurance.

Promod Sharma: Yes.

Doug Hoyes: And I’m paying more obviously for that. And you explained this in the first segment but term insurance is okay, you know, for the next 10 years here’s what the premium is and if in 10 years you don’t die well the insurance is worth nothing.

Promod Sharma: Yes.

Doug Hoyes: But it’s much cheaper, then, whereas permanent insurance – does it build up a value as you go?

Promod Sharma: It does but I come across cases where people do not have disability insurance or critical illness insurance, things that will help them today. But they have life insurance for estate planning, which is decades out. That’s a situation where an advisor sold something.

Doug Hoyes: Got you. And so, I guess asking around is also a good way. But I agree with you, your approach is similar to mine. Well, check me out. Go on the internet, look at my website, see what I’ve done. And if the copyright date on my website is 2009.

Promod Sharma: [laughter] Be cautious.

Doug Hoyes: Yeah, that probably indicates I haven’t updated my website in awhile. So, obviously having a blog isn’t the be all and the end all but is there current information being promoted? So, on your business card you’ve got a bunch of initials after your name. So, what does – I know what BFC means it means you went to university. What does FSA, FCIA, what do those things mean?

Promod Sharma: Okay, so that means, FSA means I’m a fellow of The Society of Actuaries. And FCIA means that I’m a fellow of the Canadian Institute of Actuaries. So, a full actuary would have those designations and there are several thousand in the country but do. But very few help the public directly with insurance.

Doug Hoyes: ‘Cause a lot of them are doing the back end stuff.

Promod Sharma: Yes.

Doug Hoyes: Now the other thing you said in the first segment was that in some cases my claim won’t get paid, and you were speaking specifically about mortgage insurance through the bank. Are there cases in any of these other types of insurance that we talk about where I have to worry about whether or not my claim is going to get paid?

Promod Sharma: With life insurance it’s not so much of an issue, it’s pretty easy to tell if someone is dead or not and whether they died in conditions that the policy would cover. With health insurance it’s different. If you look at something like disability or critical illness there is more ambiguity and you want to deal with a company that is good at paying claims. And sometimes that means buying from a company that charges a little bit more. ‘Cause a company that’s charging less may be making up the profits by being tougher on the claim payment side. And that’s not what you want.

Doug Hoyes: And that’s something again that an advisor can talk to you about and you can understand okay this is what I’m getting, this is why I’m paying for that, this is why it makes sense.

Promod Sharma: Yes, the solution is not to buy the highest price, but there will be a price and a company that’s a good combination for paying out the benefits as promised.

Doug Hoyes: Excellent. And I think that’s a great way to end the segment. Ask questions, do your research, think about it and deal with an advisor who understands what your situation is and you’re going to stay out of trouble. Promod, thanks for being here.

Promod Sharma: Thanks for having me as a guest.

Doug Hoyes: Thanks very much that was the Let’s Get Started Segment, I’ll be back to wrap it up right here on Debt Free in 30.

Doug Hoyes: Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show Promod Sharma and I talked about life insurance and the three types of health insurance. And how appropriate insurance helps you reduce the financial risk of a serious medical issue. That’s the 30 second recap of what we discussed today.

I suspect that many of us think of insurance as a boring topic. But I’m glad I had Promod on today as a guest to give us an insider’s view of insurance because I gained some valuable insights. For example, if you had to choose between buying life insurance or buying health insurance, which is more important? I suspect that many of us have life insurance, often through our bank or through work, perhaps because it’s relatively inexpensive, but that’s only because the chance of us dying in the next year is relatively small. If you’re alive today there’s a good chance you’ll be alive next year.

But there is a chance that you’ll have an accident or have an illness or become disabled and for many people that may be a greater risk than sudden death. I’m not saying we should all rush out and spend every last dollar on insurance, but I do think it’s a subject that we should actually think about and not just ignore. As I said at the start of the show, unexpected life events can lead to debt. So, talking to a knowledgeable insurance advisor today may save you a lot of financial pressure in the future.

That’s our show for today. Full show notes are available on our website including links to Promod’s website and his information videos, so please to go our website at hoyes.com, that’s h-o-y-e-s-dot-com for more information. Thanks for listening. Until next week, I’m Doug Hoyes, that was Debt Free in 30.

Tips to Protect Yourself From Identity Theft and Fraud with Kelley Keehn

Posted in Money Management

By J. Douglas Hoyes, CA, LIT

Reading time: 32 minutes

Boy shredding documents to protect against fraud

I have helped many people who’s debt was the result of identity theft or fraud. In some cases a friend or family member “borrowed” their credit or debit card and racked up a lot of credit card debt. In other cases they shared their PIN and they were left with debt they could not repay. Fifty years ago if you wanted to steal money from someone you had to steal cash. Today money is electronic, so if your identity is stolen you can lose a lot of money very quickly.

Identity Theft and Fraud can lead to Significant Debt

How big a problem is identity theft and fraud? That’s the question I asked today’s guest, Kelley Keehn, the author of Protecting You and Your Money: A Guide to Identity Theft and Fraud. She told me that:

A third of Canadians have been victims of some type of fraud. What was more curious is that two thirds of Canadians surveyed said that they knew of someone that was a victim of fraud, so even if it hasn’t happened to us yet, a lot of us know someone who was a victim of fraud.

Credit card fraud is a problem, but in most cases your credit card issuer will cover you if you can prove that you didn’t authorize the charges or give away your PIN.

Identity theft is another matter altogether, and it can take many weeks and a lot of effort to restore your name.

So what can you do to protect yourself? Kelley gives a lot of practical advice, so here are are top tips.

How to Protect Yourself from Identity Theft and Fraud

Kelley Keehn’s top tips for protecting your identity:

Slow down and think: Ask why am I being asked for this information? When in doubt, don’t disclose it. As Kelley says “don’t be the polite Canadian”. Ask why they need the information, how they will protect it, and how they will destroy it when they are done with it.
Don’t pick up the phone if you don’t recognize the number. This is particularly true for seniors who may be more vulnerable to telephone scams (young people rarely talk on the phone, so they are less at risk to phone scams).
Don’t click on any link in any email that you don’t recognize.
Don’t give out your Social Insurance Number, except to someone who needs your SIN to report your income to Canada Revenue Agency, such as an employer, investment company or your bank. Your SIN is so important that CRA does not even issue SIN cards anymore, so keep your SIN private.
Check your statements each month (or every week on-line), and notify your bank if anything looks suspicious.
Make a list of of the dates your statements for each credit card and bank account arrive each month. If a statement is late, call the bank immediately, because a fraudster may have re-directed your statements so they can use your card undetected.
Check your credit report at least once a year.
If you are at high risk, perhaps because you travel and use your credit card frequently, consider putting a proactive fraud alert on your credit report. See links below.
Shred everything with any personal information on it. Even an airline boarding pass that only has your name on it, there is a scanner code that a thief could use to access your air miles account, which may give them access to additional information. Shred or burn everything.

Read the Transcript for Show #75 below.

Resources Mentioned In The Show

Kelley Keehn’s website
Protecting You and Your Money: Kelley Keehn’s book, available for $9.99 from the Chartered Professional Accountants of Canada
Technocreep: The Surrender of Privacy and the Capitalization of Intimacy, a “scary” book written by Thomas P. Keenan and recommended by Kelley
Placing a fraud alert – Equifax
Placing a fraud alert – TransUnion

FULL TRANSCRIPT show #75 with Kelly Keehn

Today we’re going to talk about identity theft and fraud. And why are we talking about identity theft and fraud on a show called Debt Free in 30? Simple, over the years I’ve dealt with dozens of people who have debt. And when I asked them what happened they told me that they lent their credit card or debit card to a friend or family member and they used the card and racked up a lot of debt. Or someone stole their card of figured out their password and took their money and now they’ve got a lot of debt. I’ve done many bankruptcies over the years for people whose debt came largely from being defrauded.

Now 50 years ago if you wanted to steal money from someone you had to steal cash but today money is electronic so if you aren’t careful you can lose a lot of money really quickly. So, what can you do to protect yourself? Well, my guest has the answer so let’s get started. Who are you and what’s the title of your latest book?

Kelley Keehn: I am Kelley Keehn and my latest book is Protecting You and Your Money, a Guide to Avoiding Identity Theft and Fraud.

Doug Hoyes: Excellent. Well, thanks for being here Kelley. So, by way of a really quick bio, you ran your own wealth management firm before selling your practice and since then you published eight books. Is that the right number at the moment?

Kelley Keehn: That’s right yeah. Only eight got published.

Doug Hoyes: Written nine, so there’s one –

Kelley Keehn: There’s one just hanging out there somewhere.

Doug Hoyes: One we might get to see at some point. You co-hosted a T.V, you write regularly for lots of different publications like The Globe & Mail, you appear on T.V all the time, including I believe as the personal finance expert on The Marilyn Dennis show. So, a lot of our listeners will have certainly seen your work. But today I want to talk about the book. So, identity theft, what is identity theft?

Kelley Keehn: Right. Let me just back up and say a lot of people are familiar with credit card theft, okay? CPA Canada, the Chartered Professional Accountants of Canada that published that book, they come out with a survey every year for three years. And their spring survey of 2015, I’m sure they’ll come out with another one soon, identified that a third of Canadians have been a victim of some type of fraud.

Doug Hoyes: A third.

Kelley Keehn: A third. What was more curious though Doug, was two thirds of Canadians that reported on this survey, said that they knew of someone that was a victim of fraud. So, even if it hasn’t happened to us yet, a lot of us know of someone. So, that’s really inconvenient. And depending on how much it is you may have to do an affidavit with your bank and blah, blah, blah and you may get a new credit card, you may be frozen, so if you’re travelling that really sucks but generally it’s not a big deal. The bank’s going to protect you unless, and we can talk about this later, you did something silly like have your pin be part of your SIN or your date of birth or something like that. There’s now precedence where you as a consumer have to know the terms and conditions to be protected. Okay, so that’s credit card theft, that also can happen with your debit card, inconvenient, not the end of the world generally.

Identity theft is a very different thing. My research with that book identified that it takes up to four working weeks to clear your name, that’s Monday to Friday, eastern standard time on your own dime generally making the calls, sending off correspondence whatever you have to do to say that wasn’t me that applied and got a $200,000 mortgage on my house. That wasn’t me that got a car loan for $80,000 and my mail was being diverted and we can talk about red flags in a few minutes. That wasn’t me. I didn’t even know it was happening. I didn’t know credit cards were being taken out in my name.

Now that’s the financial fallout but a lot of experts that I researched for the books told me some horror stories about other fallout such as this young couple, they’re strapped, they go on a Mexican vacation with their kid, barely made it to the all inclusive, the husband gets whisked off into a Mexican prison because someone used his Canadian passport or a synthetic one to commit a murder and he’s wanted in Mexico. She’s standing there with the kid. Like I don’t even have a dollar to call a lawyer or what do I do, right? So, it’s not just the financial fallout, it’s that people can commit crimes in your name.

There’s so much that can be done ’cause as you said in the intro, our lives, we don’t have money anymore, we have numbers, ones and zeros. We don’t have lives anymore, we have cyber lives. Identity theft can be devastating and we are solely responsible for protecting ourselves and it’s a little early in the year so I don’t have last year’s numbers yet for the number of hacks and how much they’ve increased. But I can tell you I’m sure the number’s up of how many companies are not protecting our data.
So, it’s not just our responsibility to shred and to not share our passwords and do all that, but how about the companies? How about the governments? How about these huge entities that are not protecting my SIN, my date of birth, all of that that is getting sold on the dark web and how do I protect myself from that?

Doug Hoyes: So, Identity theft then – so, how does it happen then?

Kelley Keehn: Yeah, how does it happen? So, it can start with credit card theft and be as something as simple as that. What you have to think about is that 10, 20 years ago when there was a hack or something like that with some kid in their parent’s basement, it was kind of funny and he or she was seeing how far they could get. Now it’s 100% criminal and generally it’s beyond our borders, it’s in Russia, it’s in China.

And people think well what do I have to hide? I’m not a celebrity, I’m just on Face Book o something of that sort and yeah everybody knows my birth date. Last week my kid’s soccer club as for their SIN. Like is that a big deal? Yeah, that’s a really big deal because all these key components of our identity, our date of birth, our full name, our driver’s license, our passport number, our SIN, these are key components to our identity that when put together and it’s not somebody in a boiler room in Russia that’s waiting and trying to get this information. Sometimes it is just like dumpster divers going and getting our information.

But generally it’s smart algorithms that are just sniffing little pieces, you know, there’s a hack over here, great. We got Kelley’s credit card, we got her full name, now she freely put her date of birth up on Face Book, we steal that over. Now somebody was irresponsible with her SIN, we got that and then they build a profile and then they can go start applying for credit in your name. It can also start from someone – sometimes it’s friendly fraud, sometimes in an ex-spouse, an ex-nanny, ex-assistant that heard your little secret password when you called your bank. And it wasn’t just your mother’s maiden name and started to gather that and then what they do is they call and then they say oh I got to change my address. So, what happens is you don’t even notice that the credit card statement didn’t come in in January or February. Oh, that’s great. No, your mail is important.

Doug Hoyes: So, I can steal your identity if I know five or six or seven different things.

Kelley Keehn: Or even just a couple sometimes. It depends what you’re trying to do. So, when we say steal your Identity, sometimes it’s not that nefarious. Sometimes it’s just, you know, I had your SIN and I had your full name and I went and applied for a car loan or I got a credit card of whatever. It doesn’t have to be full blown I devastated your whole financial life; it can just be little things. What you’re seeing to with fraudsters is they might apply for like a $500 credit card. Sometimes they’ll even go so far as to pay people’s credit card payments to get their credit score up an then go for the big kill, right? It’s a big business. Your data, your everything that we’re just freely giving away or not realizing companies are not protecting is putting us at great risk.

Doug Hoyes: So, the problem with identity theft is it doesn’t take a whole lot for me to do a whole lot of damage to someone.

Kelley Keehn: That’s right.

Doug Hoyes: And if that information is freely available, it’s easier to get obviously. So, I assume therefore the obvious solution for me is don’t make information freely available. Is it that simple?

Kelley Keehn: Yeah, it’s that simple, a little bit more difficult to tell your parents and our kids. Just got my mom a Smartphone, she’s 77, never been on a computer. She’s loving it, she’s on Facebook, she’s having a blast, she’s like – she has no – and I mean my mom’s a very smart woman, I’m not trying to paint her – but she is stereotypical, has never been on a computer, she has no comprehension was hacking is, what any of this is. How do I tell my mom, and really thank God she doesn’t bank online or anything but really try to help her what a phishing attack is, right, with a ph. Like god forbid she were banking online and sending email. Mom there’s no such thing as a Nigerian prince that’s trying to – she just doesn’t comprehend it.

Doug Hoyes: And she’s been dealing with the same bank probably for 50 years.

Kelley Keehn: Goes there in person, yeah.

Doug Hoyes: But then she gets an email from that bank that isn’t really from that bank. And she goes oh okay, it must be from Mary at the branch. I don’t know why she didn’t talk to me when I was there but okay sure Mary you forgot my SIN here you go, let me send it to you. And so they just don’t even think then that it’s an issue.

Kelley Keehn: Yeah, and some of your younger listeners might think oh I would never fall for that. How about newcomers coming to this country or how about where the bad guys are calling them up and saying this is the government of Canada, this is CRA. If you don’t pay this, here’s my badge number and here’s my blah, blah, blah. They’re coming up with new iterations all the time. So, if we think we’re so smart and we would catch it and we would never fall for it they’re always one step ahead. I know you’re going to ask me right away how bad it is.

Doug Hoyes: How bad is it? You’re right.

Kelley Keehn: We don’t have accurate numbers. This book launched a year and a half ago on Parliament Hill with the Canadian anti-fraud centre with the RCMP with members of Parliament. What the message was they believe that only 5% of all fraud is being reported in Canada. Because we feel ashamed, we feel embarrassed, how could I get duped? This is everything from a romance scam to the grandparent thing to the phishing attack to the Bernie Madoff Earn Jones kind of thing, right? We’re embarrassed. We don’t know even who to call. We know we’re not going to get our money back maybe so we do anything. And message is, you might be able to get your money back so you do want to call. But yeah, we don’t even know how bad it is because Canadians are just massively under reporting.

Doug Hoyes: So, it’s really in its infancy. I mean we know how many bank robberies there are, they’ve been going on for 150 years, the stats are pretty good on that. But this type of thing is so new that there’s stuff happening right now and we don’t even know what it is. So, the most simple thing you can tell people is if you don’t have to disclose it, don’t.

Kelley Keehn: Exactly. Don’t be the polite Canadian that just gives it away. Say, why do you want this and what are you going to do with it and how are you going to destroy it after I’ve given it to you?

Doug Hoyes: You identified that the most vulnerable people can be either older or younger people, older people because they didn’t grow up with computers, younger people because they’re very open and very sharing. Everybody puts everything on Instagram and Facebook and Twitter and all the rest of it. So, what are the kinds of things you should not be sharing?

Kelley Keehn: Okay, so we can get into some obvious ones like you’re SIN. I mean I’ve done national radio shows where people are saying my Hydro is asking for my SIN. Why is your hydro company asking for your SIN? Why is your kid’s soccer club asking for that? Your SIN, your social insurance number is such a key component to your identity that they government has stopped issuing SIN cards.

Doug Hoyes: They don’t issue SIN cards.

Kelley Keehn: They don’t even issue a physical card anymore because it’s so sensitive. If you go on Service Canada’s website it’ll give you a detailed account of who is – not allowed, that’s not the right word, you’re legally obligated to provide a SIN to – anyone can ask for it. Who you’re legally obligated to provide it to is your employer because they have to report income. If you’re opening up something like an RSP, a TFSA, something that income has to be reported; therefore the government needs to have it or what have you or your employer. Let’s say you’re applying for a job, you do not to give your SIN, you haven’t got the job yet. Your bank actually and a credit card company, you’re not legally obligated if you are applying for a mortgage, for a credit card, something of that sort, you don’t have to give it.

Doug Hoyes: And that’s because there’s no income related to a debt I’m paying.

Kelley Keehn: Exactly.

Doug Hoyes: So, a SIN only applies to Revenue Canada.

Kelley Keehn: To income, exactly. Essentially it’s about income, about government benefits, something of that sort. It’s all about income yet we give that out freely. Some other things when it comes to protecting your identity and information even just physical safety.

So, for example I have this conversation with my nieces and nephews all the time at family gatherings, you know, they come over, they’re taking pictures. And I’m like let me check your phone and see – the younger generations are very technically savvy, they’re not necessarily privacy savvy. So, I’m like I want to see your phone. I want to see that geo tagging is shut off of your pictures.

So, for example some phones it’s by default, it depends how new or old your phone is that has a little GPS stamp on it that this picture was taken I’m from Edmonton Alberta and approximately the location and then they throw that up on Facebook. Oh we had such a great time at Auntie Kel’s house, do, do, do. A criminal building a profile goes great now we know where Auntie Kel’s house is. We saw that the kids went over and they ate pizza every day after school and they can build profiles on your kids and know where you are. Kel’s going to Toronto again. She just bought all this new stuff and everything and her husband’s like – great let’s go break into Auntie Kel’s house.
Like do you know what I mean? We don’t comprehend that it’s not necessarily just our friends looking at Facebook or social media or what have you. Those criminals that may or may not be within our borders are using this information to attack is in a number of different ways.

Doug Hoyes: And presumably Tweeting all the pictures of my vacation in Florida while I’m in Florida on vacation.

Kelley Keehn: With the entire family.

Doug Hoyes: Right, meaning I guess I’m not home.

Kelley Keehn: Right, exactly.

Doug Hoyes: So, it’s like okay –

Kelley Keehn: And if you have any back Facebook profile or anything of that sort, here’s something for your small business owners to be concerned about. Let’s say you’re on LinkedIn and your daughter is in a basketball tournament or something of that sort. And you have on your LinkedIn profile that you coach that and that’s kind of your volunteer thing or whatever you and you get this little email that says here’s Jennifer volleyball pictures or whatever from a couple of weeks ago. You click it not realizing that is somebody that has now installed malicious software into your computer. Maybe got into your system depending on how secure it was.

Because they just found out a couple of simple things. They went on your LinkedIn profile. They went on Facebook, saw your daughter’s name is Jenny, say that you said that you were the coach and they got in and now they’re whatever, stealing corporate secrets, all that type of stuff, keystroke, monitoring what you’re doing, watching you as you’re going online banking, yeah.

Doug Hoyes: Does that mean then I should never put anything on Facebook, Twitter, Instagram, LinkedIn, anything? So, where do I draw the line then?

Kelley Keehn: Yeah, I mean it’s within reason, right? You don’t need to announce anything to the world and if you do, you need to be more guarded. You need to be more careful.

Statistically these things are not going to happen to you but we need to be aware of it and have the conversation with our kids of exactly what are you saying, when are you saying it? Because a lot of times parents have no clue that their young adults or their teenagers are talking about. And they’re like yeah, that could affect me, that could affect my business. What kind of computer do you have at home? And are the kids logging onto it? Are their friends logging onto it? Are they going into websites where maybe they’ve installed some malicious software and now you’re going online and exposing your personal information?

The technical editor on that book, Jennifer Fiddian-Green, who is a partner with Grant Thornton and a lead forensic accountant, she really suggests that you do not log onto your online banking, although it’s safe, although the banks, the Canadian banks, are very strong, very safe, that if it’s a family computer where teenagers and everybody’s able to use it, don’t log onto your online banking there. Don’t even put that at risk.

Just some little steps to protect ourselves, slow down, know what mail is coming into your home, be careful what you put online and what you’re allowing to get out. [Four pin] and chip technology a lot of times credit card companies in Canada and it’s still happening in the U.S, would ask to see my photo. I.D when I was paying with my credit card. And I’m like why and I would argue and I would do all of this. But think about it, if there’s a camera that the cashier has behind their head, while you pull your credit card out –

Doug Hoyes: Yeah, a security camera.

Kelley Keehn: Right or if they put a camera there.

Doug Hoyes: Oh, okay.

Kelley Keehn: No biggie if they get K Keene and my credit card number and the expiry. Even if they got the back, I’m protected, I didn’t do anything wrong. But if I pull out my driver’s license, here’s where the identity theft comes in, I pull out my driver’s license, now they have my driver’s license number. My full name, they have my date of birth, my address, they have almost everything they need to do a lot of damage and they already have a lot to do a lot of damage.

So, who protects me then? Who protects me when that happens? So, what I do when that has happening or when I go to the U.S, I get white out tape and I put it over the key components of my driver’s license that’s none of their business. Like what does that take 30 seconds to do. I know it probably sounds a little anal to your listeners but because I travel a lot this is a risk that I expose myself to all the time. It’s just little things.

Doug Hoyes: I know my credit card was hacked. I started seeing purchases at the dollar store in South Carolina. I had not been to South Carolina. But presumably when I was in, I don’t know, New York or somewhere, somehow someone got something and a few months later they started to use it and they were all small transactions. McDonalds and the dollar store, $10 here, $15 there.

But I’m an anal accountant. I keep an eye on my statement pretty frequently and I thought well this is weird. Was I in South Carolina yesterday? Does anyone remember that? And I was able to phone the bank right away and they said okay no problem we’ll shut it down, send you a new card, we’re good. But if you’re not keeping an eye on those kind of things, you just don’t know.

Do you see the problem getting worse, getting better? Are we becoming more and more informed or are the criminals just so far ahead of us that we’re not making any progress? Is it even possible to say?

Kelley Keehn: Yeah, it’s tough. A friend of mine, Dr. Thomas Keenan, who wrote a great book and if you really want to creep yourself out it’s called Techno Creep. And I think it’s already a year and a half old. Definitely have a read and he’ll probably be updating this in no time. He tells me very scary stories when we get together. And I laugh ’cause I’m afraid, like really.

But yeah, they’re always going to be one step ahead of us. That’s why we have to be at least reading terms and conditions. We have to be slowing down, having conversations like you said with our kids. Like you want to be a cop and then you’re showing stunting things and taking pictures of that and putting it on.

He had a great quote, Dr. Kennan, and it was something like human relationships, what might have been your generation, maybe even my generation remembers, you know, you don’t like someone they come and go, whatever. What you put online lasts forever. If you put it there for one second and you oh, maybe I shouldn’t have – and you delete it, it’s still there. Someone can still get that, someone can go and get that. So, as soon as you’ve put it up there, you’ve announced to the world now you’re sitting at home maybe if you’re an adult you had a couple of glasses of wine and not thinking about it, you don’t know when that’s going to come back and haunt you.

And just realizing too that there’s profiles being built on us. I don’t want to get all Edward Snowden and all that kind of stuff, but Dr. Keenan informed me of profiles that are being built in the U.S without your knowledge. You happen to part next to this massive criminal every single day and you’re on a list that you didn’t realize and you can’t get a job. I asked him if profiles like that are being built in Canada and he suspected that they were.

Doug Hoyes: It’s like all these six year old kids on the no fly list.

Kelley Keehn: Right, exactly.

Doug Hoyes: Wait a minute, I don’t think I’m a criminal but my name gets on there. So, wow we’re getting even more scared here.

Kelley Keehn: Yeah, we don’t want to do that. ‘Cause there is stuff that we can do to protect ourselves.

Doug Hoyes: Okay, let’s take a quick break and then we’re going to go through the stuff specifically we can do to protect ourselves and then everyone will feel great at the end of this.

Kelley Keehn: Exactly.

Doug Hoyes: That’s what we want. So, let’s take a quick break and we’ll be right back on Debt Free in 30.

It’s time for the Let’s Get Started segment here on Debt Free in 30. My guest is Kelley Keehn and we’re talking about identity theft and fraud. And Kelley you freaked us all out because everything I put on Twitter or Facebook or in my garbage is going to get the criminal syndicates after me and I’m going to be ruined for life. So, okay let’s go through practically what can I do to protect myself then?

Kelley Keehn: Right. And there’s so many things that we can do. Number one we really want to slow down. We want to be careful when we’re clicking email. We want to be careful when we’re picking up the phone. Do we even need to pick up the phone? And these tips we need to have conversations with our parents and our kids as well, not that they’re picking up a home phone. They don’t do that.

Doug Hoyes: No, they don’t know what it is, no clue.

Kelley Keehn: But I know my mom still does. And just is this reasonable because the phone spoofing is really good. They can actually make it sound like the Toronto Police calling you. So, just slowing down, is this logical, would my bank ask me any of this? Being more careful of what we’re putting online, have a family conversation about it. Realize how important our information is, stop giving it out.

And then when it comes to full on identify theft, the easiest thing you can do is just check your credit report. If someone is applying for a credit card, a loan, something of that in your name, it will show up on both of your credit bureaus. So, in Canada there’s two main credit reporting agencies, Equifax and TransUnion. Make sure if you go online you go to the .ca’s and you would see there that somebody applied for this XYZ Financial or something, you’re like that’s not me. Now that will tip you off that identify theft is happening. Now it might be too late to really ward that off but at least you can clean it up.

Doug Hoyes: So, would you be doing that once a year, more frequently?

Kelley Keehn: If you’re in a low risk situation you don’t really do a lot, you don’t use your – you know, I would say once a year is fine. What you can is also get a credit monitoring service. You have to pay for that. But maybe if you were a high risk person like me that goes online all the time.
Doug Hoyes: Travels a lot.

Kelley Keehn: Has to do Facebook, has to do Twitter for their business, I put myself at risk. You might want identity theft insurance if you also feel that you’re at risk. But what you can do with both credit reporting agencies is put a pro active fraud alert on your account. This is not if you’ve been a victim, you’re just saying hey I want to be pro active, it costs $5 for each credit reporting agency and it lasts six years.

And what that does is it’s an extra layer of protection where if someone’s trying to get a cell phone in your name or something like that, the lender has to give you a call. It says on the file give a call so you want to use your cell phone number. ‘Cause if it’s you legitimately trying to get a bank loan you don’t want them calling home to authenticate that it’s you. So, that’s a great extra layer of protection. And everyone should be checking their report at least once a year to see if things are accurate even if you don’t require credit, at least to see if some things on there.

And then very lastly is making sure you know what mail is coming in, not very lastly I’m going to have one more tip, make sure you know what mail is coming in and when, especially for older people, people that vacation a lot, business people, they really need to be concerned about that. Because if bills are going missing that could be a first red flag too, that mail is being diverted.

And so, you could say a lot of younger listeners will say well, I’ve done everything digitally I’m online with all my bills, that’s great, my personal finance hat comes on saying make sure you’re checking those bills that you’re not overcharged and all that type of stuff. ‘Cause when we don’t get it in the mail, sometimes we forget to comb through and like you said look for those little purchases, a couple of dollars here, a couple of dollars there that weren’t you ’cause if you’re not noticing that, the fraudsters will go for the big kill.

And then very lastly shred absolutely everything. Everything, everything, even if it came in – unless it says Dear Occupant, if it has your name on it, shred it. A lesson that I learned, the one thing that I never shred that I do now because it came out in the news a couple of months ago was your boarding pass, there’s nothing on there. It just says K Keehn, it has my – it doesn’t even have my frequent flyer number, that’s all x’d out, but there’s a little bar code on it. And I would always just throw it in a trash bin at a hotel whenever I’m leaving a city not thinking anything of it ’cause there’s nothing there.

But now the fraudsters can use that bar code and get into my frequent flyer miles, find out safety wise when I’m flying. They can do silly little things like change my seat, cancel flights, all that type of stuff. But know when I’m coming in, knowing what cities so lesson to me, yeah there is absolutely nothing that you should not shred ’cause there’s more information on things than we realize about us.

Doug Hoyes: And when you say shred you don’t mean put it in the recycling bin.

Kelley Keehn: Yeah.

Doug Hoyes: That’s not shredding.

Kelley Keehn: That’s not shredding.

Doug Hoyes: And I mean we’re recording this in the winter and you have a home fireplace that’s fantastic.

Kelley Keehn: That’s the best shredder you got.

Doug Hoyes: That’s the best there is. But if not then literally rip it up or get a home shredder.

Kelley Keehn: Or take it to a shredding company. Just don’t throw it outside. You think oh I live in a nice neighbourhood, nobody’s dumpster diving, nobody’s doing that. Yeah they are, unfortunately they are.

Doug Hoyes: And that’s something you got to be careful of. So, there’s some fantastic tips there. I think the main tip what you said was think. That’s the main thing if you think why am I giving this out, that will probably induce you to keep your mouth shut when you need to. So, fantastic that’s great advice. Thanks very much Kelley. That was the Let’s Get Started segment here on Debt Free in 30. I’ll be right back to wrap it up.

Doug Hoyes: Welcome back it’s time for the 30 second recap of what we discussed today. On today’s show Kelley Keehn, the author of Protecting You and Your Money, a Guide to Avoiding Identity Theft and Fraud, gave us a lot of practical advice on how to protect ourselves and our loves ones from debt arising from identify theft and fraud.

Her most important advice is to think before giving out any personal information. Don’t give out your PIN to anyone and only give your SIN if you’re obligated to. Read your mail, check your statements and shred everything. That’s the 30 second recap of what we discussed today.
We covered a lot of ground today with lots of practical advice. And I know it’s hard to remember everything you hear so we’ve made it easy for you by creating a list of every practical tip that Kelley gave us today. Go to hoyes.com and search for identity theft and you’ll get a complete list of all of Kelley’s tips as well as a link to the audio file and a full transcript of today’s show and a link to where you can buy a copy of Kelley’s book. That’s h-o-y-e-s-dot-com for more information.

Thanks for listening, until next week, I’m Doug Hoyes, that was Debt Free in 30.

Who Do Licensed Insolvency Trustees Work For?

Posted in Bankruptcy Basics

By Ted Michalos, CA, LIT

Reading time: 8 minutes

Gavel to indicate that a licensed insolvency trustee is an officer of the court

The market is currently flooded with debt advice businesses offering to help consumers with excessive debt. The vast majority are unlicensed and unregulated ‘debt consultants‘ not licensed insolvency trustees. Many simply charge a substantial fee and then simply refer debtors to a licensed insolvency trustee to deal with their debts.

A bankruptcy trustee is now called a licensed insolvency trustee in Canada. The Office of the Superintendent of Bankruptcy of Canada recently changed the trustee designation from bankruptcy trustee to licensed insolvency trustee to help consumers better identify persons licensed to perform insolvency procedures under the Bankruptcy and Insolvency Act of Canada (BIA) including both personal bankruptcy and consumer proposals. We used to be called bankruptcy trustees or trustees in bankruptcy, but with the increased popularity of consumer proposals in Canada a trustee’s work is now much more than administering personal bankruptcy and so bankruptcy trustees are now called Licensed Insolvency Trustees or LIT.

Only persons and bankruptcy companies licensed by the government are legally allowed to use the term licensed insolvency trustee. Hoyes, Michalos & Associates Inc. are licensed insolvency trustees.

We know that people are often afraid to talk to a licensed insolvency trustee (or bankruptcy trustee if you still prefer). We also know that non-trustees take advantage of, and even promote, this fear through confusion and misinformation. So to clarify, I’m going to answer a few common questions about licensed insolvency trustees, the services we provide, who licensed insolvency trustees work for, and what work we do.

Who regulates licensed insolvency trustees?

The Office of the Superintendent of Bankruptcy (OSB) is the federal agency responsible for licensing, monitoring, and regulating licensed insolvency trustees. The authority to do so is set out in the BIA, which is reviewed and updated by Parliament on a regular basis.

The OSB sets policy and procedures for the industry, like rules around surplus income limits, court proceedings, even a code of ethics for trustees. It is the licensed insolvency trustee’s job to administer bankruptcy and consumer proposals in accordance with these policies and procedures.

It is important to realize that an LIT is not a government employee. Many are accountants by trade that have specialized in dealing with debt and have completed an extensive program of training and examination to become licensed insolvency trustees.

Many are also licensed credit counsellors and become Chartered Insolvency and Restructuring Professionals (CIRP), passing and maintaining these designations through the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

What bankruptcy services do they provide?

Licensed insolvency trustees are the only persons permitted to administer bankruptcy and insolvency procedures in Canada.

Services include assignments in bankruptcy and consumer proposals. In fact, proposals to creditors now account for a significant portion of most licensed insolvency trustees work (that’s one of the reasons they changed the name from bankruptcy trustees).

While there are a vast array of non-trustees advertising consumer proposals (sometimes disguised as government debt relief programs) only a licensed insolvency trustee can file either of these proceedings.

Who does a trustee work for?

While most licensed insolvency trustee work with a bankruptcy firm or company, every consumer proposal or bankruptcy filing in Canada is assigned to a specific individual trustee. At the end of the day, if a trustee makes an error, it is their personal license that is at stake – that’s why the training, educational, and practical experience requirements to become a licensed insolvency trustee are so high.

An LIT is an officer of the court

Having said that, an LIT has a duty of care to all of the stakeholders involved in the insolvency process. This includes the debtor who has filed a bankruptcy or a consumer proposal, their creditors, as well as the community at large and the “insolvency system”. Licensed insolvency trustees are officers of the Court and as such are held to a higher standard of responsibility than the average debt adviser.

Do you hire a licensed insolvency trustee?

No. You don’t hire a licensed insolvency trustee but you do choose the trustee you want to work with. You attend at a licensed insolvency trustee’s office and they assist you with the process of filing either bankruptcy or a consumer proposal and file the documents with the government.

You should never have to pay to see a licensed insolvency trustee. All reputable licensed insolvency trustees in Canada offer a free initial consultation. A referral is not necessary so if someone asks you to pay them to refer you to a trustee (or an officer of the court) know that this is not necessary. Pick up the phone and contact a licensed insolvency trustee directly.

What does a licensed insolvency trustee do?

Licensed insolvency trustees are required by law to meet with individuals before they may file an assignment in bankruptcy or a proposal to creditors. The purpose of the meeting is to perform a debt assessment, to allow the trustee to review the debtor’s situation and all of the various options that may be available to resolve their problems.

A significant portion of the people that meet with a licensed insolvency trustee don’t actually need to file bankruptcy or a consumer proposal. They needed someone to help them understand their problem and provide guidance on how to resolve their debts. One of the greatest concerns about the non-licensed debt counselling businesses offering consumers debt relief is they often counsel people into the solution that generates additional, unnecessary fees, or one that may not succeed, as opposed to the best solution for the individual.

Who is not a licensed insolvency trustee?

Anyone can offer debt relief advice or services in Canada but not all are licensed by the federal government to act as a licensed insolvency trustee.

Licensed insolvency trustees are required by law to disclose their licensed status in all of their advertising. If you are speaking to someone that hasn’t told you they are a licensed insolvency trustee it is probably because they are not licensed. If their website does not specify that their firm or company are licensed insolvency trustees, then they are not, no matter that they have information about bankruptcy or consumer proposals on their website.

This is important because the most powerful debt relief tools available in Canada – an assignment in bankruptcy and a proposal to creditors – may only be administered by a licensed insolvency trustee. As I stated earlier, it is quite common for non-licensed debt counselling businesses to charge people a fee and then refer them to a licensed insolvency trustee for help. This begs the question, what services are they providing to debtors for the fees they charge? In my opinion, very little. Most licensed insolvency trustees do not charge people for their initial meeting. The session is designed to provide individuals with options and help them decide which solution makes the most sense for them.

What is the difference between trustees and other debt consultants?

Read Transcript

Doug: A lot of people hear the ads on TV for people who can ‘settle your debts for 30 cents on the dollar, 20 cents on the dollar’ and they wonder is that what you guys do? Is that different? There are a number of different people out there who say that they can help you deal with your debts. You got credit counsellors, some of them who are not-for-profit agencies, they can do what’s called a debt management plan. Where they take your debts, and you pay them off in full over a period of up to 5 years. And most cases they can negotiate reduced or 0 interest. So, if you’re able to pay all your debts in full, but you just need a bit of a break, credit counselling through a not-for-profit credit counsellor is a good way to go. People who are advertising on TV are for-profit companies, and they are either debt consultants or people offering deb settlements. They’re not necessarily regulated by anyone in particular. They don’t necessarily have any particular educational background or qualification. What they’re going to do is attempt to negotiate something with your creditors. Whether they can do it or not, who knows. Problem is you’re going to end up paying them a bunch of fees before you really find out what’s going to happen.

Ted: Bankruptcy trustees are licensed by the federal government, we’re officers of the court, So, right from the get-go we’re different from just about any other professional you’re ever going to meet. Lawyers are officers of the court, but they can’t serve in this kind of capacity. The analogy I usually give people is think of a bankruptcy trustee as a referee. So, the bankruptcy laws set out a specific way that things are to be administered, the trustees are the ones that make sure everyone follows the rules.

Doug: That’s what makes us different, we’ve actually got legal authority to do this. We are using federal law to bring about the settlement. So, when a consumer proposal is filed, all unsecured creditors, people like credit cards, income tax, bank loans, payday loans, are all treated exactly the same.

Ted: Chartered accountants were originally the only ones that were trustees, and you had to train the next generation. So chartered accountants trained the next generation of chartered accountants. It’s only been in the last 10 years when non-accountants have become trustees. And in fact in our firm, 1/3 of our trustees are not accountants. And the reason we did that is it gives us a broader spectrum, a better appreciation of individuals backgrounds and their experiences. We’ve got someone who’s got a health background, someone with an insurance background, one that used to be a teacher. The idea being that we could better relate to people because we’ve got this breadth of experience, as oppose to all being boring accountants.

Doug: We’ve got the hammer. I don’t need to get every single person to agree, I just need the majority to agree because that’s how the federal law works. So, if you’re not licensed by the federal government under federal law, you can’t do that. And that is the ultimate difference between a Licensed Consumer Proposal Administrator, a Licensed Bankruptcy Trustee, and everyone else.

Close Transcript

What is a bankruptcy lawyer or bankruptcy attorney?

While in the US a bankruptcy trustee is a bankruptcy lawyer or bankruptcy attorney, in Canada, licensed insolvency trustees cannot be practicing lawyers. A bankruptcy lawyer in Canada specializes in insolvency law and may act as an advocate for a client in court. The majority of cases involving a bankruptcy lawyer in Canada are business bankruptcies or business insolvencies. In those situations a lawyer may represent the company or a creditor. However in personal insolvency, this adversarial role does not take place. Instead it is the licensed insolvency trustee who interprets the bankruptcy legislation, and if needed, can apply to the court for further direction. It is very rare than bankruptcy lawyers or attorneys become involved in the personal bankruptcy or consumer proposal process.

How does a licensed insolvency trustee get paid?

Technically, licensed insolvency trustees are paid by the creditors involved with the bankruptcy or consumer proposal. They are paid out of the proceeds of payments submitted by the debtor into their bankruptcy for the benefit of their creditors. For example, in a bankruptcy, an individual may be required to make monthly payments into their bankruptcy based on their income. The money is collected by the trustee and kept on account for the bankruptcy. At the end of the bankruptcy, there is an established formula for how any funds held on account are handled – government fees are paid first, then trustee fees, and then payments to the creditors of whatever moneys are left in the account.

Recall what I said earlier – licensed insolvency trustees are not government employees. They work for themselves or for a firm of trustees. This was done to keep the trustees independent from the government and the creditors. That independence is critical to keeping the insolvency process in Canada fair for all parties – the individuals in financial trouble, the creditors and the community.

If you are looking for debt relief, contact a Licensed Insolvency Trustee near you today for a free, no-obligation consultation. Our friendly, qualified, licensed debt professionals will help you build a plan to become debt free.

Month: February 2016

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The Supreme Court of Canada Ruling About 407 ETR Debts

FULL TRANSCRIPT show #78 with Ted Michalos

Payday Loan Lenders Welcome Customers With Open Arms

Necessary and Ordinary Apparel now Necessary Clothing

Household Furniture, Utensils, Equipment, Food and Fuel now Household Furnishings and Appliances

Asking for Clearer Exemption Rules

Types of insurance

What kind of insurance is right?

Should you acquire insurance through your bank?

How do you choose an insurance advisor?

Why you should prepare for the unexpected

Resources Mentioned in the Show:

FULL TRANSCRIPT show #76 with Promod Sharma

Identity Theft and Fraud can lead to Significant Debt

How to Protect Yourself from Identity Theft and Fraud

FULL TRANSCRIPT show #75 with Kelly Keehn

Who regulates licensed insolvency trustees?

What bankruptcy services do they provide?

Who does a trustee work for?

Do you hire a licensed insolvency trustee?

What does a licensed insolvency trustee do?

Who is not a licensed insolvency trustee?

What is the difference between trustees and other debt consultants?

What is a bankruptcy lawyer or bankruptcy attorney?

How does a licensed insolvency trustee get paid?

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