Bankruptcy Kitchener Blog by Scott Schaefer

Debt Consolidation, Debt Management Plans, Consumer Proposals and Personal Bankruptcy – you may have heard about them before, but do you really understand how they work? In my Kitchener office, I have met with thousands of people from the Waterloo Region who have tried all of these solutions. What may work for one, may not work for another person.

Doug Hoyes and I were guests on the Ask the Expert radio show on 570 News and we discussed each of these topics in detail. Below I have listed various clips from our show for your reference. To discuss your specific situation, please do not hesitate to call me at 519-747-0660 or send me an e-mail.

What are the dealing with debts options?

What is a consolidation loan?

When does a consolidation loan not work for someone?

What are the advantages of consumer proposals?

What is personal bankruptcy?

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Do you have questions about debts?
Do you want to understand your options?
Do you want to know about debt consultants and why they charge money to see them?
Do you want to know about what a trustee in bankruptcy does?
Do you want to learn more about personal debts?
If you answered yes to any of these questions, then join Doug Hoyes and Ted Michalos live on Ask the Expert on 570 News this coming Saturday September 24 at 1:05 on AM 570 News. For the first time ever, the Ask the Expert Show will have a live video feed to the 570 News website. Therefore you can tune in at 570 AM or by going to the AM 570 News video feed on the web. To learn more about the show, click here.

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One common question I receive when reviewing someone’s financial situation is “can I keep my car in a bankruptcy?” This is an important question for many people living in Kitchener-Waterloo as there are requirements for a vehicle due the geography of the area and the need to be able to get to and from work, school, stores, etc.

The answer is normally “yes” however, there are a few scenarios that need to be considered;
1. The vehicle is owned by the individual without a lien against it, and
2. There is a loan against the vehicle thus resulting in a lien being registered.

Vehicle is owned without a lien:

For cases where the vehicle has been paid for in full and there is no loan or lien against the vehicle, Ontario law allows for a vehicle to be exempt from seizure for a value up to $5,650. That is, if the vehicle was sold by you today, if it is worth less than $5,650, then it is your vehicle to keep and your creditors do not have rights to the vehicle. If the vehicle is worth more than $5,650, the difference above this amount would have to be paid to the trustee in order to keep the vehicle. Therefore you are permitted to keep the vehicle in bankruptcy in this scenario.

Vehicle with a loan/lien against it:

Vehicles are typically a larger expense purchase, so most times people have to finance the purchase through a loan. The lender then has a right to put a lien on the car until the loan is paid off. This lien allows the lender to have first rights to the vehicle in the event you cannot pay for it any more. We refer to this lender as a secured creditor.

If a bankruptcy is filed, you have a right to keep your payments current and on-going to your secured creditors. As long as you do not have payment problems or arrears with the secured lender, they cannot take the vehicle from you if a bankruptcy is filed as the bankruptcy laws restrict any changes to the secured agreement. Therefore, if you feel you can afford to keep the vehicle payments current, then you are allowed to keep the vehicle in bankruptcy. This is also the case for leased vehicles.

If you cannot afford to keep the vehicle, you have a right to surrender it as part of a bankruptcy and then have loan balance included in the bankruptcy.

If you are experiencing financial difficulties and would like to discuss your situation and options, then call me at 519-747-0660 or send me an e-mail. I can meet with you in my Kitchener Waterloo office for a free consultation.

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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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One question we all consider in some form or another is “am I normal?” This question also applies when it comes to debts and financial difficulty. When I meet with people in my Kitchener office, several ask if they are the only ones experencing these difficulties. It is quite normal to ask this as the person did not plan to be overwhelmed by debts. Often a sequence of events in their life leads them to harder financial times. I have always believed part of this is due to the fact that many people will not discuss their finances with family and friends. We tend not to discuss our debts, income, or savings with others. People will discuss issues or concerns regarding health, marriage, relationships, and children, but rarely do they open up about personal finances.

Many people have the opinion that someone who files bankruptcy is not working or is just using the system. A recent study by Hoyes, Michalos & Associates Inc. took a deeper look at the average person who files a consumer proposal or personal bankruptcy. The results of this study put this myth to rest. The average Joe Debtor in Ontario is a person who resorts to a consumer proposal or a personal bankruptcy as a solution for a fresh financial start is:

• A 41 year old male
• Married
• Working and making slightly less than the Canadian average income
• Has debts of almost $60,000 (unsecured debts).

Does this meet your stereotype of the average insolvent person? Comparing Kitchener Waterloo to the Ontario results, the average is not that different. The average person who filed bankruptcy or a consumer proposal in Kitchener and Waterloo has over $48,000 in unsecured debts, but also has an average mortgage amount of $227,000.

These are interesting numbers to demonstrate how someone compares to the average. As in any situation, there are many cases in which people have higher or lower debts. As I noted in my previous blog post, with debt levels rising in Canada, problems can arise in any situation or age group. From the individuals and couples I meet with in my Kitchener office they range in age from 18 years old to 80 years old. Times have changed; credit is readily available and as a result, if someone is carrying debts and a few things go wrong, the pressures of debts can become too much.

The Canadian government has created both a consumer proposal and a personal bankruptcy as an option to give a person a fresh financial start. These are last resort options for when all the other options do not work.

If you are reading this blog and wonder about your options, give me a call at 310-PLAN or send me an e-mail. We will discuss your situation and can sit down to review the options and how they work in your situation. From there you will need to go home, plan out the future and find the right option for you. My role as licensed trustee in bankruptcy is to give you an unbiased and fair assessment of your options. There is no cost to see us and our fees are paid through a government tariff when someone files a consumer proposal or a personal bankruptcy.

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A personal bankruptcy or a consumer proposal is about giving an individual a fresh financial start. Many different life events happen which can result in someone falling into financial difficulty. A common first step on the road to a fresh start is to meet with me in my Kitchener Waterloo office. During our meeting we will review your situation and discuss your options to make a plan. Dealing with your debts helps take care of the past troubles, but next you need to focus on your future. Think to yourself – what are my plans, hopes, and wishes for the future?

A consumer proposal or a bankruptcy is a life changing event. Both options allow for restructuring of your debts and allow you to create a new future, free from being overwhelmed by current debts. This is why I recommend people first consider what they will (or can) do differently in the future. There are many different techniques and tools to help individuals and families through life’s financial challenges. I personally find books to be great resources to get you thinking and talking about ways to do things differently.

The most recent book that I have read is The Smart Canadian’s Guide to Saving Money: Pat Foran is On Your Side, Helping You to Stop Wasting Money, Start Saving It, and Build Your Wealth by Pat Foran. Foran is from CTV’s Consumer Alert and interestingly enough, he began his broadcasting career in Kitchener. I am recommending this book to individuals in their efforts to seek a fresh financial start. Foran covers many topics and helps Canadians through many financial situations. Doug Hoyes, who co-founded Hoyes Michalos in Kitchener Waterloo in 1999, provided information for the section in this book on personal bankruptcy.

If you are struggling with your debts and want to make a plan for your future, then call me at 310-PLAN or send me an e-mail.

Amie Carroll, one of my Kitchener office credit counsellors, wrote a book review on this book. To read her article please follow this link.

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If your new year’s resolution was to deal with your debts then you are not alone. With Canadians carrying a record amount of consumer debts, it is time to deal with them before the interest rates rise. Are your credit card balances increasing and you seem to be stuck in overdraft? You need to make a plan to deal with your debts. The options available to deal with your debts are:

1. Sell assets to pay the debts: If your debts are less than the value of the assets you own, then one option is to sell or cash in your assets and simply pay off the debts. For example, if you have $50,000 in an RSP and $20,000 in credit card debt, then a solution for you would be to cash in the RSP’s to cover the debt. The key is to get rid of the credit cards once they are paid off. If needed, only keep one with a smaller, more manageable limit. If you choose to sell assets make sure you consider the tax implications.

2. Remortgage your house: If you own your own home and the value of the home is greater than the mortgage amount, you might be able to redo the mortgage and have enough to pay the mortgage as well as your other debts. Be aware, this will increase the length of time left on the mortgage. I suggest you work with your mortgage company or a mortgage broker to ensure you are getting the right mortgage for your situation.

3. Consolidate the debts into one loan: If your situation is one in which you can afford to pay all of your debts back, but just have too many creditors to pay each month, then a consolidation loan may work for you. A consolidation loan is where you get a loan from a bank to pay off all of your debts, leaving you with just one loan payment to make.

4. Credit Counselling: In this case, you work with a qualified credit counselor to make a budget aimed at paying down your debts over time. Following a budget takes discipline and you need to be 100% committed. It you do not follow the budget closely the debts will not get paid down. Credit counselling works great if you have enough income per month to deal with your monthly commitments, but have not been able to keep track of or stay on top of it in the past.

5. Debt Management Plan: A debt management plan is a voluntary agreement between you and your creditors to allow you to pay back all the debts but under set payment terms. It is like a consolidation loan; however it is not a loan. The interest is eliminated or reduced to a lower amount. This option works when someone’s debts are manageable, but they cannot get ahead with the interest charges.

6. Consumer Proposal: A consumer proposal is an offer to your creditors through a trustee in bankruptcy that allows you to make one affordable monthly payment to all of your unsecured creditors. Through the consumer proposal, you pay a portion of your debts back to allow you to rebuild your financial situation. A consumer proposal allows you to protect your assets and stop wage garnishments. A consumer proposal is done under federal law and is monitored by the government for your protection. The trustee is paid through the consumer proposal and not a direct cost to you.

7. Personal Bankruptcy: As a last option, a personal bankruptcy can be filed with a trustee to eliminate your debts so that you can have a fresh start. Personal bankruptcy is not what people plan for, but when debts become too much and you cannot afford the other options listed above; a bankruptcy is designed to give you this fresh start.

To take care of your debts, you need to have a plan. I talk and meet with thousands of people from Kitchener Waterloo to review their financial situation and help them develop a plan to deal with their debts. As a licensed trustee in bankruptcy and qualified credit counsellor, I serve the Kitchener Waterloo and surrounding area. My office is conveniently located on King Street between Kitchener and Waterloo. I can be reached at 310-PLAN or via e-mail. If you spent the holiday season worrying about your situation, then the start of a new year is a good time to take action.

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If you are receiving collection calls, you likely can place each of them into three categories: the good, the bad, and the really ugly. Regardless of which type they are, they all add stress to your situation. In most cases, collection calls are being received because you do not have the funds to pay your debts right now. It is not that you do not want to pay them, but rather your circumstances have changed and you cannot afford to make a payment. Collection agents are paid and monitored based on their collection totals and therefore can get very aggressive and will say anything to pressure you in hopes of a payment. For examples of collection call stories, see this link.

If you have collection calls, you need to make a plan to deal with them. I generally consider the following factors:
First: How much are they collecting for? Could you just pay it and be done?
Second: Do you have other debts that need to be dealt with as well? The collection call is just one issue; however, the complete debt situation needs to be considered.
Third: What is the cause of the collection calls? Has there been a change in your circumstances?

Collections will not just simply go away; you need to deal with them. A consumer proposal or a personal bankruptcy both give you a legal option to deal with you debts so you can get on with your life financial. Collection calls are not allowed to continue once a consumer proposal or a personal bankruptcy is in place. To review your situation and make a plan to deal with your debts, call me at 310-PLAN or send me an e-mail and we can arrange a free meeting in my Kitchener Waterloo office.

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In rare cases, a creditor will oppose the discharge of a personal bankruptcy, so lets discuss what this means from a technical stand point. This can be confusing and it is important to note again that this does not happen very often in Kitchener Waterloo area. If you have any questions, please contact me.

An individual files for personal bankruptcy to receive a discharge from his or her debts. Bankruptcy laws are set up to allow a discharge to happen automatically after the bankruptcy is complete. A discharge from bankruptcy occurs when all bankruptcy duties are completed and as a result the debts are released. In some cases a creditor wants the courts to review the bankruptcy; this is referred to as a creditor opposition. The opposition is to the automatic discharge. The individual will still remain eligible for a discharge, however the terms will be decided by a registrar at a court hearing.

If a creditor wants to oppose a bankrupt’s discharge, they must serve notice to the trustee, the bankrupt, the court, and the government. The notice the creditor serves must list out reasons for their opposition. At this point, the creditor would have to appear at the court hearing to prove their facts such as fraud, gambling, speculation, etc. The bankrupt individual is entitled to respond to the items raised. From this point the court will decide on the type of discharge to be granted and whether conditions will be put in place outlining additional duties before the discharge is received. For example, the court may order that an extra amount is to be paid to the trustee for the benefit of the creditors as a condition to be met for the individual to receive an absolute discharge.

With respect to accepted consumer proposals, creditor oppositions do not apply.

To read more on creditor oppositions please see at this link.

In most cases, creditor oppositions do not happen as the bankruptcy laws are set up to provide a fresh start to the honest but unfortunate debtor. If you would like to discuss your financial situation and options, simply contact me today via e-mail me or call me at 310-PLAN.

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