HOW TO GET OUT OF DEBT FAST: 7 TIPS YOU CAN START USING IMMEDIATELY

how to get out of debt fastIf you would prefer to listen to the audio version of this how to get out of debt fast Brandon’s Blog, please scroll to the bottom of the page and click on the podcast.

Introduction

I meet with people every day who have too much debt.  There are some common themes.  So this Brandon’s Blog is taking those common themes to give you seven quick ways to find extra money so you can know how to get out of debt fast.  By fast, I don’t mean immediately.  I mean a lot faster than you can do on your own.

It is not your fault that you have not been able to get out of debt yet.  The reason is that you have never been shown these tips before. Or, if you do know some or all of them, you have not been properly motivated yet to start using them.

So I am writing this Brandon’s Blog as much to motivate as to provide information.

How do I get myself out of debt?

The concepts I am going to discuss have taught many people how to get out of debt fast. These suggestions will certainly equip you to discover cash in your budget plan and also get yourself out of debt.

I’ll then offer you three more steps to entirely repay your debt. It will aid you with benefit approaches to facing those greatest difficulties in being debt-free. Utilizing these methods to repay your debt will put you on the path to building your credit rating score back up.  

Warning on how to be debt-free fast

I’ve got to put a little warning here. If you are trying to get debt-free in a fairly brief time, whether you’ve got five thousand or fifty thousand of debt, it’s going to involve some difficult decisions.

You need to dedicate yourself fully to taking these steps I’m sharing with you and to stick with it for your debt-free future. You’re probably better off just clicking out to enjoy some pet cat videos if you’re not ready to make that commitment!

How can I reduce my debt quickly?

Step 1 – Here is my first step to becoming debt free.  This one is crucial before anything else. You need to get some quiet time and make you’re becoming debt-free objectives real. Making those goals real does not suggest simply thinking them out for 5 seconds.

What will you do daily when you’re debt-free? What will it feel like? How will your life be different?  Write out this story on a piece of paper. Then start making you how to get out of debt fast plan.

Step 2 – Just how much do you intend to pay off in three months?  In six months? You’ll make use of the actions explained below to create these objectives. The suggestion is that you have some shorter-term goals of how much to save and also just how much debt to repay.

These shorter-term goals need to feed into your longer-term 1-year goal. They’re easier to get to than that big goal.  They also will inspire you to keep going when you reach them. With your goals done, it’s time to prepare your month-to-month budget. It is a plan of where your cash comes in from and where your money is going.

You require to take the time to write down every source of revenue you have and also how much from each one. You also require to recognize and write down where the money is going. As soon as you have done that, your very first big money-saver is going to be to plan spending challenges.

Now I know I just lost half of you.  This isn’t a budgeting blog per se. You need to develop your budget on your own.  I have written other blogs on the topic of budgeting which you can read here.

Step 3 – I like these fast little bursts of saving cash.  As well, they’re going to disclose a lot concerning your spending. The way a spending challenge functions is you take one item from your budget plan, something you have control over like purchasing clothing, eating in restaurants or other shopping.

You’re going to challenge yourself to reduce that spending in half or eliminate it out entirely over the next 2 months. I am not talking about going cold turkey and not spending anything. I am speaking about a short-term challenge of a couple of months and also on 1 or 2 spending items at a time.

These spending challenges work on so many levels and I guarantee you’ll love them as much as I do.  By only taking one or two items from your budget, you’re not trying to skimp and save every penny.

You can still have fun.  You’re just experimenting cutting back on a few things at a time.  Besides saving a lot of money, this is going to show you what you don’t care about in your budget.  Even after the spending challenge, you’ll find that some of these things don’t matter that much and you’ll keep saving money.

I know somebody that used this spending challenge concept for just 6 months and saved a great deal of cash.  They used that cash to pay down debt! These spending challenges are super-easy to maintain since they are only for 2 months. You’re not trying to go a year without spending. It is eight short weeks so you’ll always see the finish line.

What’s great is that eight weeks is right around the time it takes to build new habits and break old ones.  Even if you go back to spending a little more after the challenge, those new habits are going to drive you and help you save easier.  Maintaining this new behaviour is one of the keys for how to get out of debt fast.

How to get out of debt on a low income

Step 4 – Next is to do a complete decluttering.  Don’t stress, I guarantee it’s much easier than it seems. A clutter clean means going room-to-room in your apartment, condo or house and taking out every little thing you don’t need.  Particularly those things you don’t use.

This means the treadmill you never used, those movies you never see, also the furniture you never rest on. Anything that isn’t being used or making your life better, offer it for sale online or where ever you can market it.

Old clothes can go to a consignment shop, videos, as well as books to a half-price book store, to sell. Not only are you making a little money here to help pay off your financial debts, however, but you’re also ridding yourself of what you do not make use of.

It could be a challenging reality to face the fact that you may have squandered your cash getting some of these things.  But it is that wakeup call we all need to keep us from wasting more of our money on even more stuff.

Step 5 – This is going to be another tough decision but its one that a lot of people need to make.  That is taking a cold, hard look at how you’re getting around every day.

I like watching or listening to shows and reading about people talking about how much debt they have.  What always amazes me about these, and I see this probably 90% of the time, is how many people have new car payments they can’t afford.  Seriously, people just don’t seem to see how a monthly $800 new car payment is wrecking their budget!

Besides the payment itself, insurance and registration are going to be more on a new car.  Now I’m not saying you can’t have nice things or that you should never buy a new car. Perhaps a demo or a car in good condition that just came off a 3-year lease would be more economical and save you money.

Enjoy your money!  We don’t have a lot of time on this earth and you have to enjoy it.  But you can’t enjoy life if you’re constantly stressed out from the burden of that debt.  So you need to take a look at what’s parked in the driveway.

If it’s a new car and you have more than $20,000 in debt, sell that sucker or trade it in.  Get a used car that’s going to save you a few hundred a month and use it to pay down your debt!

Step 6 – This one is going to be to fight lifestyle creep.  Lifestyle creep is how your spending seems to rise along with your income so you’re always stuck in that paycheque-to-paycheque money trap.  

How is it that we get tax refunds or a raise but never have enough to save?  You work overtime but the money just seems to evaporate into thin air. It’s that problem of lifestyle creep.  Our budget always seems to grow to eat up whatever income there is.  

Fighting lifestyle creep just means writing out that budget, knowing how much you’re spending and then making that effort to not spend more just because you’ve got a little extra.  The best way I’ve found to do this is to assign all your extra money to that debt payoff plan or a retirement investing account.

By having a place for that extra money, it stops being extra and that temptation to fill the gap with extra spending goes away.  It might not seem like it will save much but you would be surprised how quickly regular smaller amounts will add up.

Step 7 – My last money-saving trick before we get to those 3 debt repayment methods is going to be to freeze your credit cards. As I have stated lots of times in the past, you simply do not get that same mental and emotional feeling when you use a credit card that you get when you pay with cash.

I’m not saying to cut up your cards. I have a credit card I use for business spending and personal spending.  It is also helpful to have one for emergencies if you don’t have a cash emergency fund. Freezing your credit cards is going to still keep that option open yet it makes you reconsider your spending on almost every item.

Simply put, those 7 money-saving hacks are going to provide you with thousands to plan with to pay off debt quickly. None of them are awfully hard and I assure you they will help put you back on the right track.

How can I pay off 5000 in debt fast?

Now I want to share three more debt strategies.  These are ways to pay off your debt and restructuring your debt to get it paid off as fast as possible.  You need to know how to prioritize your debt payoff. It is amazing how just a little tweak in how you pay your bills can mean a huge difference in getting debt-free.

There are two debt payoff strategies that I’ve talked about in Brandon’s Blog quite a bit: (i) the avalanche method; and (ii) the debt snowball method.  Picking one of these two strategies is going to help you save money on interest and motivate you when budgeting gets tough.  I’ve detailed these two strategies in other blogs like the one you can read by clicking here. I’ll give you the general outline here.  These two methods are very common as to how to get out of debt fast.

In the debt avalanche method, you list out your debts in order of interest rate from the highest rate to the lowest.  You still have to make minimum payments each month but you use any extra money, the money we found from those seven savings strategies before, to make extra payments on those with the highest rate of interest.  

This method makes the most sense financially because by paying off those high-rate debts first, you’re saving money.  A lot of times, these high-rate debts are going to be the highest payments as well so paying them off faster is going to free up a lot of room in your budget.

That other method, the debt snowball method, means listing your debts by order of amount owed from smallest to largest.  Here instead of making those extra payments to the highest-rate debt, you’re paying more on the debts with the lowest amount owed.  That means you’re going to see these small debts fall off your list faster.

And while that avalanche method might save the most money, that snowball method is hugely motivating.  You’re going to see those debts fall off your list fast and that’s going to help you keep going with your budget and saving money.

So think carefully about the debt snowball vs debt avalanche methods and pick the one you think will make you feel the best.  But even if you’re not following a specific debt payoff strategy, I want you to try just putting an extra $15 a month towards paying off your debt.  Do more if you can but even this small amount is going to go a long way and save you a lot of money.

How to pay off credit card debt

The third strategy comes after picking one of the two debt payoff strategies I just mentioned.  This third strategy is to get your interest rates lowered on the debt you have.  TransUnion Canada has said that in 2018, the average Canadian’s non-mortgage debt stood at $29,312 per person, including an average credit card balance of $4,154.  With interest rates at a minimum of 19% per annum, that means you’re paying $166.16 a month just for the minimum monthly payment.  

Using the average credit card balance, at $166.16, it would take you over 10 years to pay off $4,154.  If the entire average non-mortgage debt of $29,312 is credit card debt, then the minimum monthly payment would be $1,172.48.  It would take 17.4 years to pay off the balance. That’s going to make it impossible to get out ahead so we’re going to focus first on these cards to lower our rates.

The first thing you can do is just call the credit card company and ask for a six-month introductory rate.  Tell them you’re thinking about a balance transfer to a zero percent rate you are being offered by another credit card issuer, but you’d like to stick with them if they’ll match the offer.  A lot of times, this is all it takes.

Getting a six-month introductory rate on that average balance means you’ll save almost $1,000 on a call that takes all of five minutes to make.  If your credit card company won’t lower your rate, then start looking for those introductory rate cards and make a balance transfer. Either way, you’re going to be saving money that you can put into faster debt payoff.

Another option is going to be to just consolidate your debt into a personal loan.  This means taking out a signature loan from a bank to pay off those high-rate cards.  IF you still have a decent credit score and a job, then hopefully you can qualify for a personal loan.  With a personal loan which probably has an interest rate 10% lower than the credit card rate, you’ll save hundreds of dollars, and you’ll get a fixed payment and a payoff date instead of that hamster wheel of credit cards.

How to get out of debt on a low income

Now you’ve got 7 financial concepts and 2 debt payoff techniques to help you pay down your debt.  But I want to talk to you about one more action that most people miss out on. It is essential to creating your financial future.  The problem is that so many people living paycheque to paycheque are only looking at their finances from one side of the equation. They get into debt or are trying to get out ahead and they immediately go to budgeting and saving money.  But how realistic is that when your budget is already cut to the bone?

They claim you cannot squeeze blood from a rock and you cannot save money from a budget that is barely sufficient to make ends meet as it is. Instead, what I want you to do is to look at this from the other side of the formula. Do not check out it simply from the side of saving money but making even more cash also. 

This doesn’t mean getting a 2nd job. It can be as easy as investing simply five or 10 hours a week in a side hustle, making that additional $200 a week to help pay for your debt much faster. You’re not only going to be paying down debt.  You likewise are going to be happier because every little thing isn’t depending upon skimping and cutting your spending plan to live like a miser.

Doing all this, you’re going to be impressed at exactly how quick you repay your debt. When you get out from under that constant burden of debt I want you to feel it. It is a great sensation.

Summary

I hope you found this Brandon’s Blog on how to get out of debt fast and my tips to pay off your debt helpful.  Sometimes though things are too far gone and more drastic and immediate triage action is required.

Do you have too much debt?  Are you in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex restructuring.  However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.  You are worried because you are facing significant financial challenges. 

It is not your fault that you are in this situation.  You have been only shown the old ways that do not work anymore.  The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy.  We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional.  The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

 

BUY NOTHING DAY CANADA: WILL IT HAVE ANY EFFECT ON HOLIDAY SHOPPING

Introduction

Buy Nothing Day Canada is part of an international day of protest against consumerism. In North America, it takes place on the Friday after U.S. Thanksgiving.  That is the same day as Black Friday. Elsewhere, it is held on the last Saturday in November. 

It is a Canadian invention.  Founded in Vancouver by creator Ted Dave in 1992 it was subsequently advertised by Adbusters magazine, based in Canada.

In this Brandon’s Blog, I discuss what effect, if any, Buy Nothing Day Canada has on Black Friday, Cyber Monday and holiday shopping in general.  I also provide some tips on how not to go deep into debt from holiday spending.

What is the purpose of Buy Nothing Day Canada?

Buy Nothing Day Canada and worldwide, it is meant as a day for society to take a look at the problem of over-consumption.  In 2000, Adbusters tried to purchase advertising time on television to promote Buy Nothing Day Canada and elsewhere were rejected marketing time by nearly all significant TV networks besides CNN.

Notwithstanding, it has become a grassroots movement.  Campaigns started showing up in the USA, the United Kingdom, Israel, Austria, Germany, New Zealand, Japan, the Netherlands, France, Norway and Sweden. Currently, it is held in about 65 countries.

Doubters of the day feel that it merely:

  • shifts people’s buying habits to the next day; or
  • appeals really only to those people who rebel against over-consumerism all year through. 

Is it effective?

Based on a recent study, I think Buy Nothing Day Canada is meaningful only to those who already practise a lifestyle against over-consumerism.  This study says that Canadians will spend approximately$1,593 per person for the 2019 holiday season. This is a little up from $1,563 (or 1.9 percent) in 2018, according to the same report.

For many years now, there have been reports that say Canadians are over their heads in debt.  They are living paycheque to paycheque.  On average, Canadian adults are $200 away from financial disaster.  I have written several blogs on the topic of Canadian households in debt.

So, from what I can tell, this movement has no effect at all on holiday shoppers.

Must I resort to a buy nothing Christmas?

Black Friday and Cyber Monday are over. You may feel you overdid it on your holiday spending last year. Perhaps it put you in a bad place that took a lot of time to get out of.  You don’t wish to repeat it going into 2020. 

So I have created a holiday spending in Canada tips list to try to assist with your budgeting for the holidays. Ideally, by following my suggestions, you won’t get in the brand-new year with more financial debt that you cannot handle. You will have avoided one of the most typical holiday spending blunders.

By following my tips, you can buy gifts and remain financially healthy without resorting to shopping abstinence. 

But first, it all starts with a budget

You don’t need to adhere to a Buy Nothing Day Canada philosophy, but you do have to live within your means.  So, the overall key is proper budgeting for holiday spending.  It is so vital that you think out your holiday budget before you start spending.  

I believe there are 3 major classifications to your Xmas holiday spending plan: 

  1. presents;
  2. food and beverage in your home if you are hosting; and 
  3. tree and decors.

To begin setting your holiday budget plan, you need to establish 3 separate mini-budgets; one for each item. For gifts, the first thing is to detail out everybody you feel you would like to buy a gift for.  After that reduce the list to everyone you really must buy a present for. You may not be able to manage your “desires”, but only your “needs”. The various other classifications will be easier to establish.

Now, check out your regular monthly earnings and expenses as well as any kind of savings you might have designated for holiday costs.  This will help you to understand just how much you can afford to spend without going into holiday spending financial debt. Simply figure out the amount you can safely spend. 

With that total, you should estimate your spend in the food and drink and tree and decors groups. What you have leftover in total will be your gift spending plan. Nothing is set in stone. If you feel you require to readjust the allowances among the 3 categories, go right ahead. Eventually, you will be left with your present total spending plan.

Now spread out the total gift budget among the people. Your specific amounts need to add up to a number not higher than the total you established as your total gift spending amount. With the budgeting worksheets finalized, it is now time to go shopping!

Holiday spending in Canada tips list

Purchase with objectives – You have determined just how much you can safely spend on each person.  Get the best gift possible for each that satisfies your spending budget. Stick to the financial limitations of your gifts. You can now spend more time focussing on the appropriateness of the gift within your budget limitations

Only spend cash don’t buy on plastic – You will be lured to buy with your charge cards. Using plastic will cause you to overspend due to the fact that you will not feel the purchase. To truly feel it, you must only use cash. When you feel it, you don’t spend beyond your means. You will also stay clear of the nasty shock in January since you won’t get an unmanageable credit card statement.  You will feel terrific in both December and January.

Think of a family present to conserve cash – If you feel you will not be able to afford specific gifts, think of people in the very same family and search for a household present. A gift card for the household to go see a movie or a family pass for admission to a tourist site may turn out to be cheaper than the overall cost of separate gifts.  Or one thing for their home that you feel all family members will take pleasure in. Look at that option. There are many opportunities for a group gift.

Give an experience, not simply your money – Do not think that the only gift that counts is one that sets you back the money. You have numerous abilities and talents. Probably one or more would certainly make an excellent present. If you cannot think of anything special you can give of yourself to that special someone that would make a wonderful present, how about your time? Think to babysit for nieces or nephews.  How about helping out an ageing relative because they can’t go out a lot on their own but have appointments or tasks to get. These can all count as useful presents that won’t cost you anything or much in any way. Your time and enjoying each other’s company are much more valuable than any gift you would buy in the mall or online.

Think outside the gift box – If you do not have a box of ornaments from years past to use, think artistically. The accessories bought at a Dollar Store will look just as good on your tree as ones bought at a more expensive specialty shop. Or, use your own imagination to make your own. If you aren’t sure where to start, look online.  There are many video clips to reveal step-by-step how to make terrific looking ornaments that don’t cost too much for materials. Your creativity and labour, of course, is cost-free.

Summary

I hope you found this Brandon’s Blog on Buy Nothing Day Canada and my holiday spending tips useful.  Are you in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex restructuring.  However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.  You are worried because you are facing significant financial challenges. 

It is not your fault that you are in this situation.  You have been only shown the old ways that do not work anymore.  The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy.  We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional.  The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

buy nothing day canada

UNDISCHARGED BANKRUPT: WHAT YOU NEED TO KNOW ABOUT BANKRUPTCY DISCHARGE

undischarged bankruptIf you would prefer to hear an audio version of this undischarged bankrupt Brandon’s Blog, please scroll down to the bottom and click on the podcast

Introduction

I recently read a Manitoba court decision issued in late October about the position taken by a judgment creditor in an undischarged bankrupt’s hearing.  The creditor holding the judgment realized that the bankrupt’s discharge would discharge that debt.  So, they tried to convince the court that their debt fit into one of the limited classes of debt that is not discharged by the bankrupt’s discharge.

That court case reminded me that is not so unusual.  Many times a creditor who holds a judgment against the undischarged bankrupt tries to bootstrap their position.  One of the leading cases cited by the Manitoba court is a 2018 decision from the Court of Appeal for Ontario.

The purpose of this Brandon’s Blog is to describe the bankruptcy discharge process, the position taken by the judgment creditor and what the Court has to say about that.

How bankruptcies work in Canada

The Canadian bankruptcy legislation is open for an insolvent and not viable company, or for the insolvent, honest but unfortunate person can obtain relief.  Subject to the rights of trust claimants and secured creditors, the company or person is assigning all of their unencumbered assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee).  In return, the bankrupt person can have all of their debts discharged, subject to certain exceptions.

The bankruptcy discharge is amongst the primary advantages of relief under the Bankruptcy and Insolvency Act (Canada) (BIA). The discharge is vital to the bankruptcy procedure. Debtors, after bankruptcy, can wipe the slate tidy as well as begin over.  This is a central concept under the BIA law. That is the essence of the bankruptcy discharge meaning.

A bankruptcy discharge is when the bankrupt is released under Canadian bankruptcy law from his or her financial debts as part of the bankruptcy discharge procedure. Some people think that it is the declaring for bankruptcy that releases the insolvent from obligation.  This is not the case, it is the discharge that releases a bankrupt from debt.

A bankruptcy discharge provides the discharge of all unsecured debts, except for:

  • support payments to a previous partner or to children;
  • penalties or fines enforced by the Court;
  • financial debts arising from fraud or fraudulent breach of trust;
  • student loans if less than seven years have actually passed since the bankrupt stopped being a part-time or full-time student.

Trustee opposed discharge

A first time bankrupt, who does not need to pay surplus income, is entitled to an automatic discharge after 9 months.  This assumes that they have lived up to all of their obligations as an undischarged bankrupt and fully cooperated with the LIT.  If this first time bankrupt is subject to surplus income, then they must pay it for 21 months before they are entitled to a discharge.  Longer timelines apply for a second or more time bankrupt.

If the Trustee has evidence that the bankrupt has not been forthright and fully cooperative, or has actually committed one or more bankruptcy offences, then the Trustee has a duty to oppose the bankrupt’s discharge.

Notice of opposition to discharge

Similarly, any unsecured creditor can oppose the bankrupt’s discharge.  The grounds of opposition would likewise be evidence of lack of honesty or that one or more offences have been committed.  The process for a creditor opposing the discharge of the bankrupt is by filing a notice of opposition to discharge.

In either a Trustee or creditor opposed discharge, the bankrupt’s application for discharge must be heard in Bankruptcy Court.  For more on the discharge process, you can read about it one of my previous Brandon’s Blogs.

The judgement creditor

Many times a judgment creditor thinks they have a higher position in the pecking order than other unsecured creditors because they have a judgment.  They may have even registered the judgement against the title to real estate owned wholly or partially by the defendant. Unfortunately, upon the bankruptcy of a person, all enforcement proceedings on a judgment must stop.

The judgment for a debt, in bankruptcy, is merely a piece of paper that proves you have unsecured debt.  Nothing else. Anyone who understands the litigation process knows that there is a big difference between getting a judgment and collecting on it.

Judgement creditors may take a keener interest in the bankruptcy proceedings, including opposing the discharge from bankruptcy.  The reasons for this are twofold:

  • The judgment creditor has already spent time in court, money on legal fees and still have not collected their debt, so they are more invested in this person’s bankruptcy than someone who did not go the court route.
  • They are hoping that they can somehow fit their judgment for money only into a position where they can claim that the debt is one not released by an order of discharge.

It is this second reason that this Manitoba court case, and the Court of Appeal for Ontario decision relied upon by the Manitoba court, revolves around.

Can more evidence be introduced by a judgment creditor at the discharge hearing?

Most judgements that I see in a debt settlement program under the BIA or in bankruptcy tend to fall into the same category.  A service or good was supplied and not paid for. A contract was entered into and was breached. That is just normal business.  There is no fraud, embezzlement, misappropriation, defalcation, fraudulent misrepresentation or fraudulent breach of trust. It is simply someone owes money and didn’t pay.  The plaintiff entered all of the evidence they thought was important, the defendant either defended or allowed for default judgment to be obtained because they did not defend.  Regardless, the court ordered the defendant to pay the money.

The judgement creditor was unpaid and then one day received the Trustee’s notice of bankruptcy in the mail.  The judgment creditor was incensed. The creditor took an active interest in the bankruptcy proceedings and maybe even served as a bankruptcy inspector.  The bankrupt person is now entitled to apply for his or her discharge from bankruptcy. The judgment creditor is unhappy because they now know that they are receiving either nothing or a small dividend from the Trustee compared to the debt to be written off.  So they now oppose the bankrupt’s discharge and try to get new evidence submitted to the Bankruptcy Court to somehow prove that their judgment is a claim that is not extinguished by the person’s bankruptcy discharge.

This is what the Court of Appeal decision was all about.  Can you introduce new evidence at a bankruptcy discharge hearing?  

The case I am referring to, Lawyers’ Professional Indemnity Company v. Rodriguez, 2018 ONCA 171 (CanLII).  The appeals court said that the answer is no. You can read the entire decision here if you like.  The Court of Appeal essentially said that the Court is allowed to look at:

  • the judgment
  • the proof that would certainly have been entered as evidence at the time in the pleadings
  • as well as that evidence which has been led in the bankruptcy discharge hearing

to analyze whether the judgment debt falls within an exclusion to the general discharge rules.  The Court also said that in a bankruptcy discharge hearing, the application judge was limited to looking at the judgment, the pleadings, the statement of claim and any statement of defence, to determine whether the judgment fell into the class of those debts not released by a discharge from bankruptcy.  New evidence is not allowed.

This finding has been followed and further clarified.  It is now apparent that the only purpose of a bankrupt’s application for discharge is to consider the bankrupt’s application.  It is not a forum to attempt to advance new or amended claims.

Summary

I hope you enjoyed this Brandon’s Blog on the undischarged bankrupt.  Are you in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex restructuring.  However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.  You are worried because you are facing significant financial challenges. 

It is not your fault that you are in this situation.  You have been only shown the old ways that do not work anymore.  The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy.  We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional.  The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

CANADA DEBT HELP: ARE YOU MAKING THESE DEBT RELIEF MISTAKES?

Introduction

On Friday, November 22, 2019, Manulife Bank published its most recent Manulife Bank Canada debt help survey.  Manulife Bank publishes its survey annually.  The 2019 survey, compared to previous ones, shows that two in five Canadians have given up all hope of ever being debt-free.

In Brandon’s Blog, I review the main findings of the survey.  The results show the debt relief mistakes being made. I will also discuss how you can get yourself out of debt so that you won’t be one of the 40% of Canadians that have given up all hope.

Manulife Bank Canadian customer debt relief reviews

The Manulife Bank Canada poll questioned 2,001 Canadians in all provinces between ages 20 and 69 with household revenue of more than $40,000. The survey was carried out on the internet by Ipsos between September 20 to September 26, 2019.  National results were weighted by gender, age, area as well as education.

The 2019 survey results show:

  1. Two in 5 question will they ever be debt-free in their lifetime.
  2. Spending-to-income % is trending negatively in Canada.
  3. Ninety-four percent of Canadians say the ordinary home is in too much financial debt.
  4. The spending-to-income proportion is trending adversely as 45 percent record that their expenses are rising faster than their revenue.
  5. Sixty-seven percent of Canadians with too much debt presume everybody else does too. 

“There is a financial wellness crisis, and it’s affecting Canadians of all demographics,” said Rick Lunny, President and CEO, Manulife Bank.

Canadians not really asking “How can I get out of debt in Canada?”

One of the saddest parts of the survey is what I did not read.  Apparently, Canadians surveyed are not asking how they can get out of debt.  Rather, they are just resigned to that being their normal reality.

The survey also shows differences by generation.  Whether you are a Boomer, Generation X or Millennial makes a difference.  This makes sense as the different generations are at different stages of life.

The generational differences are:

  1. Boomers – 38% of these survey participants say that their spending is greater than their income and 31% feel they will never be debt-free.
  2. Millennials – 46% of those surveyed say that their costs are greater than their earnings and 42% feel they don’t see themselves ever paying off debt.
  3. Generation X – 54% of these study participants state that their expenses are higher than their earnings and 49% feel they will certainly never ever get out of debt.

How can I get relief from debt?

So with these survey results as a backdrop, the question these Canadians need to ask is how to get debt relief.  There are no free Canadian government grants to pay off debt.  According to Manulife Bank Canada debt help is required by many Canadians.

People have to take matters into their own hands.  It starts with a household budget.  All members of the family have to be involved in preparing it and you need complete buy-in for it to be successful.  The budgeting process begins with understanding what the family’s after-tax income is every month and what all of the household expenses are.  Then, all the expenses have to be looked at critically to determine which are necessary and which represent “wants” not “needs”. You can also look at the income side and see if there are opportunities to also increase income.  

The goal of the budgeting process is to end up with a household budget that is realistic, will be tracked and all family members will be accountable for.  Monthly expenses cannot be greater than the monthly net after-tax income. The budget must also have room for making regular monthly payments to pay down debt, including credit card debt.  The budget must also include regular monthly savings, in order to build up an emergency fund.  The emergency fund is essential to meet unexpected expenses or income loss.

The 6 main benefits of a household budget

The 6 main benefits of a household budget are:

  1. A budget offers you the ability to have control over your cash: A budget plan is a list of all revenues and costs. It permits you to plan exactly how you intend to spend your money. Rather than money just flying out of your pocketbook, you make deliberate choices on where you desire your cash to go. You’ll never need to wonder each month where your money went.
  2. A budget keeps you concentrated on your economic goals: Budgeting will enable you to meet your money objectives – paying down debt, putting money away in a retirement savings plan, getting a home – as long as you follow it consistently. With a budget, you’ll know exactly what you can afford and you can separate your money appropriately. E.g. If your instant goal is to save for the deposit of a house, then you might need to pass up that holiday you wanted to take. Your spending plan will inform you specifically what you can or can’t manage.
  3. A budget plan will ensure that you do not spend what you do not have: Charge cards are a great convenience yet they also make it really easy to spend due to the fact that there is no cash exchanged in the transaction. Many Canadians rack up major credit card spending and land up deep in debt before they recognize what’s occurred. When you use and stay with your spending plan you need to record every little thing you spend, even if it’s a bank card purchase. You will not wake up deep in debt, ask yourself how you arrived there.
  4. A spending plan will prepare you for the unanticipated: Every budget plan must have a rainy day fund for those unanticipated costs. It’s recommended that you should budget for three months worth of costs for when there may be an unanticipated layoff or various other unplanned for a significant expense. Don’t be distressed; you do not need to save all the cash at once. Build your fund up slowly.
  5. A budget decreases tension: Lots of Canadians panic every month about where the money will come from to pay their bills. A budget will offer you satisfaction. It reveals to you just how much you earn and what your expenses are. If need be you can reduce unneeded expenditures or take on an extra gig to live within a well-balanced budget. No more panicking at the end of the month.
  6. A budget plan can assist you to pay for the retirement you’ve been desiring: Saving for your retirement is really essential and your spending plan can help you save for your future. Reserve part of your income every month for retirement savings. Beginning early as well as consistently stick to it. The money you conserve now will determine the type of retirement you can anticipate.

Is there a government debt relief program?

There is a government-approved debt relief program.  It is governed under the federal Bankruptcy and Insolvency Act (Canada) (BIA).  There are 3 personal debt government approved debt relief programs.  The only person authorized to administer any of these debt settlement programs is a licensed insolvency trustee (formerly called a trustee in bankruptcy).

I have written about them before, but I will summarize here what they are:

  1.  Consumer proposal:  A consumer proposal is a streamlined process. This process enables insolvent people to make a formal deal with their creditors. This federal government authorized financial debt settlement program allows you to repay only a portion of what you owe to eliminate all of your debts.  You can take as long as 5 years of routine month-to-month payments to do so.  To qualify, you have to be insolvent and owe $250,000 or less to all creditors, apart from for any kind of financial obligations secured by way of registration against your house.  A successful consumer proposal allows you to keep your assets that you can afford to keep.  It also allows you to avoid bankruptcy.
  2. Division I proposal:  A Division I proposal offers the same protections as a consumer proposal.  If successfully completed, it provides the same benefits as the consumer proposal, including avoiding bankruptcy.  This kind of proposal is not as streamlined as a consumer proposal and is for people who owe more than $250,000, not including any mortgage or other loan registration against your home.  The other major difference is that an unsuccessful Division I Proposal results in an automatic bankruptcy.  A consumer proposal does not have this same automatic provision.
  3. BankruptcyBankruptcy is a process whereby in exchange for giving up your assets to the Trustee (with certain provincial exemptions), the honest but unfortunate debtor will be able to discharge all of their debts (with certain exceptions).  When I meet with insolvent people for their no-cost consultation to explore their options, I always try to find the option that allows them to avoid bankruptcy as long as it is feasible and realistic.

Canada debt help summary

I hope you enjoyed this Brandon’s Blog on Canada debt help.  Are you in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex restructuring.  However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.  You are worried because you are facing significant financial challenges. 

It is not your fault that you are in this situation.  You have been only shown the old ways that do not work anymore.  The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy.  We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional.  The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.canada debt help

HOW DOES DEBT RELIEF WORK: APPARENTLY NOT GREAT 4 EVERYONE

how does debt relief workIf you would prefer to listen to the audio version of this how does debt relief work Brandon’s Blog, please scroll to the bottom and click on the podcast.

Introduction

On October 29, 2019, The Supreme Court of British Columbia, certified a class-action lawsuit in Pearce v. 4 Pillars Consulting Group Inc., 2019 BCSC 1851.  At the crux of the litigation, the question of how does debt relief work legally will be answered.  In Brandon’s Blog, I describe the issues raised in this class-action lawsuit.

What is a class action?

In a class action, one or more individuals called Representative Plaintiffs sue on behalf of all other individuals with similar claims. With each other, the people included in the class action are called Class Members. One court settles the concerns for all Class Members, with the exception of those that exclude themselves from the Class.

The class-action

A class-action legal action has been begun in the B.C. Supreme Court against the 4 Pillars Consulting Group Inc. (4 Pillars).  The claim is that the 4 Pillars debt consulting business has breached the B.C. Business Practices and Consumer Protection Act as well as the federal Bankruptcy and Insolvency Act (Canada) (BIA).

The Plaintiff seeks to certify his action as class proceedings.  The litigation looks to recoup damages for the costs billed by 4 Pillars to its clients.  In the 4 Pillars litigation, Mr. Pearce is looking to recoup damages for the costs billed by 4 Pillars to all persons that paid fees to it in British Columbia in connection with: (i) a consumer proposal under the BIA; or (ii) an informal debt settlement proposal with the person’s creditors, all after April 1, 2016.

The allegations

In his litigation, the Plaintiff claims that the Defendant provided debt restructuring services in breach of both provincial legislation and the BIA.  

Mr. Pearce alleges that:

  • The major, if not single, debt restructuring solution given by 4 Pillars is to prepare the consumer proposal documents to hand over to a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) and schedules a meeting with the Trustee so that the consumer proposal can be submitted;
  • 4 Pillars represent that it might hold financial liability negotiations directly with a customer’s creditors, although that service is hardly ever really supplied;
  • Their standard form agreement, which clients need to enter into with them, allows 4 Pillars to speak to the client’s creditors on their behalf;
  • Under their standard procedures, 4 Pillars gets in touch with the debtor’s creditors to advise them that they are acting for the debtor and they will need time to make plans for the debtor; and
  • They meet the debtor numerous times, collect information from the borrower, prepare a consumer proposal to provide to a Trustee and afterward meets the Trustee to administer the proposal.

Mr. Pearce goes on to state that 4 Pillars:

  • acts only for its clients, the borrowers;
  • prepares a consumer proposal for its clients and afterward represents to the Trustee why the proposal terms are reasonable;
  • urges the Trustee to recommend that the creditors accept the proposal on the suggested terms;
  • meets the Trustee and helps in answering the Trustee’s concerns; and
  • will, ideally, create an alternate proposal and, once more, advocate the Trustee, if their first consumer proposal is rejected by the borrower’s creditors.

The alleged cause of action under the BIA

Mr. Pearce claims that contrary to the provisions of the BIA:

  •  none of the entities or individuals offering financial debt restructuring services are Trustees;
  • performed various regulated activities that only Trustees are authorized to carry out;
  • collected financial information from their customers and prepared consumer proposals for them;
  • required borrowers to pay fees and costs which are not allowed; and
  • 4 Pillars has actively solicited people to file consumer proposals which is prohibited.

There are many more claims being made by Mr. Pearce, including that there is not any real debt settlement negotiation with creditors or any real debt relief management, other than the preparation of the consumer proposal.  The Defendant, of course, denies it all. After hearing all the evidence, the Court found that there were sufficient grounds for this litigation to go forward as a class-action lawsuit.

Are Debt Relief Programs a good idea?

Is debt settlement a good idea?  Debt relief programs are a good idea.  However, as Mr. Pearce’s litigation shows, there are companies that charge high fees and really provide no value.  Worse, they may actually do more harm than good.

I have previously blogged about the risks of debt settlement businesses. In 2017, I covered the study by the Office of the Superintendent of Bankruptcy (OSB) on debt negotiation companies. 

The major findings of the OSB study were that in 2016:

  • In 17% of all consumer proposal filings, the client reported having spent initially for debt counselling from a debt settlement company before being guided to a Trustee.
  • 57% of the consumer proposal filings for which earlier financial debt settlement advice was obtained, the Trustees had strong ties with 2 large-volume financial debt settlement companies. These 2 companies represented 64% of the total for those Trustee fees reported in 2016 for financial advice before submitting to a proceeding with a Trustee.
  • Thirteen Trustee firms, that included one national-level firm, were uncovered to have countless Trustees running in routine partnership with large-volume financial debt settlement firms.
  • For about 50 Trustees within these 13 firms, much better than 40% of their consumer filings were sourced from these debt settlement companies. For about 20 of those Trustees, more than 90% of their consumer proposal work stems from these 2 organizations.
  • Financial debt negotiation companies have actually long utilized scare tactics with consumers to draw in business. They tell consumers that all a Trustee intends to do is put them into bankruptcy.

The OSB concluded that customers were paying financial debt settlement companies fees with cash they could not afford to pay. Only when they could no longer pay, then the debt settlement company referred the people to their favourite Trustees! The OSB was additionally concerned about the business arrangements being made between financial debt settlement outfits and those same Trustees.  The OSB is very concerned with how does debt relief work in Canada since it supervises the insolvency process in Canada.

Ever since the OSB has actually introduced modifications to methods that Trustees have to comply with for the regulation of debt counsellors and business arrangements with a view to curb these practices. For the record, I as well as my Firm have no relationship with any type of debt negotiation company.

Do Debt relief companies really work?

What this says is that a legitimate credit counselling service can offer a good debt settlement program.  There are community-based credit counselling agencies that do not charge fees and they really do know how does debt relief work.  These organizations provide a valuable service in the areas of budgeting and debt management.  They are not the kind of debt settlement company that rips off unsuspecting people and prey on their fears of going to see a Trustee.

How does a debt relief program affect your credit?

With a debt relief program run by a reputable credit counselling agency, you make one regular monthly repayment to the credit counsellor, which after that disburses repayments to your creditors. This kind of plan can have a negative influence on your credit rating. Naturally, any type of late payments or high unpaid amounts on accounts will certainly worsen your credit rating.

The unscrupulous debt relief companies have an additional trick up their sleeve that makes your credit score worse.  The ones that actually do try to negotiate with your creditors first do not make payments to them from the funds you supply for some time.  Their theory is that your account must first go into arrears. Some people speculate that the money you are paying them, while they are not passing it on to your creditors, goes to the company only.  When your account is now months in default, your credit score worsens.

So, the debt settlement credit score impact is real.

Is Debt Settlement Really Worth It?

A true debt settlement program really is worth it.  With real consumer debt relief you can:

  • get real credit counselling;
  • help with setting and following a family budget where you do not spend more than you earn;
  • receive true debt settlement where you will pay off all your debts for less than what the full amount is;
  • enjoy the time you need to pay this lesser amount to get rid of all your debts;
  • avoid interest and other high fees and charges; and
  • end the stress in your life and move forward without the pain, worry, and guilt that your unmanageable debts have caused you.

There is only one government-approved debt settlement program in Canada.  It achieves all of the above. The only professional authorized to administer it is a Trustee.  As Pearce, now class-action litigation shows, it is a consumer proposal.  A consumer proposal and a Division 1 proposal are alternatives to filing for bankruptcy.  As the Pearce litigation confirms, only a Trustee can administer these kinds of the debt restructuring proposal. 

Although they are the same in a number of ways, there are some substantial distinctions between a consumer proposal and a Division I Proposal.  Consumer proposals are used for people whose financial debts aren’t greater than $250,000, not including any type of debts registered against your house. Division 1 proposals are readily available to both companies and also people whose financial obligations go beyond $250,000 (omitting mortgages signed up on their home).

A consumer proposal is an official process under the BIA. With a Trustee, you make a proposal to:

  • Pay your creditors a percentage of what you owe them over a particular amount of time, not greater than 5 years.
  • Prolong the time you need to pay back the reduced amount taking care of all of your unsecured debts.
  • A mix of both.

Settlements are made by the Trustee, using the monthly cash payments you make to the Trustee to make regular distributions to all your unsecured creditors.

Summary

I hope you enjoyed this Brandon’s Blog on how does debt relief works.  Are you or your company in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex corporate restructuring.  However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.  You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation.  You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy.  We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional.  The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

 

CREDIT COUNSELLING CANADA: VERY BUSY WITH BANKRUPTCY ONLINE CHATTER

credit counselling canada

credit counselling canada

If you would prefer to listen to the audio version of this credit counselling Canada Brandon’s Blog, please scroll down to the bottom and click on the podcast

Introduction

Like many people, I have set up various Google News alerts.  Mine are mostly on the topic of insolvency. I have done this so that whenever a news article is posted on the topic, I will be alerted.  One of the alerts I have set up is for the term “credit counselling Canada”.  Last week I have noticed that a fair bit of bankruptcy online chatter.

The posts being promoted include:

I have taken a look at the posts.  Generally, they are very accurate.

Unscrupulous debt consultants

I was very happy to see some of the posts warning against going to the unscrupulous debt consultants that I have written about before.  The Office of the Superintendent of Bankruptcy (OSB) has also warned against them.

The purpose of this Brandon’s Blog is to comment and shed light on several comments in their recent busy online articles that I think are slightly misleading.

Consumer Proposal Ontario

In the Ontario consumer proposal blog, it is stated that a consumer proposal can only be arranged and administered by a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) which is true.  They then go on to state what the cost of a consumer proposal is, that you need to pay an initial setup fee. They also state that the Trustee will also keep 20% of all of your consumer proposal payments.

This is misleading.  The way I read it, is they claim you will have to pay a Trustee a setup fee, their fee and an additional 20%.  This is not correct. In reality, the Trustee’s fee is a fixed tariff set by the Bankruptcy and Insolvency Act (Canada) (BIA).  The fee and disbursements of the Trustee are set in the statute.  It is illegal, for the Trustee to collect anything above and beyond the statutory tariff.

The reality is that the Trustee’s fee and disbursements, set by a tariff, come out of the person’s consumer proposal payments.  The consumer proposal payments are calculated off of what your creditors can expect in that person’s bankruptcy.  Whatever that amount is, the bankruptcy law says that the amount offered in the consumer proposal must be higher. Therefore, the amount a person must offer to get creditor buy-in to accept the consumer proposal has zero relationships to the Trustee’s fee and disbursements.

As the Trustee is entitled to take its capped fee and disbursements from the consumer proposal fund, rather than costing the person, the Trustee’s fee and disbursements are actually free to the insolvent debtor!

Bankruptcy Trustee, Creditor & Debtor

The blog I read on this topic discussed is pretty accurate.  The only issue I take is that when describing the role of the Trustee, they pull out the old scare tactic that although the Trustee makes sure that the rights of the debtor are not abused, the Trustee acts for your creditors.  This is technically true but overlooks the role of the Trustee as a credit counsellor before the debtor decides whether or not to file either a consumer proposal or for bankruptcy.

In my professional practice, before I allow anyone to file for bankruptcy, I provide an exhaustive and detailed analysis of the person’s financial situation.  I first ask the person to explain the issues and financial crisis they are facing which is upending their life. We then together look at their assets, liabilities and income so that I can come up with realistic options.  We then discuss the options available and I explain the advantages and disadvantages of each. Then I provide my recommendation. All of this is done in an initial consultation and is no charge to the person.

If they wish to explore the options we discussed more seriously, I then have them complete our standard intake form called the Debt Relief Worksheet.  That document when fully completed and provided to me with appropriate backup, allows me to confirm my initial diagnosis and recommendations. Then it is up to the debtor to make their choice as to how they wish to proceed.

After going through this process, with everything fully explained by me, there are no surprises.  If the debtor follows my advice, they will have either a successful debt settlement consumer proposal or will discharge their debts through the bankruptcy process.  During and after this entire process, the debtor does not feel that I am biased against them in favour of their creditors.  Although I have acted formally on behalf of their creditors, the debtor thanks me for saving them and allowing them to restart their lives.

Personal bankruptcy Toronto

The blog I read on personal bankruptcy, part of a credit counselling Canada series, said that people will tell you that bankruptcy eliminated all of their debts.  They then ask the question: Did they tell you that it is not possible for everyone? The obvious answer is no because someone who eliminated all of their debts isn’t worried about someone else’s situation and distinctions.

The three types of debts given as examples that cannot be eliminated by a discharge from bankruptcy are:

  • Secured debts, like mortgages and car loans
  • Student loans where you have ceased being a full-time or part-time student less than 7 years ago
  • Child and alimony support payments

This is all true.  When I counsel debtors during the free consultation, we review issues like this.  We discuss all of the person’s debts, which can be discharged and which cannot be.  Just because a certain debt on its face cannot be discharged through bankruptcy, does not mean that the person cannot properly avail themselves of an insolvency process and improve their financial position in life.

Specifically, with secured debt, I attack it from the perspective of can you afford to keep paying that debt, or should you keep paying it.  If the home is fully encumbered and there is no or little equity, perhaps renting is a cheaper alternative. We go through the same analysis for a car loan.  

In some cases, it might make sense for the person to give up the asset to the mortgagee/lender and allow them to make a demand on the debtor for the shortfall.  A shortfall happens when the lender sells the asset but the market will only pay less than the secured debt owing. The lender’s loss is the shortfall. They can pursue the debtor for the loss.

That lender loss, or shortfall, is now an unsecured debt.  The person has hopefully found a car they can afford and home, condo or apartment to rent they can afford in their budget.  They have now turned the secured debt into an unsecured shortfall claim. That unsecured debt can be discharged through either a consumer proposal or bankruptcy process.  

So just because a secured debt cannot be discharged in bankruptcy, it doesn’t mean the person can afford or should keep that debt and continue making payments.  They may have a better way to live while then being able to discharge their debts through an insolvency process.

Bankruptcy Discharge in Canada

The blog I read on bankruptcy discharge does not say too much about the bankruptcy discharge process.  Rather, they do focus on the dangers of not getting a discharge and remaining undischarged bankrupt.

Everything they say on the topic is true.  However, I believe it does leave out a lot of information.  In my experience, if someone follows my advice and lives up to all of their obligations during the lifetime of their bankruptcy, then they are not going to have a problem with discharge.  It really is only those who try to “game” the system, do not fully cooperate and refuse to make full and transparent disclosure who have problems.  

That is how the BIA is designed to work.  You are asking your creditors to forgo a lot of the debt you owe them.  In return, you have to be fully cooperative and make full disclosure, so that every stakeholder in the bankruptcy process knows that it has been a fair process.

In all of the personal bankruptcies I have administered, it is a very small minority who have a problem with discharge.  In all cases, it is their past behaviour or their lack of full disclosure in bankruptcy that has caused the problems, not the bankruptcy process itself.

Summary

I hope you enjoyed this Brandon’s Blog on credit counselling Canada.  Are you or your company in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex corporate restructuring.  However, more importantly, we understand the needs of the entrepreneur.  You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional.  The way we deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

 

HOW BANKRUPTCIES WORK IN CANADA: 5 NEW CANADIAN INSOLVENCY LAW AMENDMENTS

how bankruptcies work in canada

If you would prefer to listen to the audio version of this how bankruptcies work in Canada Brandon’s Blog, please scroll down to the bottom of the page and click on the podcast

Canadian bankruptcies laws

Last week I wrote about amendments to Canadian insolvency law for intellectual property rights in my Brandon’s Blog INSOLVENCY LAW CANADA AMENDMENTS FOR INTELLECTUAL PROPERTY RIGHTS  In addition to the intellectual property rights amendments, other amendments affecting how bankruptcies work in Canada.  They were enacted as of November 1, 2019.  They too were part of the changes announced in the Canadian 2019 Budget.

Corporate bankruptcies Canada

Most of the amendments affect not just corporate bankruptcies. Receiverships and corporate financial restructuring are likewise affected.  Even the operation of solvent companies is also affected. The amendments were made to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) and the Canada Business Corporations Act (R.S.C., 1985, c. C-44).  I will focus on the changes to the BIA and CCAA.

The BIA and the CCAA modifications in the Budget Implementation Act, 2019, No. 1, are planned to boost retired life protection by making the insolvency treatment fairer and much more clear.  In the legislation, the amendments fall under the heading “Enhancing Retirement Security”.

This issue remained in the news over the past two years. High profile insolvency situations such as Sears Canada and U.S. Steel Canada brought this matter to the forefront. I wrote a few blogs on the topic of proposals to change the BIA and CCAA.  The proposals were meant to supply protection to senior citizens. This consisted of private members’ bills introduced by Hamilton Mountain NDP MP Scott Duvall, Bloc Québécois MP Marilène Gill and Senator Art Eggleton, P. C.

None of their Bills ever came close to being enacted.  Rather, the Liberal government made some changes. Only time will tell if the changes I describe below will accomplish the stated goal of enhancing retirement security.

Insolvency and bankruptcy code amendments – BIA

The BIA amendments will apply to bankruptcy, receivership and BIA financial restructurings done under the Proposal section of the BIA.  The amendments are aimed at several areas. All the insolvency amendments are for insolvency proceedings beginning on or after November 1, 2019.

1. Good faith

Section 4.2 of the BIA is amended by adding a good faith provision section(4.2)(1).  The new language states that any interested person in any type of process under the BIA must act in good faith relative to those proceedings.  New subsection 4.‍2(2) codifies a power for the Court.  It now states that if the court is satisfied that an interested individual fails to act in good faith, on application by any other interested party, the Court might make any kind of order that it thinks is proper in the circumstances.

I would have hoped that acting in good faith was always a given.  Previously, the Court had wide discretion in insolvency proceedings to make an order that it believed to be just and appropriate.  I am not sure this new language adds much to “enhancing retirement security”, but at least now it is codified.

2. Registered disability savings plan

Before Budget Canada 2019, there was a gap when it came to a registered disability savings plan (RDSP).  The gap was that unlike an RRSP or RRIF, there was no exemption for an RDSP in how bankruptcies work in Canada.

Now Paragraph 67(1)‍(b.‍3) of the BIA is amended to include the same exemption for an RDSP that an RRSP and RRIF enjoy.  That is, the amounts in any of these funds are now exempt from seizure in a bankruptcy apart from property added to any such plan or fund in the twelve-month period before the date of bankruptcy.

3. Director liability – Inquiry into dividends, redemption of shares or compensation

Section 101(1) of the BIA has been amended.  It now deals with certain transactions that 1 year before the corporation went bankrupt.   The time period is within the day that is one year prior to the date of the initial bankruptcy event and ending on the date of the bankruptcy both such dates included.  If the corporation had:

  • paid a dividend, aside from a stock dividend;
  • redeemed or acquired for cancellation any one of its shares of the company’s capital stock; or
  • has paid termination pay, severance pay or incentive or other benefits to a director, officer or any person that manages or controls the business 

the Court may, on the application of the licensed insolvency trustee (Trustee), inquire into the transaction to find out whether it took place at a time when the firm was insolvent or whether it made the firm bankrupt.  

If a transaction referred to above has actually occurred, the Court can give judgment to the Trustee against the directors of the firm, jointly as well as severally, or individually as appropriate in the circumstances.  

The amount of the pay or benefits, with interest on the amount, that has not been paid back to the company if the Court discovers that the payment of the pay or benefit:

  • occurred at a time when the company was insolvent or it made the corporation bankrupt;
  • was notably over the reasonable market price of the consideration gotten by the company;
  • was made outside the common course of business

and the directors did not have reasonable grounds to think that the payment:

  • took place when the firm was not insolvent or would not render the firm insolvent;
  • was not conspicuously over the fair market value of the consider obtained by the corporation; and
  • was made in the ordinary course of business.

Interestingly, the new statute also states that a judgment will not be made against or be binding on a director who had protested against the payment of the pay or benefits and had, therefore, vindicated himself or herself under the relevant corporate legislation from any kind of resulting obligation.

No doubt we will only learn how effective this additional liability of directors provision will be after several court cases.  Presumably, this amendment to the statute will provide extra food for thought for the insurance companies providing director and officer liability coverage.

Insolvency proceedings under the CCAA

The CCAA covers larger company financial restructuring.  In addition to amendments to the CCAA to mirror the BIA amendments discussed above, there were also a couple of other changes made.

4. Initial application

Prior to November 1 CCAA filings, the company was given an initial stay of proceedings for 30 days.  Now, for filings November 1, 2019, and after, this initial stay period has been reduced to 10 days.

5. Relief reasonably necessary

An initial order made or during the 10-day initial application stay period will be limited to alleviation that is fairly required for the continued operations of the borrower business in the regular course, but no extra relief will be granted.  This narrowing of relief during the initial order period means that the Company cannot ask for all sorts of extra relief outside of the normal course of business.  

In order to attempt to get extra relief, the Company will have to make a motion to the Court on notice to any affected parties.  The Company will not be able to pack it into an initial order and force affected parties who did not receive notice to have to come to Court under the comeback clause.  This was the case before November 1, 2019.

Most times in a CCAA restructuring, it is necessary for the Company’s survival to get debtor-in-possession financing.  When such financing is available, it usually comes with very onerous terms. To avoid essentially keeping all of the Company’s assets out of reach by using such financing, the CCAA has been amended.  It says that when applying for the initial order or during the initial stay period, no order shall be made unless the court is pleased that the terms of the loan are restricted to what is reasonably necessary for the continued operations of the debtor firm in the ordinary course of business during that initial stay period duration.

In this way, Parliament has tried to put the brakes on wide-sweeping initial orders that have everything including the kitchen sink in them.  Parliament wants to have the initial orders contain only what is reasonably necessary to keep the Company’s operations going until everyone is back in Court all lawyered up.

It will be very interesting to see what Court decisions come from all of these new amendments to the Canadian insolvency laws.

Summary

I hope you enjoyed this how bankruptcies work in Canada Brandon’s Blog on the other BIA and CCAA insolvency amendments effective November 1, 2019.  Are you or your company in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex corporate restructuring.  However, more importantly, we understand the needs of the entrepreneur.  You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional.  The way we deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need a realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

INSOLVENCY LAW CANADA AMENDMENTS FOR INTELLECTUAL PROPERTY RIGHTS

Insolvency Canada news

The Federal government published in the Canada Gazette, Part II, Volume 153, Number 18, its intention to amend Canadian insolvency law for intellectual property rights (IP).  On November 1, 2019, those changes came into effect.  This change was part of the Canadian 2019 Budget. In Brandon’s Blog, I will discuss what the changes are and why they were made.

Insolvency law amendments for IP in Canada

Amendments relating to how IP is treated under Canadian insolvency law were made to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) was made. The BIA controls liquidations and restructurings for people and companies, and the CCAA covers large company restructurings. 

The changes are meant to shield IP user rights in cases where the IP licensor becomes insolvent.  

The BIA, as well as CCAA changes in the Budget Implementation Act, 2019, No. 1, are intended to improve retired life protection by making the insolvency procedure fairer and much more clear.

Previous Canadian IP insolvency law

Previously, Canadian insolvency law only explicitly dealt with IP in restructuring proceedings.  Both the BIA and the CCAA allows for a debtor to disclaim or resiliate agreements.  There are certain conditions that the debtor business must meet.  This essentially boils down to being able to prove that the agreement in question is either so onerous and/or costly to the debtor business, that a successful restructuring is impossible if the debtor must continue honouring that agreement.

Specifically, as it relates to IP, the BIA, and CCAA if a debtor who is a licensor under an IP agreement disclaims the agreement, the licensee has rights.  The licensee can continue to use the IP and gain all benefits it had bargained for, as long as the licensee continues to perform its responsibilities under the IP agreement concerning the use of that IP.

There was no such equivalent section for the receivership or bankruptcy of the debtor.  So, if there was a liquidation, the licensee was not protected the same way they would be if the licensor debtor business disclaimed the agreement in financial restructuring.

Insolvency law reform

The amendments in Budget Implementation Act, 2018, No. 2 were done to protect copyright (IP) individual rights in situations where the IP licensor comes to be insolvent.  

Effective for all filings beginning on November 1, 2019, or later, there are changes to the BIA and the CCAA, Canada’s main insolvency statutes.  The November 1 amendments are done so that the rights of a licensee under an IP agreement where the licensor has disclaimed the agreement will be the same in a financial restructuring or a liquidation through either receivership or bankruptcy.

The following modifications accomplish the goal of safeguarding IP customer’s rights in instances where the IP licensor ends up being insolvent:

  1. Many times as part of a corporate restructuring, the Court authorizes the company that filed a Notice of Intention To Make a Proposal, or a Proposal, to sell assets.  The new amendments now make it so that if the corporation being restructured is the licensor under an IP agreement and sells it, the licensee retains its rights to use the IP, as long as they are and stay current under the agreement.
  2. If a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) administering the bankruptcy (or receivership) of a licensor under an IP agreement sells the agreement, the licensee retains its rights under that agreement.  Again, the licensee must be current in its obligations to continue enjoying the benefit of the IP agreement.
  3. The Trustee disclaims the debtor licensor’s interest in an IP agreement as part of a bankruptcy (or receivership) administration.  The licensee will continue to enjoy the rights and benefits of the IP agreement as long as it is current in all of its responsibilities under that same agreement.
  4. If that IP is sold in a CCAA restructuring, the CCAA legislation has now been amended, for administrations that began after October 31, 2019, offers that an IP licensee in excellent standing can continue to utilize the IP.

Proposed BIA wording for IP insolvency proceedings

These are new amendments.  There have not been any court decisions on these new amendments yet.  The new legislation is not available yet as far as I know.  However, my understanding is that the BIA will be amended, in part, to implement the changes concerning IP agreements as I have discussed, along the following lines:

Intellectual property — sale or disposition

246.1 (1) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property that is included in a sale or disposition by the receiver, that sale or disposition does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

Intellectual property — disclaimer or resiliation

(2) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property, the disclaimer or resiliation of that agreement by the receiver does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.”

Summary

I hope you enjoyed this Brandon’s Blog on the insolvency amendments effective November 1, 2019.  Are you or your company in need of financial restructuring? The financial restructuring process is complex.  The Ira Smith Team understands how to do a complex corporate restructuring.  However, more importantly, we understand the needs of the entrepreneur.  You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points.  We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional.  The way we deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need a realistic lifeline.  There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing.  If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.  We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

insolvency

BANKRUPTCY LAW, A SHOE STORE CHAIN AND GOLF: WHAT DO THEY HAVE IN COMMON?

bankruptcy law

If you would prefer to listen to the audio version of this BANKRUPTCY LAW, A SHOE STORE CHAIN AND GOLF: WHAT DO THEY HAVE IN COMMON? Brandon’s Blog, please scroll down to the bottom and click on the podcast.

Introduction

I am writing this Brandon’s Blog more as an interesting story for those that live in the GTA and enjoy golf.  Although as you will see, bankruptcy law does play a major role in this tale, it really is a story about what is probably the most famous Canadian golf course.

Bankruptcy and Insolvency Canada

Before getting into the interesting Greater Toronto Area golf course story, by way of background to it, I will first describe the bankruptcy law aspect.

A bankrupt shoe store chain workers lost their jobs when a Receiving Order (as a Bankruptcy Order was then called) was made putting an Ontario shoe store chain, Rizzo & Rizzo Shoes Ltd., into bankruptcy. All salaries, wages, commissions and vacation pay were paid to the date of bankruptcy. The province’s Ministry of Labour audited the company’s payroll books and records. 

The Ministry’s audit determined that although the employees were all paid up to date, liability for termination or severance pay was owing to former employees under the Employment Standards Act (ESA).  The Ministry delivered a proof of claim to the bankruptcy trustee (now called a Licensed Insolvency Trustee) (Trustee). 

The Trustee disallowed the claim under the provisions of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).   The Trustee’s disallowance was based on the ground that the bankruptcy of an employer acts to terminate the employment of the workers.  This does not constitute termination by an employer.  Therefore, no such liability for severance or termination pay exists.

The appeal of the Trustee’s disallowance

The Ministry successfully appealed the Trustee’s disallowance to the Ontario Court (General Division).  The Trustee appealed to the Ontario Court of Appeal.  The appellate court restored the Trustee’s decision. The Ministry sought leave to appeal to the Supreme Court of Canada but ultimately terminated that application. 

After the discontinuance of the appeal, the Trustee paid a dividend to Rizzo’s creditors, therefore leaving much fewer funds in the bankruptcy estate. 

After that, five previous staff members of Rizzo applied to set aside the discontinuance, add themselves as applicants to the Supreme Court of Canada leave to appeal.  An order was made approving them to continue the appeal.

The Supreme Court of Canada decision

In a 1998 decision, the Supreme Court of Canada ultimately decided that the bankruptcy of an employer does terminate the employment of the workers.  However, the Court felt that it was necessary to take a wider view of the ESA.  The Court felt that one of the objects of the ESA was to protect the rights of employees when they lost their job. A finding that the severance and termination pay sections of the ESA to not apply in bankruptcy circumstances is incompatible with both the object of the ESA. 

The Court went on to find that the legislature does not intend to generate ridiculous results if employees dismissed before the bankruptcy of an employer would generate a completely different result than those employees who lost their job by the bankruptcy of an employer.

Therefore, the Supreme Court of Canada found that employee rights to severance pay or termination pay is a claim provable in bankruptcy even if the dismissal occurred by the bankruptcy of the employer.  This claim is an ordinary unsecured claim and does not have any priority.

The broader effect of the Supreme Court of Canada Rizzo & Rizzo decision

The obvious effect of the Rizzo & Rizzo decision is the bankruptcy law decision.  However, the decision also stands for the concept that a statue must be looked at in a broader context.  The Supreme Court decision in paragraph 21 states that “…statutory interpretation cannot be founded on the wording of the legislation alone”.  

It goes on to say that “Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”.  This codified what can be called a modern approach to the interpretation of legislation.

So what does this have to do with a golf course?

Looking at the title of this Brandon’s Blog, I think I have now covered off the first two parts, namely, bankruptcy law and shoe store.  Now for golf! On October 23, 2019, the Court of Appeal for Ontario released its decision in Oakville (Town) v. Clublink Corporation ULC, 2019 ONCA 826.

All golfers in the GTA know that Clublink owns and operates a chain of golf clubs in Ontario and Quebec, as well as Florida.  The most famous and iconic golf course in the Clublink family and all of Canada is Glen Abbey in Oakville, ON.  Clublink purchased this golf course in 1999.

Glen Abbey was the initial golf course solely created by Jack Nicklaus, one of the greatest professional golfers of all-time. The style of the course shows a specific focus on the viewer experience. Along with this value, the Town of Oakville believes Glen Abbey has substantial historical value. Glen Abbey has held the Canadian Open 30 times – 3 times greater than any other course in Canada.  It, therefore, is connected with some of the most memorable events in Canadian golf history.

The 18th hole is significant as a result of its connection to Tiger Woods.  In the final round of the 2000 Canadian Open, he hit a six-iron shot 218 yards from a bunker on the right side of the fairway to about 18 feet from the hole. The shot had to fly over a huge pond protecting the green.

On October 22, 2015, Clublink told the Town that they plan to redevelop Glen Abbey into a residential and mixed-use neighbourhood. Clublink proposed to develop 3,000 to 3,200 residences and 140,000 to 170,000 square feet of office and retail space. If Clublink’s plan to build succeeds, the word “four” will no longer be yelled out on the property!

The Court case

In November 2016, Clublink submitted applications to change the Town’s Official Plan and zoning by-laws and looked for authorization of a plan of subdivision, in connection with its redevelopment plan of Glen Abbey. In 2017, the Town recognized Glen Abbey as a considerable cultural heritage property under s. 29 of the Ontario Heritage Act (OHA). This notification stated the property’s cultural heritage value according to the provincial requirements of the OHA.

Clublink did not object to the heritage designation.  Rather, they made an application to the Town under section 34 of the OHA to demolish and remove Glen Abbey.   The Town alerted Clublink that their s. 34 application was legally beyond the range of a section 34 OHA application but was correctly within the range of s. 33 of the OHA which permits an owner to relate to altering a designated property.

Clublink commenced its very own application in the Superior Court for an affirmation that they could make an application under s. 34 of the OHA “for the demolition and removal of buildings and structures on the lands municipally known as 1313 and 1333 Dorval Drive … including but not limited to the tees, greens, hazards, fairways and cart paths”.  Clublink was successful in its application and the Town of Oakville appealed the decision to the Ontario Court of Appeal.

What is the difference?

A study of the OHA is not why I am writing this Brandon’s Blog.  The important point to know is that under s. 33 of the OHA, the owner may appeal to the Conservation Review Board. The Conservation Review Board holds a hearing and produces a report, in which it is to recommend whether the application must or ought to not be authorized. The Conservation Review Board’s report is not binding on the metropolitan council.

Unlike s. 33, if the metropolitan council rejects the owner’s application under s. 34, the owner of the property can appeal to the Local Planning Appeal Tribunal (LPAT). The local council is bound by the LPAT decision.

So as you can see, Clublink needs the Court ruling to stand that its s. 34 application is the correct one.

Is a golf course a structure?

In order to be successful, Clublink needs to prove that a golf course is a structure.  The application judge found that Glen Abbey is both composed of structures as well as the golf course itself is a structure for the objective of s. 34 of the OHA.  Clublink had actually correctly mounted its application under s. 34.  

The application judge reached this decision because of the uncontroverted evidence before him was that Glen Abbey was the product of substantial engineering, design and construction. Relying on judicial and also administrative decisions from other contexts, he decided up that a golf course fits within the meaning of a “structure” as being a “thing constructed”.

After a very lengthy analysis, the Ontario Court of Appeal, with one Judge dissenting, confirmed the lower court’s decision.

So what does this have to do with Canadian bankruptcies laws?

The majority decision relied upon the Rizzo & Rizzo case.  The Ontario Court of Appeal followed the confirmation in the bankruptcy law case by the Supreme Court of Canada that a strict dictionary or common usage interpretation of the word “structure” was inappropriate.  A “…statutory interpretation cannot be founded on the wording of the legislation alone”.  

Rather, a wider modern law approach must be used.  The “…words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention…”.  Therefore, finding that a golf course has detailed engineering, design and construction, it is a structure and Clublink was correct.

This is how bankruptcy law ties into a bankrupt Ontario shoe store chain and a golf course.  It took a bit of a journey to piece it all together, but I am so glad that you stuck with me.

Summary

As you can see, not everything necessarily is how it appears at first blush.  When I look out onto a golf course, I would never say, “what a marvellous structure”, but it is.

In the same way, financial decisions that we make along the way do not always turn out as we once thought it would be.  Sometimes these decisions are forced upon us by life getting in the way, and sometimes they are voluntary. Nevertheless, when financial hardships strike, you need to find a way to solve your financial problems.

Do you have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith TeamWe know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.

Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment.  You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.

STUDENT LOAN BANKRUPTCY DISCHARGE CANADA: REGISTRAR DECISION REVERSED

Introduction

Last month, I wrote about the decision in the decision of the Registrar in Bankruptcy sitting in the Court of Queen’s Bench of Alberta in Edmonton.  The case, Morrison (Re), 2019 ABQB 521, dealt with the issue of student loan bankruptcy discharge Canada.

What happens to student loans if you declare bankruptcy?

This was an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As a whole, student loans cannot be released by a bankruptcy discharge where the date of bankruptcy took place within seven years after the day on which the bankrupt ceased to be a full time or part-time student.

However, Section 178( 1.1) of the BIA, permits after 5 years after the day on which the bankrupt, with student loan debt ceases to be a part-time or full-time student, the Court may, on an application, order that such financial debt will be released. For such Canada student loan forgiveness, the Court needs to be assured that:

  • the bankrupt person has really acted in good faith about their commitments under their student debt loan agreement
  • the bankrupt will remain to experience financial difficulty to such an extent that the bankrupt will be unable to pay that financial debt

The appeal of the Registrar’s decision

I won’t go into all of the details leading up to Ms. Morrison’s bankruptcy.  If you want to read about it, check out my September 4, 2019, Brandon’s Blog, CANADA STUDENT LOAN FORGIVENESS:  BANKRUPTCY TREATS STUDENT LOANS FAIRLY.

The Registrar discovered that the timing of when Ms. Morrison filed for bankruptcy compared to the seven-year cut-off was very close. The bankrupt’s key interest and her intent at the time of meeting with the Trustee were to get a discharge from all of her creditors on equal ground. The Registrar decided that Ms. Morrison did not seek bankruptcy to avoid only her student loan debt but rather to deal with every one of her debt problems.

There was obviously miscommunication between Ms. Morrison and her Trustee. The problem was that the miscommunication aggravated her specified objective.

The federal government did not oppose the discharge. The Registrar decided that her student loan debt should be discharged.  He made a conditional order of discharge taking everything, including her surplus income, into consideration.

Both Canada Student Loans (CSL), as well as Ontario Student Loans (OSL), appealed the Registrar’s decision to a Judge of the Court of Queen’s Bench of Alberta.  The reason OSL was involved was that her education was in Ontario. She later moved to Alberta to pursue work opportunities.

The Commercial Court’s review of a Registrar’s decision

The Judge first considered what is the proper criteria he needs to use.  He determined that when it comes to the Commercial Court’s review of a Registrar’s decision, the Judge stated that the criteria that need to be followed are:

  • findings of fact are deserving of deference unless there is an overriding and palpable error;
  • questions of the law and matters of principle are reviewed on the standard of accuracy and correctness;
  • concerns of mixed fact and law exist along within a range in between the above 2 requirements;
  • a mistake in characterizing or thinking about the correct legal examination to be used attracts accuracy; and
  • in order to disrupt a discretionary determination, the reviewing Court needs to discover that the Registrar erred in principle or in law or failed to think about an appropriate aspect or took into consideration an inappropriate factor, resulting in a wrong conclusion, thus allowing the assessing Court to use its discretion to replace the Registrar’s findings.

The Judge’s review of the Registrar’s decision

The provision of the BIA that Ms. Morrison applied under is Section 178(1.1) of the BIA.  That section states:

“Court may order non-application of subsection (1):

(1.1) At any time after five years after the day on which a bankrupt who has a debt referred to in paragraph (1)(g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and

(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”

The Judge stated that as the legislation indicates, the determination of whether either of the called for parts of “good faith” and “financial difficulty” is established is contextual and fact-specific.  It is based upon considering all aspects of the particular situation. Also if pleased that the requisite elements are present, the Court still maintains a discretion to decline the granting of such relief.

Can you put student loan on bankruptcy – Good faith

The Registrar’s finding was that Ms. Morrison’s actions evidenced an underlying behaviour of good faith but that objective was overborne by life getting in her way. The Judge accepted the part that life got in her way might be real in regard to the very early post-student years of 2008-2014.  However, he decided that starting in 2014 she began to make a relatively decent living, yet made no effort to start to repay her student loan debt.

The Judge analyzed Ms. Morrison’s behaviour once she started earning a better income in 2014 and her statements concerning why she filed for bankruptcy.  He also remarked that it was plain from her rancour and annoyance directed at her Trustee because her strategy to have bankruptcy free her from her student loan debt failed.  She felt the Trustee did not advise her properly on the timing of the bankruptcy as related to when she ceased to be a full-time or part-time student.  She was upset that she had this student loan bankruptcy discharge Canada issue.

The Judge then reviewed what are the things he must consider in trying to determine good faith.  He stated that the relevant cases suggest, good faith that has to be shown in order for the application to succeed connects to the loan, not the bankrupt’s general behaviour throughout the bankruptcy. He said the things he must consider are as follows:

  • whether the student loan financing was used for the desired purpose;
  • did the person complete the financed education;
  • has the education obtained provide financial gain to the bankrupt;
  • were reasonable attempts made to clear up the student financial debts;
  • has the person actually used available alternatives, such as interest relief or loan remission;
  • the timing of the bankruptcy;
  • do the student loan debt comprise a considerable component of the total debt;
  • did the applicant get enough work and earnings to be reasonably expected to make payments on the loan;
  • the way of life of the applicant;
  • whether the applicant had adequate income for there to be surplus income under the Superintendent of Bankruptcy’s directive;
  • what offers the bankrupt might have made to the lending administrators and their reactions; as well as
  • whether the bankrupt was hampered at any time with health problems which would have either reduced the amount the person could work or entirely eliminate the possibility of working.

In weighing all these factors, the Judge was of the view that what counted against Ms. Morrison was her absence of initiative in attempting to repay the debt on some basis.  The Judge also found that, notwithstanding that Ms. Morrison has struggled both personally and financially, and had a run of rotten luck, this could not excuse her from failing to make any attempt to repay the student loans.

Therefore, the Judge disagreed with the Registrar.  He found that she did not meet the test of acting in good faith.

How can I get my student loans forgiven in Canada – financial difficulty

Both CSL and also OSL contended that financial difficulty, unlike the Registrar’s conclusion, has not been proven as Ms. Morrison’s own evidence shows she has the ability to make some repayment towards the debt. CSL likewise suggested that the Registrar decreased the statutory limit for financial difficulty by finding that the evidence need only show that settlement will provide a hardship to her rather than revealing the bankrupt will be unable to pay the debt.

Section 178(1.1)(b) of the BIA states regarding financial difficulty:

“the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”

The Judge took this section to indicate that, for the present as well as in the foreseeable future, the bankrupt’s financial position will not allow them to genuinely both pay their debts and subsist in an affordable method.

Therefore, in His Honour’s view, the idea of a settlement of student debt may well entail some challenges or hardship. It is just when the difficulty would deny an individual a level of practical subsistence that the “financial difficulty” aspect of this section comes into play.

Student loan debt Canada forgiveness – The decision on appeal

The Judge agreed with CSL that the Registrar had lowered the bar on the determination of financial difficulty from what is intended in the BIA.  He also found that Ms. Morrison has some capacity to make some contribution towards retiring the student loan debts concerned.  The evidence also showed that CSL and OSL were open to some sort of repayment offer.

Accordingly, the Judge determined that the demands of s 178( 1.1) have actually not been met by Ms. Morrison and her original application is unsuccessful.  Therefore, he reversed the Registrar’s decision and allowed the appeal of CSL and OSL. 

The Judge further ordered that she is, nevertheless, at liberty to make a re-application (in this bankruptcy) no earlier than one year from the date of his decision.  He further stated that any re-application will need to be supported by proof of good faith in relation to any kind of settlement to either CSL or OSL as well as her full disclosure of her financial position at that time.

The Judge said he did not wish to “pile on”, so he did not order any costs to be paid.

Student loan bankruptcy discharge Canada summary

I hope that you have found this student loan bankruptcy discharge Canada information useful.  Do you have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith Team.

We know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.

Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment.  You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.student loan bankruptcy discharge canada