Bankruptcy Kitchener Blog by Scott Schaefer

The Office of the Superintendent of Bankruptcy (OSB) released their 2010 statistics yesterday. The reports detail the number of bankruptcies and consumer proposals filed in all of Canada. The report breaks down the numbers by province and even by Census Metropolitan Area which includes Kitchener. The OSB is the governing body that oversees the insolvency process in Canada – it is part of Industry Canada. All consumer proposals and personal bankruptcies are filed directly with the OSB as they are legal options available to Canadians to obtain a fresh financial start.

I am going to detail some of the information I saw in the statistical reports. I understand reviewing statistical information is not for everyone. I like to review these statistics for 2 reasons: First, I find it is important for us to look at the big picture every once in a while so that people can understand they are not alone in their financial struggles. And second, analyzing numbers is part of my formal education as I have a degree in Economics and Accounting from Wilfrid Laurier University in Waterloo.

In 2010, there were 135,008 consumer filings of personal bankruptcies or consumer proposals. This is down from the recession year of 2009 which saw 151,712 filings but is still up from the 2008 total of 115,789. In the 4 year period of 2007-2010 there has been more than 503,000 individuals who filed a personal bankruptcy or consumer proposal.

One trend that is showing steady increase is the number of consumer proposal filings. Consumer proposals saw increases of 17% in 2008, 40% in 2009, and 20% in 2010. With the new bankruptcy laws that the government introduced in September 2009, consumer proposals are becoming a more viable option for individuals to gain financial control again. This remains true for my Kitchener office. I am meeting with people that are more often choosing a consumer proposal over a personal bankruptcy.

From these numbers you can see that individuals in Canada are still facing hard financial times during the past years that have seen record low interest rates and smaller inflationary periods. Gaining control of personal finances is something we all try to accomplish, but changes in employment, relationships, families, health, and spending habits all play a vital role in this. If the debt load is too large, it will control the situation. There are options to restrict the debts. Of course the first option is to sit down with a bank and ask about a consolidation loan. If the bank is unable or unwilling to consolidate, there other options such as a debt management plan, consumer proposal, or as a last resort option of personal bankruptcy.

If it is time to make a plan for your future financial situation and want to sit down for a free no obligation review your situation and options please call me at 310-PLAN or send me an e-mail. As a licensed trustee, I offer you an unbiased assessment of your situation so that you can make the right decision for you and your family. There are no fees to see me and our discussion will be around you, your goals, and your situation. We will try to find the right option for you and focus on the future plan.

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When someone files for personal bankruptcy the amount they must pay into the bankruptcy is calculated based on their take home income (after taxes and payroll deductions) less certain expenses such as child care, child and spousal support and medical expense. As everyone’s situation and income is different, the amount they would be required to pay into a bankruptcy can be very different. The government refers to this term as “Surplus Income”. The general concept is to be, the more someone makes, the more they have to pay into bankruptcy. These funds are used then to pay the creditors part of the debt back.

The length of a personal bankruptcy is based on the amount of surplus income calculated over the course of the bankruptcy. A first time bankruptcy can be discharged (completed) after 9 months if there is no surplus income calculated. If surplus income results on an average up to discharge, then the first time bankruptcy can be discharged after 21 months. These time lines are relatively new as they were part of the change in the bankruptcy laws on September 18, 2009. For a second time bankruptcy, the length of bankruptcy can be 24 and 36 months respectively.

The government uses these monthly surplus threshold amounts for what base amount people can earn during a personal bankruptcy and any amount above that threshold, the government expects 50% to be paid into the bankruptcy. These thresholds are based on the family size. The 2011 monthly threshold rates were just released on March 11, 2011 and are as follows:

Family of 1 – $1,926
Family of 2 – $2,398
Family of 3 – $2,948
Family of 4 – $3,579
Family of 5 – $4,059
Family of 6 – $4,578
Family of 7 or more – $5,097

Let’s discuss a couple examples:

Case 1 – A single person making $2,500/month of take home pay on average. He pays $200 in child support. Therefore, net income for bankruptcy purposes is $2,300 ($2,500-$200). He is over the threshold limit by $374 ($2,300-$1926). He must pay surplus of $187/month for 21 months.

Case 2 – A married couple with 3 children. Their combined monthly take home income is $4,755/month which is a combination of employment income, child tax benefits and child support. They pay $300 in child care expenses. The net income for bankruptcy is $4,455 ($4,755-$300) and they are over the government limit by $396 ($4,455-$4,059) and 50% is payable into the bankruptcy for a total of $198/month.

Do any of these situations hit home? Or sound familiar? If you are in need of a fresh financial start and surplus is going to be too much per month based on your income bracket, the option of a consumer proposal maybe the solution. In fact, since the new laws came out in 2009, consumer proposals have been on the rise as the preferred option in restructuring personal debts.

The concept of surplus income can be confusing. If you are feeling the pressure of your debts and want to explore all options call me at 310-PLAN or send me an e-mail. As a licensed trustee in bankruptcy and a consumer proposal administrator, I have an obligation to review all options in detail with someone so that they can make an informed decision. My Kitchener bankruptcy office is conveniently located at 607 King Street West between uptown Waterloo and Downtown Kitchener. There is free parking and a bus stop in front of our office. For more information and a worksheet on surplus income please follow this link. To read the full directive issued by the government, please use this link.

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Today Dr. Tracy Penny Light invited me to guest lecture in her classroom at St. Jerome’s University in Waterloo. The topic for the lecture was Family Work and Family Money as part of the course on Couples, Marriages, and Families. The class consisted of 89 students enrolled in various disciplines from St. Jerome’s University and University of Waterloo.

We discussed various Family Work and Family Money issues, but the core part of this is the focus on personal finances. Personal finances are one topic that seems to never be taught to our students throughout the various levels of school. Within personal finances, is personal budgeting. Most peoples budgeting uses the “sink or swim” theory that exemplifies that you just have to live it to learn it. I presented to the students that personal finances are about “choices and constraints”. Conveniently, this was the name of the class text book. As adults we all know too well the true money constraints we live with, as there is only so much money to go around. As kids, it is hard to fully gain the appreciation of this concept.

I focused the class discussion around things the students should think about as they graduate, enter into the work force, develop their relationships, and have a family. When it comes to the working environment, I believe we are all going to see more changes in our jobs as the years go by. Only a limited number of people will have only one job for the rest of their lives. Most will be employed by a variety of companies throughout their lives. We will see changes in the market place with economy swings, government regulations, companies merging, etc. The more prepared for change we are, the more able some will be to adapt to that change.

When it comes to children, there are courses available related to child birth and parenting, but I have yet to see one course that prepares new parents on budgeting as a family. During the lecture, we discussed things the students should plan for when it comes to children, house, vehicles, travel, etc. No one case is ever the same, but the fact is we need to be open to discussions on personal financing. Personal finance is one area people tend to keep relatively sacred and rarely discuss with peers. I feel it is time to share our experiences and help people as they learn to “swim” in the adult working world with great financial commitments and responsibility.

The concepts I discussed with the students today are not new or overly complex. The key thing I wanted the students to get from the lecture is to consider life and how it impacts their own needs as well as understand the choices and constraints they face. These concepts are even more relevant to someone who is obtaining a fresh start through a personal bankruptcy or a consumer proposal. Bad things happen to good people. With a fresh start and life’s past experiences under one’s belt, it’s all about the future and what can be made of it.

If you are overwhelmed with your debts and would like to sit down and discuss your personal situation so that you can make a plan for the future, please call me at 310-PLAN or send me an e-mail.

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