Scott Schaefer and Ian Martin

We are going to dedicate the entire hour show to answering debt related questions for the residents of Kitchener-Waterloo and all of Waterloo region. We will explain in detail consumer proposals and personal bankruptcies. In addition we will discuss surplus income in bankruptcy, what assets are protected when you file, who can file a consumer proposal, and what debts can be included.

If you can’t wait until Saturday, feel free to visit our hoyes.com website for more information to help you with your situation. If you would like to discuss your situation now, please call us at 310-PLAN or send us an e-mail.

Scott Schaefer, CA CIRP

Budget – in simple terms, is a projection of future income and expenses. The concept is simple, but the execution is hard. Individuals, businesses, and government all struggle with enforcing realistic budgets and sticking to them. In order to be effective with budgeting, you need to be ready for a lot of hard work and accountability. Below are my top 6 tips to help you with your budget:

1. Understand your income: In my opinion, the most important item. Know exactly how much you bring home every month. This is the biggest constraint we have. Always think about your income after taxes as that amount is all that you have available to spend. If your income varies, you need to know the lows and the highs. In order to set a realistic budget, you need to be realistic with your income or the bottom line is not going to work.

2. Review your expenses from the last 12 months: This is a lot of work – I am not going to deny that. You need to review all your expenses from last year to understand where and how you spend your money. Get copies of all your bank statements and look at each transaction to get an understanding of where and how you were spending your money. Once you have reviewed all of your past spending, group the items into categories, such as shelter, vehicle, food, personal items, children costs, etc. Make your groups make sense for you.

3. Plan out your expenses in advance: Once you have reviewed last year’s expenses, you now can project forward the next 12 months of expenses. It is important to look at expenses on a monthly basis due to possible monthly or seasonal swings. Expenses change when looking at consecutive months but remain relatively consistent looking at the same month year over year. For examples, birthdays happen the same month every year, increased child care costs occur in the summer months, etc.

4. Understand your NEEDS versus WANTS: In order to stay on track and not overspend, you must ensure all the NEEDS are paid first. See my prior blog posting on Needs versus Wants concept.

5. Time all your bill payments with your pay cheques: Make life easier by matching the cash inflows with the cash outflows. Doug Hoyes explains this concept in his video at this link.

6. Reduce your debt load: Interest payments can eat up a serious portion of your monthly income. Eliminating debt allows you to have more available cash so that you can budget more effectively and start to save money for yourself.

Budgeting and cash projection is challenging, but very rewarding once you have mastered it. There are many principles and ideas out there – learn from them and adapt them to your situation. No two cases are ever the same; therefore you must find what works for you. More budgeting tips including video feeds can be found on hoyes.com.

If after you have done your budget and cash flow projections and you are losing money each month, then something needs to change. Look at the interest and debt serving costs – is this amount putting you in the negative each month? If so, then now is the time to restructure your debts. Consider what option will work for you. Some options include selling assets, refinancing with the bank, or a more formal plan such as a debt management plan, consumer proposal or personal bankruptcy.

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?

Ok, there are no direct costs to file a consumer proposal. As an administrator of the consumer proposal, we are paid via a government tariff – tariff is a fancy word the government uses that means “ to be paid from the amount offered to the creditors”. That way, the trustee remains independent and unbiased throughout the entire proposal process. To read more on consumer proposal costs, please see this article at comsumer-proposals.org.

So what do I mean about “Change?” Well, a Consumer Proposal is a formal offer to deal with one’s debts through one monthly payment. The offer requires one to include all unsecured creditors. Therefore, individuals and couples are going to experience changes in their finances. Most people use credit cards, line of credits and overdrafts as part of everyday living. Well, after filing a consumer proposal, change is required because the cash system becomes king again, just like our grandparents and great grandparents once had.

A Consumer Proposal deals with one’s debts, but it is what that person does in their future that will decide how beneficial the consumer proposal was. Yes it deals with the debts, but we control our future. The more someone is able to change, the more benefit they will receive in the future. Cash management, spending patterns, wish lists, savings, etc. all need to be considered and changed as needed. Live is never easy or fair, but we can make the best of what we have. A consumer proposal is a government option to allow Canadians to obtain a fresh financial start – a new start. What are you going to change for your future?

Change, education, plan, discipline. These all become essential to make a future that you can base your goals around. In reading my last blog, you can see how Jack and Samatha from Kitchener used a consumer proposal to deal with their debts and then changed over time by learning and developing different cash management techniques to provide themselves with a stress free budget.

Plan your future now. Look at your situation and decide if change is something you need to build the future you want. If so, you can call me at 519-747-0660 or send me an e-mail to discuss your situation and options.

Scott Schaefer BA CA CIRP Trustee

They had accumulated debts that had become too large to manage after the unfortunate turn in their circumstance. We explored their options in detail and they decided on a consumer proposal as their solution to manage the debts. For them, the advantages of a consumer proposal were:

- They had financial control again through a monthly budget that balanced by making some changes in their spending and savings practices,
- They were able to pay one monthly payment toward their debts in the consumer proposal,
- The consumer proposal protected them from their creditors since it is creditor and court approved,
- They protected their family home, vehicles, and pensions,
- They did not have to file for bankruptcy – they really did not want to even consider bankruptcy,
- They were provided two credit counselling sessions with me in my Kitchener office to sit and work on their future plan, and
- They could imagine and work towards the future they wanted,

At the start of today’s meeting, I let them do the talking. They both explained to me how since filing their consumer proposal, they finally felt control over their finances. They expressed how now with the consumer proposal in place, they only need to think about their bills on pay days; the stress between pay days was gone – becoming the biggest advantage for them.

The consumer proposal for Jack and Samantha put all the unsecured debt payments together into one monthly payment, but the hard work for them was to make changes to their lifestyle that allowed them to work toward a future they wanted. We are all constrained with how much cash comes into the bank each month, it is how we spend it that we all need to continually work on.

Scott Schaefer CA CIRP Trustee

In our initial meeting, we discussed their options and how they applied to Joe and Jane specifically. One option – a consolidation loan through their bank. Unfortunately, they tried before meeting with me and their bank had already turned them down. Another option – a debt management plan through Mosaic Counselling and Family Services in Kitchener. This would cost them about $1,000/month for five years. The next option – a consumer proposal that offers $30,000 to their creditors payable through monthly payments of $500 for 60 months. As a final resort – a personal bankruptcy which would impact their house and would leave them with variable monthly payments into the bankruptcy based on their actual income. They did not want to file for personal bankruptcy, they felt to pay back some of their debt.

The consumer proposal that Joe and Jane offered today is a legal settlement. It encompasses all of their unsecured debts but not their mortgage or car lease. After Joe and Jane signed the consumer proposal documents, I e-filed them with the government and they were immediately provided with their estate number – proof that they were legally protected by the consumer proposal. Only a trustee in bankruptcy is permitted to file a consumer proposal which is why Joe and Jane met with me in my Kitchener bankruptcy office. A consumer proposal is not a bankruptcy but provides the same legal protection. Creditors cannot continue or start any collection actions after a consumer proposal has been filed.

The consumer proposal documents are sent to all of their creditors. As it is a “proposal”, the creditors do get to vote on it. The consumer proposal is automatically accepted unless more than 50% of the dollar value of the voting creditors say no within 45 days. In general, the creditors prefer to accept a consumer proposal over a personal bankruptcy as they will receive more money than they would in a personal bankruptcy.

To learn more about a consumer proposal, please do not hesitate to call me at 519-747-0660 or send me an e-mail. If you would like more reading on consumer proposals visit consumer-proposals.org, a website devoted solely to consumer proposals or hoyes.com for an informative and comprehensive site on creating a plan.

Over the years, Sally carried balances on her credit cards and following the layoff, her debt level rose somewhat due to periods without income. During that time her employment insurance barely covered rent and basic living expenses. After the reduction in Sally’s monthly take home pay, she is now receiving $2,275/month. This amount is spread out on paying rent, utilities, car payments, insurance, gas, food, and all the other costs of everyday life. With interest charges and minimum payments due on the $31,000 in credit cards and line of credit debt, Sally felt it was just too much to keep up with.

Sally’s story is a relatively common example of someone being affected by job loss and reduction in income. She really did not want to file for bankruptcy but she knew she could not afford to pay her debts; she needed financial control. To avoid bankruptcy, she decided to file a consumer proposal. Her consumer proposal offered her creditors $250/month for 50 months. Sally felt with the consumer proposal in place, she would be able to gain control of her monthly budget while paying what she could afford back her creditors.

Currently in Kitchener Waterloo region, the rate of consumer proposal filings is approaching the ratio of one consumer proposal filed for every personal bankruptcy filed. After the first six months in 2011, 45% of individual filings were consumer proposals as compared to the first six months of 2010 when the rate was only 35%. Accounding to the government statistics released today, almost 25,000 Ontarian’s have filed a consumer proposal in the last 12 months. For a breakdown on consumer proposal statistics, please follow this link consumer-proposal.org.

If statistics and numbers are your thing, follow these links to Ontario Statistics at bankruptcy-in-ontario.com and Canadian Statistics at bankruptcy-canada.com.

Statistics are just numbers, but sometimes people want to know they are not alone in their financial struggles. We live in an unstable ecomony that affects our jobs and income. When we are carrying an increasing level of debt and any small changes in income can significantly affect our ability to deal with this debt. Consumer proposals are still becoming the preferred method of restucturing. If you feel you want to explore your options to gain financial control like Sally, please give me a call at 519-747-0660 or send me an e-mail.

Back to school season is in full swing and the kids will be back to the classroom next week. For many, this can be a hectic and expensive time of year, but saving money on back to school expenses might be easier than you think. There are many low cost ways to get the kids what they need for the school year without breaking the bank. Consider the following:

- Take advantage of dollar store deals (you’ll be amazed at what you can find)
- Compare prices (many store offer back to school deals, and will price match competitors)
- Reduce, reuse, recycle! (that’s right – try purchasing only what is necessary versus what your child wants and reuse items from previous years that are still in good condition. As for back to school clothing, why not check out a local thrift store!).

The back to school season is also a great time to start teaching our children about money!
I recently read a book that has some useful advice, titled: “Power Spending: Getting More for Less” by Carolyn Johnston, Eric Poulin and Robin Poulin.

The authors of this book have dedicated an entire chapter on the importance of teaching our children about money. When it comes to money lessons, sooner is better. They point out that “if your child is old enough to ask for candy or toys, they’re old enough to start gaining some financial awareness” (Pg. 83). Why not get the children involved in some money spending decisions so they can understand “stuff” comes at a cost. As suggested in the book, “It is important to let children be involved in some of the money spending decisions. They are more likely to understand your response to their requests for stuff, and may even stop asking, once they do understand” (pg.82). It’s also important to note that when children have money handed to them and are free to spend it at their own discretion; they begin to see money as disposable income. This can lead to poor money habits in the future. It is wise to teach our children the importance of saving!

Johnston, Carolyn, Eric Poulin, Robin Poulin, and David Johnston. Power Spending Getting More for Less. Clarington, Ont.: ABC Pub., 2010. Print.

Scott Schaefer CA CIRP Trustee

The meeting typically begins with open conversation, which then leads to a review of the specifics with respect to debts, assets, and income. Once I understand the exact situation we discuss in detail how the options work and review the pros and cons of each. At that point the meeting opens for other unanswered questions. We often also discuss future plans and goals. At the end of the meeting, I encourage the individual to go home and consider what they want to achieve going forward and which option they feel will work best for them to obtain these goals.

I feel it is about making the right plan for each situation. Just because one option works for one person/family does not mean it will work for everyone. As for Jane and Thom’s case, they went home and thought about the details of our meeting and gave me a call back today to let me know they thought a consumer proposal is the option for them. They realized that they needed control of their debts. They wanted to protect their house. They felt they had enough money to pay some of the debts back through one monthly payment and did not what to file bankruptcy. Their misconception of the intimidating meeting with a Trustee in Bankruptcy was dissolved. They already feel better about their situation and they have only had one meeting with me.

You too can review your situation with me in a private environment. Please do not hesitate to contact me. I will sit down with you free of charge to explore the options and help you develop a plan for the future. I can be reached via e-mail or at 519-747-0660.