Bankruptcy Kitchener Blog

Last week, the Federal Government brought some long awaited changes to the Bankruptcy and Insolvency Act. These changes dealt specifically with student loans and Registered Retirement Savings Plans (RRSP).

STUDENT LOANS

The new rules state that if the student loans are seven years old by the time someone files a consumer proposal or personal bankruptcy, then they are now dischargeable. That is, they will be eliminated after the consumer proposal or personal bankruptcy is completed. The age of the student loan begins when the student ceases to be a full or part-time student (referred to as the “end of study” date) and ends on the date that a consumer proposal or personal bankruptcy is filed. This is a change from the old rules which defined the dischargeable age of a student loan as 10 years.

To confirm the end of study date, here are the numbers:

Canada Student Loans: 1-888-815-4514

Ontario Student Loans: 1-807-343-7260

Further, if someone has completed a consumer proposal or a personal bankruptcy and the student loans are greater than 5 years old, a court application can be made to now have them discharged. After some court motions are made under this new law, there will likely be precedents set on the requirements to have the loans discharges. For this section of the law, we recommend that a lawyer be consulted.

REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

In the past, some RRSP investments were cashed by the trustee in a personal bankruptcy. Pursuant to the new laws, all types of RRSPs are protected from the creditors in a bankruptcy, the only exception, is being those contributions made within the last 12 months prior to filing for personal bankruptcy.

If you would like to discuss these new rules or your situation, please call us at 519-747-0660 or e-mail us.

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I had a meeting today with a lady that had filed for bankruptcy with me nine months ago. As she had fulfilled all duties she was receiving her automatic discharge. We will refer to this person as Mary. Although she was disappointed that she had to file for personal bankruptcy, she was satisfied that she was able to obtain a financial fresh start and was moving forward in life.

We reflected on her situation and the changes that she has made. Some details on Mary’s situation were:

• Mary is 32 years old
• Single mother of one child
• Rents an apartment in Kitchener
• Works full-time in a retail store and nets about $2,000 per month
• Receives $250 in child support (which was sporadic, but now is steady as it is being received through the Family Responsibility Office)
• She owed $34,000 in credit cards and a bank line of credit

When she first came to see me, the collectors were calling and the pressure was starting to get to her. We reviewed the options as she wanted to focus on dealing with the debts and obtain financial control again. Personal bankruptcy was the solution she selected.

The bankruptcy process required that she comply with some duties, which included:

1. Completing monthly income and expense statements
2. Attended two credit counseling sessions (one on one)
3. Providing income tax information
4. Paying a minimum contribution of $160 per month
5. If her income increased, then the amount she would have pay could increase as well (referred to surplus income)

If you are experiencing stress due to your debt load and want to discuss ways of dealing with it, e-mail me or call me at 310-PLAN and we can arrange a free 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 have met with a couple of people over that last week in our Kitchener office that are in a similar situation – that is, the bank has taken back a vehicle or a house and the result is a shortfall too large to manage.

For various reasons, many individuals find themselves in a predicament where they cannot make payments to their creditors, possibly resulting from employment interruptions for medical issues, injury, lay-offs, terminations, seasonal work, etc.  Once someone is unable to pay their debts, creditors look for ways to collect.  Debts related to vehicle loans and mortgages are secured and as such, the vehicle or house is pledged as collateral.  Therefore, after a period of time, the bank looks to seize or repossess the vehicle or house.  In order to stop this from happening, a sizable amount of money (for the payment arrears and any other costs) is required.  Failing this, the bank repossesses the asset and then sells it, and then if the amount received by the bank is not enough to pay the loan/mortgage, a shortfall results.  The bank will then look to collect on the debt.

Depending on the size of the shortfall, the ability to pay back the creditor may or may not be feasible.  From the individuals I met with this week, the result of the repossessed assets left them in a situation were they could not continue to pay their debts as the shortfall combined with all their other debts were too large to manage.  A consumer proposal or a personal bankruptcy are options to assist individuals get a fresh start financially and deal with their debts including the shortfall from a repossessed asset.

If you are facing a shortfall from a repossessed asset and want to discuss your options and plan for dealing with the debts, please e-mail us or call us at 310-PLAN.  I met with individuals at our Kitchener office located at 607 King Street West (in the plaza in front of Zeke’s Restaurant).

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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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I was meeting with a couple today in Kitchener and they decided that they are going to file for personal bankruptcy to deal with their overwhelming debts.  They are in their mid-thirties and have two young children. The personal bankruptcy will clear their debts, but only after they complete certain duties or conditions, including two credit counselling sessions, which will assist with their situation today and in the future.
 
The credit counselling sessions are required in all personal bankruptcy and consumer proposal filings. The sessions are conducted by a qualified credit counsellor and are generally done on a one on one basis, or in the case of a couple, attended together. 

The credit counselling sessions must be completed within a certain period of time – the first session in between 10 and 60 days after filing, and the second session within 30 days after the first session, but before the 210-day mark, or 7 months after the filing.

The sessions are designed to help people understand how they got into their financial trouble and teach them how to make a plan for the future.  In the first session, money management, spending and shopping habits, warning signs of financial difficulties, and obtaining and using credit are all discussed.  The second session is more personalized, looking at the  causes of the person’s financial situation and reviewing information from the first session.  If necessary, the counsellor will also provide more information or resources for future help.

The couple I met with today will find the credit counselling sessions valuable because they will help them understand their situation better and provide insight on how to handle future situations.  The couple has two children and their next goal is to own a house.  By filing for bankruptcy, they get a financial fresh start and the credit counselling sessions can help them work on budgeting and a plan to save for a house.

If you are experiencing financial difficulty and need some additional guidance, call me at  310-PLAN for a free consultation, or e-mail me any questions you might have. Let me help you get your financial fresh start.

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When I meet with someone who is self-employed, their biggest concern is usually tax debt. Income tax debt can become too large to manage for some self-employed individuals.  Let me give you an example of a recent consultation I had with a gentleman from the Kitchener-Waterloo area, and the steps we took to find him the best solution for his situation.

Income:  Bob (not his real name for privacy reasons) was a self-employed construction worker who worked in the roofing business.  Bob worked when the weather permitted and was only paid when he worked.  During peak times, he was able to make what he thought was good money. 

Expenses/Debts:  Bob was previously married and as a result of the divorce, is paying $300 per month in support for one child.  Bob rents his home and has an old pick-up truck worth about $2,000.  He has not filed his taxes for 4 years, but after consulting with an accountant, it is estimated he will owe $34,000 in income taxes.  Bob also has $18,000 in credit card debt, on cards which he uses in place of income when he is not working due to the winter slow times.  With all of his debts combined, he is now at a point at which he cannot pay them in normal monthly payments. He called Hoyes, Michalos & Associates in Kitchener at 310-PLAN to seek some advice and get some help with his financial situation. 

Plan:  I sat down with Bob and reviewed his situation with him.  He was upset about his debts and not sure what he should do to go forward.  We discussed the options available to him and he decided that filing personal bankruptcy was the best solution for him to get a fresh financial start.  However, before he filed personal bankruptcy, he needed to file all of his outstanding tax returns.  In doing so, Bob realized just how unstable his income was and that he needed to obtain steady annual income.

Result:  After filing his returns, Bob returned to our office a month later to file for the bankruptcy. He is now working a steady job and earns $2,000 a month after taxes. He is well on his way to his fresh financial start.

If you are self-employed and are behind in your taxes, or if you have questions about bankruptcy, call me at 310-PLAN for a free consultation. You can also email me any questions you may have about income taxes or bankruptcy. Your financial future may seem bleak now, but with the right plan you could be living your fresh start sooner than you think.

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