Bankruptcy Kitchener Blog

On Saturday Ted Michalos and I were guests on the 570 News Ask the Experts show, where we spent the hour discussing taxes and personal bankruptcy in Kitchener. The topic of taxes always draws a lot of attention as we are all affected by taxes and there are many rumors around how they work. There are several reasons that individuals owe taxes to Canada Revenue Agency (formally Revenue Canada), including but not limited to:

1. Self-employment,
2. Working more than one job,
3. Receiving pension income,
4. Reassessments of prior years returns, and
5. Cashing out RSP’s

The options in dealing with tax debts are:

1. Pay them – in a lump sum or over a CRA payment plan;
2. Apply to relief under the CRA fairness provisions;
3. File a consumer proposal,
4. File for personal bankruptcy in Kitchener, or
5. Let Canada Revenue Agency (CRA) garnishee pay cheques, freeze bank accounts, place liens on assets, etc.

It is true that the Canada Revenue Agency has more collection powers than any other creditor.  Some of the difficulties individuals face when they have a tax debt is

a) they have various other debts and do not have the funds available to pay the tax debt and

b) CRA tends not to be too aggressive with the collection calls compared to other creditors.

One of the common misconceptions with respect to tax debts, is that they never go away.   This is not true.  A tax debt is a dischargeable debt in a bankruptcy or consumer proposal pursuant to the Federal law called the Bankruptcy and Insolvency Act.  Therefore, if someone does file for bankruptcy and has a tax debt, then that will be included and discharged as part of the bankruptcy.

Further into the radio show we discussed consumer proposals. In a consumer proposal, a CRA liability is a debt that does go away. 

The main difference is that the creditors vote on a consumer proposal and therefore if taxes are the majority creditor a consumer proposal acceptance will depend on whether Canada Revenue Agency wants to accept it.

There are proposed new rules around bankruptcy that will impact tax debts.  Doug Hoyes and Ted Michalos (founders of Hoyes, Michalos & Associates) were in Ottawa last month and presented the Senators with their opinions on these new bankruptcy laws. 

If you are finding yourself with a tax debt that you are not able to handle and want to discuss your options, e-mail or call me in Kitchener at (519) 747-0660 or 310-PLAN (7526).  As a Chartered Accountant and a Trustee, I will understand your situation and will be able to explain to you how to make a plan to deal with your tax debts.

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We answered questions that people had concerning personal bankruptcy. Here is a summary of what we discussed:

What is personal Bankruptcy? Personal bankruptcy is a solution that allows individuals to have their debts discharged and will generally last a minimum of nine months. In order to obtain a discharge at the end of nine months, several duties must be fulfilled. These duties include completing monthly income and expense statements, attending two debt management counselling sessions, and making monthly payments.

With respect to vehicles and house, if there is a loan against either and selling the asset would result in a loss, then it will generally not be affected, but you would have to keep paying the secured loan. Regarding these assets, it is best to call us and discuss the situation so we can provide more information.

We speak with thousands of people from the Kitchener-Waterloo area and we understand that personal bankruptcy can be a logical solution for real people who have fallen under tough times. Personal bankruptcy could be the result of marriage break-up, illness, loss of jobs or reduction of hours.

Our entire Kitchener team looks forward to meeting with you to work out a plan to deal with your debts, so call us at 310-PLAN (310-7526, no area code required) or 519-747-0660 or e-mail us to arrange a free initial consultation. There is help available, so give us a call, and let’s get started.

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Here is a big part of his problem.  A few years ago he obtained a line of credit from his bank in the amount of $10,000.  A line of credit is similar to a loan but is not usually borrowed for a specific item.   A bank or lender will allow a certain amount of money to an individual to use to make purchases, home improvements, pay off other debt and so on.  The lender will provide cheques and the borrower uses these cheques as required .   The interest is considerably lower than credit cards so it makes sense to use this type of credit as an alternative.  It is very common for someone to use a line of credit for many different things and most people would only take as many dollars at any given time as they need and then pay down the balance before using it again.

Our fellow understood this process a bit differently.  When the line of credit in the amount of $10,000 was granted to him, he immediately issued a cheque for the whole amount and put it in his chequing account.  This meant that he was paying interest on $10,000 that was sitting in a bank account that paid no interest.    Over a period of time he started to think of this money as “his’ and used it to purchase a car, help his son with bills and “other things”.  In fact he told me the money just seemed to slip away .   He was also still using credit cards and he was making payments on the cards out of this account .  

When he came to see us he had a total of $22,000 in debt.  His pension income and income from the security guard job were not enough to keep up all the payments and cover his living expenses.  The additional stress of worrying about these debts did not help his health problems.

We reviewed his situation with him and he decided to get a Fresh Start by filing personal bankruptcy.  A few weeks later he called and said that he had also given up the security guard job and was starting to feel much better.

If you feel that you need  Fresh Start call us in Kitchener at 310-PLAN (310-7526, no area code required) or 519-747-0660 or e-mail us to arrange a free initial consultation.

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I recently read an article in the Washington Post about an experiment that was conducted at the Metro in Washington on a typical Friday in January.  Joshua Bell, an internationally acclaimed musician who has performed in many of the great concert halls around the world, agreed to play his violin at the Metro station during morning rush hour.  He performed for 43 minutes during which time 1,090 people passed the spot where he stood.  Many of these people either had a coffee in hand or where talking on cell phones. Of the 1090 people who passed him by a grand total of 7 paused for a moment to enjoy the music. 

OK not everyone is a fan of classical music or (like myself) didn’t even know who Joshua Bell was before reading this article.  However, just the fact that an obviously talented musician was playing the violin in a train station at 7:30 in the morning should have been enough to get the attention of more than 7 out of 1090 people.   A poll was done on the train about this event and while the comments varied most of them were along the lines of “no time”, “big meeting this morning”, “gotta get to work”, “I’m already late”,  “what violinist?”.

You may be wondering what any of this has to do with a blog about financial difficulties or money problems.  It was obvious from this experiment that less than 1% of the people involved felt relaxed enough that they could take a few moments out of their routine to enjoy something unusual.  It made me think of many of the people I meet with on a daily basis.   Financial difficulties and money problems are undoubtedly one of the big stressors of today and many people are stretched to the limit trying to keep up.   On numerous occasions I’ve had people tell me that their ability to make payments on their debts relies on working overtime, or having two jobs or that both spouses must be gainfully employed at all times.  They are often consumed with worry and concern about how they are going to hold everything together “if something happens”.  Unfortunately, all too often something does happen that can tip the balance and send them into a world of collection agents, legal battles and garnishees.

If you are feeling that you can’t possible relax for fear of losing the grip on your finances give us a call us at 310-PLAN (that’s 310-7526, no area code required, anywhere in Ontario), or complete our one minute on-line evaluation and one of our professionals will contact you to set up a no-charge initial consultation to help you make a better plan to deal with your debts.        

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Here’s today’s trivia question:

Which city in Ontario had the biggest increase in the number of consumer proposals filed in the first six months of 2007?

So, is this good news or bad news?

Some will say it’s bad news, because an increasing number of people in Kitchener are experiencing debt problems, and need a way to deal with their debts.

I prefer to think that this is good news. Many people still believe that the only solution to debt problems is personal bankruptcy; I’m glad that the word is getting out that there are other alternatives.

(I’ve done my part to get the word out; Ted Michalos and I appeared on Ask the Experts on 570 News in Kitchener back on March 3, and we discussed how consumer proposals can be used to deal with credit card debt. We also talked about consumer proposals when we returned again on April 2).

I think the increase in consumer proposals in Kitchener is also good news because most residents of Kitchener who file proposals have a job and are earning an income, because without an income it’s hard to make a proposal. An increase in proposals shows that debt levels are increasing in Kitchener, but it also shows that people in our area have jobs, which is good news.

It’s also good news that many Kitchener residents want to repay their debts, and when given the chance they are happy to make a deal with their creditors.

In a consumer proposal we negotiate a settlement with your creditors; in most cases you pay less than the full amount owing. Your debts are taken care of, and you only have one monthly payement.

Would you like to find a way to stop collection calls? Wouldn’t it be great to only have to worry about making one payment each month? Then a consumer proposal may be right for you. To find out if a consumer proposal is right for you, call our Kitchener office at 310-PLAN (310-7526, no area code required) or e-mail us to arrange a free initial consultation. There is help available, so give us a call, and let’s get started.

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She was telling me that she would like to obtain a credit card for the purpose of ordering from the web, purchasing theatre tickets and other commodities that seem to require one.  She was apprehensive about applying for a credit card as this would be her first attempt at venturing back into unsecured credit, she wasn’t sure if she would qualify and did not want to have a number of “hits” on her credit report.      

I suggested the following:

1. Obtain a credit report from Equifax and examine it thoroughly.  If there are any discrepancies make Equifax aware of them immediately.  It is critical that this report be as accurate as possible as lenders rely on the information provided.
2. Meet with an officer in person (not just on the phone) with her home bank and explain her situation.  If the bank is unwilling to grant her unsecured credit ask how she can improve her situation to meet their qualifications and then follow their advice.
3. Get a secured Visa card as a way to rebuild credit, and to have a credit card available for internet and other purchases.

Lynda told me that filing for bankruptcy gave her a fresh start and that the changes she has made in her life have enabled her to move in a positive direction.

If you feel that you need  Fresh Start call us in Kitchener at 310-PLAN (310-7526, no area code required) or 519-747-0660 or e-mail us to arrange a free initial consultation.

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While this may have resolved the immediate problem of keeping the payments up to date and avoiding late charges or phone calls from creditors, it created a false sense of paying debt. In fact, if she had gone back and added up all the interest and cash advance charges she had paid she would have been shocked.

A few months before Donna came to see us she lost her job as a result of a downsizing in her place of employment.  It only took a few short months for her credit to get maxed out and the house of cards that she had built began to fall apart.  She was no longer able to use the circular manner of paying debt that she had relied on for so long because she had no more credit and could not increase her credit limits during a period of unemployment.  She was actively looking for another job but in the meantime creditors were starting to call.

Donna filed a bankruptcy with us, putting an end to the collection calls and continuing interest charges.  The bankruptcy process includes debt counseling, which she feels will be very helpful in making positive changes in the way she deals with her finances in the future.

If you are finding yourself close to the maximum limited on credit card/ credits line and that you sometimes have to rely on this method of payment, give us a call at 310-PLAN (310-7526, no area code required) or 519-747-0660 or e-mail us to arrange a free initial consultation.

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One concern that people have when they are considering filing for personal bankruptcy is the impact on their job. 

For most of the individuals I meet with, a personal bankruptcy will not have any impact on their employment and generally their employers will not find out about the bankruptcy.  Below are a few situations when an employer would find out about an employee filing for bankruptcy:

i) if there is a garnishment on the individual’s pay, then the Trustee would have to notify the employer to have the garnishment stopped,

ii) if the individual does not provide the required tax information to complete any outstanding tax returns, then the employer maybe contacted to obtain the information, and

iii) if the individual is required under their employment contract to notify the employer of a personal bankruptcy filing.

Were it becomes more complex is when there are other professional standards or industry regulations involved.  These include insurance agents, real estate agents, accountants, lawyers, etc.  The professional standards related to the professions above along with industry regulations could impact the individual’s ability to file a personal bankruptcy without a negative consequence.  But a consumer proposal may then be the more viable option to deal with the debts and limit the impact on someone’s employment.

If you are having financial difficulty and want to review you options, please call us at 310-PLAN or e-mail us.  If you are with a larger organization, you may want to contact your Human Resource Department unanimously to discuss the impact on your employment.

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Today I met with a single lady and her teenage daughter in our Kitchener office.  She had been recently struggling with her debts, primarily do to her reaching the limits on her credit cards.  She is renting an apartment for a reasonable amount.  Her income is based on hourly rates and she nets $1,850 per month.  She has never received support for her child.

Often her cost of living exceeded her income and she therefore used her credit cards to make it by.  Now with interest, her credit cards have become too large to manage.  She has 3 credit cards that total $22,000.  The stress of the situation increased when she took some time off work and as a result, did not get paid for those days.

We sat down and reviewed her options.  Personal bankruptcy was the option she chose, although she was embarrassed about having to file, she realized that the Bankruptcy and Insolvency Act is available to give the honest but unfortunate debtor a fresh start.  Her focus was on her and her daughter living on the income they have.

The duties she will have during her 9 months of bankruptcy are: she will have pay $160 per month into the bankruptcy, complete monthly income and expenses statements, attend two one-on-one credit counselling sessions and if her income exceeds $2,237 her payments will increase (referred to as surplus income).  After all of her duties are completed, she will be eligible for a discharge from bankruptcy.

If you are experiencing financial hardship and want to review your options, call me at 310-PLAN or via e-mail.

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I met with a woman in our Kitchener-Waterloo office to review her financial situation and to develop a plan for her future.  To outline her situation:

She is a single mother of two children 
She rents an apartment
She receives child support of $400 per month
She works for a large insurance company in Kitchener
Her net take home pay is $2,300 per month
She has a 1999 Pontiac Sunfire, worth about $3,000

With respect to her debts, the largest portion of her debts is student loans from the mid 1990’s.  The student loans totaled just over $30,000 and she has credit card debt of $11,000.  The student loans have been a issue for her over the years.  She had taken the Business Administration diploma at Conestoga College in Kitchener.  She did find employment after completing school, but over the past decade, she had two children and between not being able to make her student loan payments while on maternity leave and the costs of raising the children on her own she had limited amount of money she could pay towards student loans.

We discussed her debts, her monthly budget and family situation.  Then we reviewed her options in dealing with the debts.  Although she was disappointed her situation came to this point, her preferred option was to file personal bankruptcy.  In filing for bankruptcy, she is working to obtain a fresh start and move forward on a plan for the future.

One key element to this person’s decision to file for personal bankruptcy is her student loans.  The current rules state that a person must have ceased to be a full- or part-time student for 10 years before they can file for bankruptcy and have the debts discharged.  That is, if a person files for bankruptcy before 10 years have passed since they completed school, then the student loans would still be a debt they would have to pay after the bankruptcy is discharged.

In this situation, it was very important that she confirmed the actual end of study date that the government has on record.  I gave her the following phone numbers to confirm the end of her study dates:
Canada Student Loans 1-888-815-4514
Ontario Student Loans 1-807-343-7260
In addition, the other item she obtained to confirm this was her transcript.

If you are experiencing financial hardship and want to develop a plan for the future, please contact us via e-mail or call us at 310-PLAN (no area code required).

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