Hoyes Michalos and Associates Ontario Personal Bankruptcy Blog

The economy is getting worse. I just met with a car salesman who told me that he is selling fewer cars this year than last. Factory workers are telling me there is no more overtime, and many are now on reduced shifts or layoffs. I even met with a collection agent this week who is in financial trouble because the economy is so bad he can’t even collect on delinquent accounts! What does this mean?

It means you need a plan.

If you have any debt, the worsening economy may mean that your income will be reduced, and it will be harder for you to repay your debt in the future. Ask yourself this question: what will you do if you lose your job tomorrow, or if your hours get cut back? What will you do if the price of gas keeps increasing, and you have less money to make your debt payments?

You need a plan to deal with your debts.

If you still have a job, and if your wages are not yet being garnisheed, you have more options. You may be able to get a second job to increase your income, or you may be able to start cutting expenses to free up cash to pay your debts. You may still qualify for a debt consolidation loan to reduce the interest rate you are paying on your high interest credit card debt. You may be able to file a debt management plan through a not-for-profit credit counsellor who will negotiate a repayment plan with your creditors.

What if the bank won’t give you a debt consolidation loan, or you can’t afford a debt management plan?

Then you should consider a consumer proposal. Give us a call at 310-PLAN and one of our professionals will ask you some simple questions, such as how much money you owe, what you own, and what you take home each month. If you could afford to repay some of your debt, a consumer proposal may be the solution for you. For example, if you have $50,000 in credit card and other debts, we could file a consumer proposal where you pay $400 per month for 50 months, or $20,000 in total. You get an affordable repayment plan, with no interest, and your creditors are happy because at least they get some of their money. Of course the exact amount your creditors will accept will depend on your individual circumstances, but the call to us at 310-PLAN is free, so you have nothing to lose (but your debt) by calling us today.

If you cannot afford a consumer proposal, the final option is personal bankruptcy in Ontario. At Hoyes, Michalos & Associates we consider personal bankruptcy to be a last resort, if all of the other options won’t work for you. However, bankruptcy exists to give you a fresh start, so if that’s what you need, we would be happy to walk you through the process. So what do you need?

You need a plan.

No option is right for everyone, but one of the options discussed above is right for you. You don’t need to suffer through the endless telephone calls and threatening letters. It is possible to get a fresh start, but your fresh start only starts when you make a plan to deal with your debts. Here’s how we can help:

Call us at 310-PLAN. We have professionals available from 8:00 am to 6:00 pm during the week, and from 9:00 am to 1:00 pm on Saturdays. Our 310-PLAN phone number works throughout Ontario, and you don’t even need to dial the area code. Or, take three minutes and complete our free on-line bankruptcy evaluation form. One of our professionals will review your information and e-mail or call you back with a plan for your unique circumstances. Or, just send us an e-mail and we will call or e-mail you back with the answer to your questions, and if you want, we’ll arrange for a no-charge initial consultation at one of our 22 fresh start offices in Ontario.

There is help available, but you need to make a plan to get started.

As people get older, their lives can become both more fulfilling and more challenging. Retirement brings the freedom of not having a set schedule but can also lead to a number of difficulties, including financial ones.

Working at the Hoyes, Michalos & Associates offices in Kitchener and Barrie, I am hearing from more and more people who are concerned about their aging parents getting into serious financial debt.

The trouble is this: Many seniors are living on a pension income that barely covers their living costs such as rent and food. Often, those who are aging are in need of many medications and it seems the government has cut-back on what is available free or at a reduced cost. This leads to a situation where seniors are unable to cover their monthly living expenses as well as the cost of their prescriptions and are forced to use credit cards in order to get by.

In addition, taxes are not always deducted from CPP and old age pension cheques, so often Canada Revenue Agency (CRA) comes to the person at the end of the year asking for these taxes. They will then use their credit card to pay the CRA for these taxes as well. If the pension was taxed at the source, this would not happen however, it would mean a less income each month to put toward other things because taxes would be taken off each month. It is easy to see how senior citizens are at an increased risk of creating huge credit card debt that they will be unable to pay back. Making the problem worse is that many older people believe it is unacceptable to speak about their finances and are very embarrassed that with all of their life experience and after having raised their own family, they have now found themselves in financial trouble.

If you are concerned about your parents’ finances, or you are a senior who needs help getting out of financial trouble, please know that at Hoyes, Michalos & Associates we understand how easy it is for even the most experienced and hard-working individuals to find themselves in debt. We are committed to helping you get out of financial trouble in a way that works for you.

When you contact us, we will walk you through all of the options that will be available to you or your parents so you can make them feel more prepared and comfortable if they would like to come and see us. If you would like to speak to someone now, call 310-PLAN (no area code required) or send us an e-mail and we will be happy to discuss your situation and options with you, and set-up an initial consultation free-of-charge at one of our bankruptcy offices in Ontario.

On July 7, 2008 the federal government put two long-awaited changes to federal bankruptcy law into force.  Although this came unexpectedly, it is good news for many Canadians in financial trouble.

The first change reduces the student loan discharge period from ten years to seven.  This means that if you have been out of school for seven years and still owe on your student loans, when you file for bankruptcy, these loans will be automatically discharged.

Second, the regulations now allow people to keep their RRSPs when they go bankrupt, with the exception of the contributions that were made in year prior to bankruptcy.  Previously, most RRSPs would have been seized and the proceeds distributed to your creditors.

Please note that the implementation of these changes was unexpected.  The new rules were given royal assent on December 14, 2007 but they were not expected to come into force until the fall of this year to give government officials time to draft the necessary supporting regulations.  In fact, the actual regulations are not scheduled to be published until later this month so at this time, we are unsure of exactly how these new rules will be implemented. 

If you have student loans that are more than seven years old and you are considering bankruptcy, or if you are considering bankruptcy and were afraid of losing your RRSPs, please contact our office today for a free initial consultation so one of our professionals can determine whether these new rules will help you.

What do you think a bankrupt person looks like? Do you think they are unemployed and “down and out”?

I personally compiled statistical data on everyone who recently filed personal bankruptcy or a consumer proposal with Hoyes Michalos, and in our just released study, The Face of Bankruptcy - You May be Similar to the Typical Bankrupt Person, we reveal that the average bankrupt looks very much like the average Canadian.

Joe Debtor, as we call the average bankrupt, is a male, 42 years old. He has one dependent living with him, either a spouse or a child. His take home pay is about $2,071 a month. Even though we call him Joe Debtor, almost half of all bankrupts are female, and they range in age from their early twenties to over 80 years old.

The average bankrupt has total unsecured debt of over $51,100, including $18,335 owing on credit cards, $13,365 on bank loans and lines of credit, and $5,276 in taxes owing. Our study shows that 33% of these individuals stated that lay-off or reduced incomes contributed to their financial problems, 16% stated that a relationship break up was a primary cause, and 40% admitted that they were over-extended and mismanaged their finances.

Most Canadians in financial difficulty are good, hard working people, but due to divorce, job loss and over use of credit are forced into bankruptcy. They do not follow the typical stereotype of the average bankrupt; in fact, they look like the average Canadian.

If you have more debts than you can handle, you are not alone. Call us today at 310-PLAN (that’s 310-7526, no area code required in Ontario), or e-mail us to arrange a free initial consultation.

The number of personal bankruptcy and consumer proposals filed in Ontario reached a record 42,434 in 2007, an 8.2% increase over 2006 levels.That total is made up of 31,409 people who filed personal bankruptcy in Ontario in 2007, an increase of 5.2% over 2006, and 11,025 people who filed a consumer proposal in Ontario in 2007, an increase of 17.5% over 2006 levels.

Canada wide personal bankruptcies were up less than 1%, and consumer proposals increased by 10.6%. It appears that places with a large manufacturing base, like Windsor, suffered more than places like downtown Toronto, were most jobs are in the service sector.

Detailed statistics by city can be found on our personal bankruptcy statistics page, and more analysis can be found in our 2007 personal bankruptcy statistics analysis.

As the economy continues to worsen, we will probably see increasing bankruptcy rates in 2008. If you are experiencing financial problems, don’t be a statistic; call us today at 310-PLAN, or e-mail us to arrange a free initial consultation.

On February 7, 2008, Ted Michalos and Douglas Hoyes appeared as expert witnesses before the Senate Standing Committee on Banking, Trade and Commerce to provide our testimony on bankruptcy reform, and the proposed changes to the bankruptcy rules in Canada. (A picture from the broadcast of our appearance is shown.)As readers of the Hoyes Michalos Blog will recall, back on December 15, 2007 I posted an article detailing the new bankruptcy rules, and on February 4th I announced our trip to Ottawa.

Despite very bad weather that cancelled our flight and left us with an eight hour drive in a blizzard to Ottawa, we arrived and spent over an hour testifying before the Senators.

In my opening remarks I reminded the Senators that people who get into financial trouble “are real people who in many cases have lost their jobs, gone through a marriage break-up, suffered through an illness, and after these personal tragedies they are faced with an insurmountable burden of debt.

These are not bad people. We believe it’s important that when Parliamentarians draft bankruptcy legislation they remember that real people are affected.”

We were the first personal bankruptcy trustees to appear before the Committee, and I believe our comments where well received. I’m not naive enough to believe that our testimony will change the course of bankruptcy legislation in the future, but I do believe that the Senators have a better understanding of the plight of the average Canadian who gets into financial difficulty.Please see our bankruptcy video page for clips of our testimony in Ottawa.

Last month I appeared on Till Debt Do Us Part, a Reality TV show where the host helps people deal with their money problems. They wanted me to appear on the show to talk to a woman who had a lot of debt.

The show, titled Single Mom Shake Up, first aired in December, 2007, and it featured Tammy, a single mother with about $48,000 in debt.

My job was to interview her, and give her suggestions on how to deal with her debt. We spent over an hour filming the segment, but of course only about 30 seconds of it made it to TV. We talked about debt consolidation loans, debt management plans, consumer proposals and personal bankruptcy.

For more information on the show, and for a link to actually watch the show, you can read my full article on Till Debt Do Us Part.

For many years I have watched with interest proposed changes to the Bankruptcy & Insolvency Act. It now appears that, finally, the new rules will become law.

Bill C-55, now known as Chapter 47 of the Statutues of Canada, was passed on November 25, 2005, just prior to the election call that ended Parliament. Because the Senate had not had a chance to review the Bill, the government agreed not to implement the new rules. After the election in early 2006 bankruptcy reform was not a priority, but Bill C-62, which contained updates to Chapter 47, was passed at Third Reading by the House of Commons on June 14, 2007, and received First Reading in the Senate on the same day.

However, the Bill died when Parliament was prorogued on September 17, 2007.

Then, on October 29, 2007 the government introduced Bill C-12, an exact copy of the previous Parliamentary session’s Bill C-62, and the Bill had three readings and was passed on October 29 and referred to the Senate. The Senate Standing Committee on Banking, Trade and Commerce intended to hold hearings on the new rules lasting into March, 2008, but then, very unexpectedly, on December 13, 2007 the Senate decided to skip a detailed review of the Bill and passed it without further amendment. Bill C-12 has passed and received Royal Assent, but it has not yet been proclaimed. At this point we do not know when the new rules will come into effect; our best guess is that it will be sometime in early to mid 2008.

What does this mean to you? It means the personal bankruptcy and consumer proposal process will be changing, and it is essential that you understand the new rules before you decide how to deal with your debts. Fortunately, the team at Hoyes Michalos has been studying this legislation as it has evolved over the years, and we are ready to advise you on your options. In brief, here are some of the changes:

First, under Bill C-12, Section 168.1 of the Act is amended to lengthen the bankruptcy period in Canada. Under current rules, a first time bankrupt is eligible to be discharged after ninemonths. The new rules affect the length of bankruptcy as follows:

• a first time bankrupt with no surplus will be bankrupt for 9 months (unless opposed)
• a first time bankrupt with surplus will be bankrupt for 21 months (unless opposed)
• a second time bankrupt with no surplus will get an automatic bankruptcy discharge after 24 months (unless opposed)
• a second time bankrupt with surplus will get an automatic discharge after 36 months (unless opposed)

What does this mean? If you have income over the government allowed threshold (which for a single person is $1,797 in take-home pay per month in 2007), it is likely that length of your bankruptcy process will be extended for a further 12 months, and you will be required to continue to pay that surplus income into your bankruptcy estate for your creditors.

Second, most RRSPs will now be exempt from seizure in a bankruptcy. The only exception will be you will lose any contributions you have made in the last year, to prevent people from contributing funds to their RRSP and then immediately going bankrupt.

Third, student loans will now be automatically discharged in a bankruptcy if you have ceased to be a student for seven years (the old limit was ten years), and it is possible to apply to Bankruptcy Court to have a student loan eliminated after five years in hardship situations. This is great news if you are going bankrupt, may it may make it more difficult to deal with student loans in consumer proposals (you can read more about this in our article on student loans and consumer proposals).

Finally, under current law, a person automatically loses their tax refund in bankruptcy for the prior year(s), and the period up to the date of bankruptcy in the year of bankruptcy. Under proposed changes to section 67(1)(c) of the Act, a person would lose tax refund in bankruptcy for the entire year of bankruptcy. Thus if you go bankrupt on June 6, 2008, instead of just losing your tax refund for the period from January 1 to June 5, 2008, you will now lose your tax refund for all of 2008.

As you can see, some of the rules may help you, and others may make bankruptcy more difficult.

Again, let me stress that as I write this on December 15, 2007 Bill C-12 is not yet in effect. Stay tuned to this space for more details as they become available.

Finally, at Hoyes Michalos & Associates we believe that people who can pay a portion of their debts feel better about themselves if they can make payment arrangements with their creditors. The proposed increase in the length of some bankruptcies will no doubt cause more people to avoid bankruptcy by filing a consumer proposal, which for many people is the best solution.

I recommend that you contact our bankruptcy trustee offices for more information on the new bankruptcy rules, and to arrange for your free initial consultation with one of our professionals.

Earlier this week I received an e-mail from Michelle Miranda, the manager of Credit Counselling at the Family Counselling Centre of Brant, to remind me that today is the launch of the first annual Credit Education Week, which runs from November 13 to November 16. During the launch, the results of a national consumer survey of more than 4,000 Canadians were released, and the survey showed that the majority of Canadians do not have a sufficient understanding of basic personal finance and credit.Michelle and I have discussed credit problems many times over the years, so neither one of us was surprised that the survey found that 55% of Canadians have monthly expenses that exceed their monthly income at lease once a year, and 40% of Canadians do not pay their credit card off in full each month. Full results of the survey can be found at crediteducationweekcanada.com.

Are Michelle and I alone in believing that excessive debt is a problem? To find out, yesterday Scott Schaefer, Ted Michalos and I had lunch with Heather Cudmore, Dave Pearson, and Krista Dobson from the Catholic Family Counselling Centre in Kitchener. We discussed the survey, and they all agreed that Canadians need to take a more active role in managing their money, and taking steps to reduce debt.

If you are carrying more debt than you can handle, all of the credit counsellors I talked to agreed that debt problems do not generally go away on their own, so you should take action now, before your problems get even worse. As described in our article on Debt Management Plans, one option is a debt management plan that typically involves your creditors agreeing to a reduced or zero interest rate, provided you repay them in full over no more than a five year period. For more information, contact Michelle and her team at the Family Counselling Centre of Brant in Brantford at (519) 753-4173, or Heather and her team at Catholic Family Counselling in Kitchener at (519) 743-6333, or use our list to find a credit counsellor in your city.

If you have more debt than you can repay over a five year period, then a consumer proposal or a bankruptcy may be necessary.

Whether it’s a debt management plan, consumer proposal, or bankruptcy, help is available, and the sooner you get help, the sooner the collection calls stop and you can get on with your life. At Hoyes Michalos our initial consultation is always free, so to explore any of these options contact Hoyes Michalos
today.