Do I Have To Pay a Minimum Portion?
In this video, Richard Killen, a Toronto-based Licensed Insolvency Trustee talks about, Do I Have To Pay a Minimum Portion?.
Some people are under the impression that they go bankrupt or for that matter they do a consumer proposal, they are required to pay a certain percentage of what they owe, what their overall debts are. That’s not quite the way it works. In a bankruptcy, it’s not that at all. In a bankruptcy, there is a mechanism that will determine whether or not if you have to make any payments for your creditors into the bankruptcy. It’s based on what you earn, what your monthly salary is. There’s a formula for all that, and a Trustee explains that to you and a Trustee does the calculation and all that. In a proposal, it can be a little bit of a factor trying to determine how much you are going to offer the creditors and all that. But, there is no fixed idea that you have to pay 20% or 10% or 50% of whatever you owe. In a proposal, you offer the best you can, and you try to work out a deal with the creditors that they are willing to accept of what you are going to pay. In a bankruptcy, this formula is applied, if you earn enough money you will pay that money into the bankruptcy in order to obtain your discharge. It doesn’t matter what percentage it is.
If you are uneasy about bankruptcy you should definitely visit a licensed insolvency trustee so that you will be given an advice about your bankruptcy problems.
It’s that time again: Tips to help make tax time easier
Filing taxes is a chore that few people enjoy. It can be complicated and difficult at the best of times. Here are some points and suggestions that may ease your pain a bit.
- If you have filed a bankruptcy then your trustee will be responsible for filing your taxes. Your job is to deliver your T-4s and any other applicable slips and information to the trustee so they can do your returns correctly.
- We supply you with a special 1-page form to fill out and remit with your T-4s. Try to do a thorough job of filling in this form because we rely on it to do the return(s) properly. This will be to your advantage.
- Though most people save themselves the time, effort and money and simply provide the trustee with their T-4s and the form and let it go at that. But if you think it worth your while you can have your accountant or regular tax person prepare these two returns. Remember, you cannot file them yourself. You must give these returns to the trustee for filing.
- If you have been self-employed your tax return options can be much more extensive and complicated than that of an ordinary salaried employee, so it’s probably advisable to have your accountant prepare the return(s) that the trustee is supposed to file, but again, don’t file them yourself. Deliver them to the trustee and let them do it. If you are or have been self-employed you must also complete a Statement of Business of Professional Activities.
- If you don’t want your tax preparer to do these returns and want to hand everything over to the trustee, DO NOT BRING US A PILE OF RECEIPTS. You are supposed to summarize all your expenses and income. But you must be prepared to provide receipts if CRA wants them later. All of this goes for HST/GST returns, too.
- If you do not provide us with the information to do your taxes early enough to meet the deadline it may result in a penalty if you owe on your post-bankruptcy tax return.
- If you are eligible for benefits, including the child tax benefit, there may be a delay in receiving it if you didn’t supply us with the tax info early enough for us to meet the filing deadline.
If you filed a consumer proposal practically none of the bankruptcy tips apply to you. When you file a proposal, the trustee has no authority or responsibility towards your tax returns or refunds. You are responsible for your own tax returns as you usual. If you have an accountant or tax advisor, they can prepare it and you can file it.
If a creditor sends you a collection letter after you have filed for bankruptcy or a consumer proposal it is probably of no effect. However, there are some things that you should do or consider just to be safe.
- Make sure the creditor was listed on your Statement of Affairs. If he was, then he was sent the notice of your filing and the letters should stop shortly. If he wasn’t, you need to provide the information to the trustee so he can be properly notified.
- Since there are some creditors whose debt may not be released when you have fully paid your proposal or by your bankruptcy discharge, make sure this isn’t one of them.
- The trustee will have explained this to you before you signed, but in case you aren’t sure show the letter to the trustee. The content of the letter may give you a clue about this point
- If the letter or notice appears to have come from a court or it refers to a lawsuit or judgment show it to your lawyer, if you have one, or the trustee.
10 Signs of Debt Trouble
If you don’t live in Egypt, being in denial is a bad thing.
Most of us carry some form of debt, whether it’s a car loan or a credit card balance that we just can’t manage to pay off this month. But when does debt load become dangerous?
Well, one sign is when you don’t want to think about it and are kept up nights with stomach-twisting anxiety. The problem scares you so much you put your head in the sand and keep spending as usual.
If you think you have a problem, you probably do. But here are 10 more telling signs that you are sinking too far into a financial morass:
- You frequently pay bills after their due date, incurring secondary notices and penalty charges.
- Creditors are calling about unpaid bills.
- You regularly bounce cheques and overdraw your bank accounts, causing you embarrassment and triggering bank penalties.
- You use one credit card to pay the balance on the other, or use it to pay other bills or to buy necessities.
- You pay only the minimum balance on credit card bills.
- You’ve been denied credit because your debt ratio is too high, or need a co-signor for a loan because you are too much of a risk by yourself.
- You hit up family and friends for loans to make ends meet.
- You don’t know how much debt you’re really in, because you’re afraid to hear the number.
- You hide purchases and debt problems from your family, or you fight a lot with your spouse over debt issues.
- An unexpected expense, such as a car repair, sends you into panic mode.
Of course, just not thinking about money problems, or running way from them, doesn’t work. They always manage to find you. The best way to deal with them is head on, using the advice of a trusted expert. At Richard Killen & Associates, we can lead you through the appropriate responses to your particular situation, whether it is debt consolidation, a consumer proposal or bankruptcy.
Contact us for a free consultation – it will be the most stress-relieving call you will ever make.
Are We Going to be Homeless?
Hi. I’m Richard Killen from Richard Killen & Associates. Richard Killen has offices across the GTA. One of the most frequently asked questions I get as a Licensed Insolvency Trustee is, “If I go bankrupt or do a consumer proposal, will I lose my home?”
Well, probably not. Sounds evasive, doesn’t it? But it isn’t really. A bankruptcy or a consumer proposal is a legal process, so there are no guarantees. But my experience is if they want to most people keep their homes in a bankruptcy or proposal.
The problem is, people hear so many misleading things out there that they shy away from consulting a trustee like Richard Killen & Associates. They shouldn’t, because a trustee is the only one who can tell them what will happen in their specific case.
So call Richard Killen & Associates today for a free consultation at our office nearest you, 888-545-5365, or visit us online at killen.ca. It may be the most stress-relieving call you ever make.
What Are the Alternatives in Coping With a Debt Crisis?
No one wants to go bankrupt. It is the last resort when faced with insurmountable financial problems. But even if your payments are in arrears and you are getting collection calls, there are other options besides a bankruptcy, which we at Richard Killen & Associates are glad to explain. These include:
Getting a Consolidation Loan
If you can qualify for a consolidation loan, you can bundle all your debts into a single package and make a monthly payment that will probably be lower than what you are faced with right now with all the individual payments. You can usually reduce interest and stretch out your repayment period. The trick is qualifying for the loan if your credit rating has taken a beating because of your financial difficulties. To get approved, you may need collateral, or a co-signor or guarantor – not always easy to find.
Making an Informal Arrangement
You can, perhaps, negotiate with creditors to reduce monthly payments. Or you might be able to get them to accept less than the full amount owed, if you have a lump sum payment you can make. In either case, you should use the services of a licensed trustee, lawyer, accountant or reputable credit counselling agency to do this, and beware of the many unscrupulous sorts out there poised to take advantage of your situation. Other pitfalls of this method include: the high degree of difficulty in conducting negotiations; creditors who can still sue you; no protection from garnishees; it doesn’t stop interest accumulation; and it needs to be accepted by all creditors before it can be effective.
Offering a Consumer Proposal
A consumer proposal is a legally binding agreement between you and your unsecured creditors to settle all your unsecured debts. It is filed with the government and managed by a licensed trustee, such as Richard Killen & Associates, under the supervision of the court. You will probably wind up paying back only a portion of what you owe – for instance 10, 20, or 30 per cent – and so get the debt relief you need without going bankrupt.
How this differ from the two options above? The three main advantages are:
- You don’t have to negotiate with each creditor separately.
- You only need a simple majority of the debts to be in favour, not all of them, to get it accepted.
- The creditors have to listen to you. If they ignore your offer they will be stuck with it, so you will have their attention.
In other words, you will be negotiating a settlement of all you unsecured debts from a position of more-or-less equality with your creditors. We usually don’t think of ourselves as being in that position with the banks and credit card companies, do we?
A proposal also stops all interest charges, halts lawsuits and garnishees, and does not require direct individual negotiations (the trustee handles this for you).
Everyone’s situation is different. To decide what is the best method of dealing with your debt problems, you need expert advice. At Richard Killen & Associates we offer a free assessment consultation, so you will have a clear picture of what your options are.
What Is a Consumer Proposal?
A consumer proposal is like a consolidation loan, in that your payments are reduced to one monthly payment. You make the payments to a trustee, who accumulates them and every six months pays the money out to your creditors.
The thing about a proposal is that it doesn’t necessarily involve paying pack 100 per cent of what is owed to the creditors. A proposal might just be a percentage. It’s basically making a new deal with creditors, so that they get paid to the best of your ability. The major difference between an informal arrangement with creditors and a proposal is that a proposal has the protections that are built into the law.
Will I Lose My Home in a Bankruptcy?
The fear of losing your home is a powerful one. When their finances go south, many imagine that bankruptcy will leave them homeless. Is this fear justified? Not really, or not in the normal course of a bankruptcy.
Yes, when you go bankrupt, you give control of your assets to a trustee in exchange for getting rid of your debts. This, in theory, could mean that the house gets sold to help pay back the creditors. But in practice this rarely happens, mainly because it is not in the best interests of everyone involved. The trustee has a lot of discretion, which he or she generally uses to safeguard the rights and interests of both the creditors and the debtor. Selling the house outright usually doesn’t achieve this purpose. So what normally happens?
Well, there are many different scenarios. If you have no realizable equity in the house – equity is the amount you’d get selling the house after deducting the mortgage and other associated costs – there is no point in selling the house, because all the money would just go to pay off the mortgage(s). In this case you get to keep the house as long as you keep paying your mortgage. The trustee doesn’t get involved.
But, what if you did have some equity, say roughly $20,000? To keep the house, you would have to pay the trustee this amount, because that’s what the creditors would have received if the house had been sold. So the creditors end up getting their fair share and you keep your house.
Yes, but if you had $20,000 to throw around, you wouldn’t be bankrupt in the first place, right? Well, you would have to raise the money, but the trustee would work with you to accomplish this. For instance, you might be able to get the money through a second mortgage. Or you could work out a direct monthly payment plan with the trustee. In either case, you would keep your house.
Where things start to get more complicated is if you have a significant amount of equity in the home, let’s say $100,000. In order to hang onto the castle, you would have to pay the trustee 100 large – a whopping sum, but not impossible and financing is usually obtainable.
But, in such a case you probably would want to explore the legal alternative to bankruptcy: a consumer proposal. If you go this route, you don’t risk losing the house. You simply offer the creditors a settlement, negotiated by your trustee under the protection of the law. Most often this solution satisfies everyone because it pays the creditors an acceptable sum while allowing you to escape the debt quagmire in an orderly and manageable way: win-win.
There are a couple of other points to understand when you’re dealing with the house question.
The first is that in all these scenarios the trustee will remind you of your right to get advice from a lawyer of your choice, someone who is there to protect specifically your interests. This is your basic legal right, but it becomes much more important if you have a lot of equity in your home. A good lawyer will help you deal with the situation and probably get you a better deal from the trustee and creditors than if you were doing this on your own.
The second point is that you should ask yourself: Whether I go bankrupt or not, can I afford to keep the house? If I try to hang on to it will it just drag me back into debt trouble down the line?
This is a tough one. We tend to be emotionally attached to our house in a way that we aren’t with most other things, even our cars. But, we have to ask ourselves this question if we’re going to regain control of our finances. The trustee can help you better understand your situation, but the answer to this question can only come from you. And you need to be brutally honest with yourself about it.
So, to get back to the original question: “If I go bankrupt will I lose my house?” For most people (the vast majority) the answer is “No!” So don’t be afraid to consult a trustee because you’re worried about losing the house. Contact us and get the facts. Remember our TV commercial: “It may be the most stress-relieving call you ever make.”
Consumer Proposal or Bankruptcy?
If you are coping with severe debt problems, you have five choices to deal with the crisis: Get a consolidation loan, try to negotiate with your creditors, run away, do a consumer proposal, or go bankrupt.
The first three options you can handle yourself (we don’t recommend trying to run from your problems; they have a nasty habit of catching up). Personal bankruptcies and consumer proposals are solutions governed by the Bankruptcy and Insolvency Act, and they can only be handled by Licensed Insolvency Trustees.
So why would you choose one of the legal solutions over the other? Well, every person’s case is different, so you need to come into a trustee to get advice tailored to your particular situation. But painting with broad brushstrokes, a bankruptcy is a faster and less expensive process, whereas a proposal may protect more of your assets and save your name from being associated with bankruptcy.
With a personal bankruptcy, you are released from your debts after you comply with certain duties. It’s a process that can be over in as little as nine months. Some of your assets would be exempt from this legal process – such as furniture and personal effects – and others would be handed over to the trustee and be used to repay creditors.
This latter category could include houses, high-worth cars, jewelry and certain RRSPs. Also, if you have an income over a certain set amount, you would have to pay 50% of this surplus to creditors, probably lengthening the time you were discharged from the bankruptcy.
A consumer proposal essentially reorganizes your debts. If the proposal is accepted by your creditors, you only have to make one manageable payment a month to the trustee. The length of term for a consumer proposal is five years or less, depending on fast you want to and are able to address your obligations. But generally speaking, it’s a longer more expensive process that a bankruptcy.
With the proposal you avoid the ‘stigma’ of bankruptcy and get to keep all your assets, providing you make your monthly payments and don’t slide into bankruptcy anyway. You may also want to consider a proposal if bankruptcy would also force your spouse to follow the same route, or if you are expecting to receive a large sum of money down the road.
Also, with a bankruptcy, you must complete a monthly budget for all income and expenses, as well as supply copies of your pay stubs to the trustee. If your income goes up during the period of your bankruptcy, then your surplus payments would also increase. With a consumer proposal, there are no monthly reporting requirements.
The Road to Recovery
It was a perfect storm of personal and professional misfortunes. Bryan was a successful independent marketing communications consultant, well respected in the business with a good network of friends. But in his late 50s he discovered that he had adult attention deficit disorder (ADD), with a host of problems, ranging from an inability to focus to poor organization skills and depression. After years of laboured compensation for the symptoms, he felt the copying structure he had carefully built begin to fall apart.
Then he lost his biggest client. With the onset of a deep depression, he found it harder and harder to do work and make up for the lost income. He started to drain his savings and line of credit to stay afloat.
He took a consolidation loan. The Canadian Revenue Agency called about missed tax installment payments. He had to ask for a personal loan from a friend to pay for a month’s apartment rent. He spent a Christmas without money to buy presents. He missed a bank loan payment.
“It was the lowest ebb in my life. I felt like a complete failure,” says Bryan in his quiet voice. “My parents were alive at that point. They berated me for my financial mismanagement. My father had been a bank manager. He told me that if I went bankrupt I would never be able to get credit again.”
With this sword hanging over his head, and not much hope to propel him forward, Bryan went to an assessment with Richard Killen. He may have gone into the meeting with intense sense of “embarrassment” at winding up in this precarious financial position, but he was soon reassured to learn that his problems were manageable.
After a detailed evaluation of his situation and going through the ins and outs of a consumer proposal versus a bankruptcy, Bryan felt the latter would best suit his situation. The instability of his income at the time would have made it difficult to commit to the monthly payments a consumer proposal would demand. But the most important thing was that the decision was his to make. This helped put him back in control of his financial life – a luxury he had not experienced in a long time.
Almost immediately Bryan felt a surge in spirits knowing that the burden of debt would be lifted. “It was this huge sense of relief,” he recalls. “I was told by Howard that when the phone rings, just to give them his name and number, and he would take it from there. When the bank called the next week, they were very matter of fact and nice about it when I told them. It was just business for them.”
Filing for bankruptcy in 2003, Bryan was able to keep his car, since he used it for work purposes, as well as his personal assets. And he didn’t have to pay any portion of his income to creditors, since it fell under the legal threshold set in the Bankruptcy and Insolvency Act.
During the bankruptcy, he attended the mandatory credit counselling sessions held at Richard Killen & Associates. At the same time, he underwent treatment for his ADD, getting it under control with therapies that included learning the complex body motions of the martial arts.
Nine months after filing for bankruptcy Brian was discharged and able to make his life anew. What about his father’s dire prediction that he would never get credit again? “Evenbefore I was discharged, credit card companies were calling me and offering me credit. I applied for a Royal Bank Visa after discharge and have never missed a payment,” he says.
Since then, Bryan has gone from strength to strength in his life. The return of his self-esteem has enabled him to rebuild his business. He has co-founded a company that will create a smartphone app to help kids with ADD. He is poised to take his third-degree black exam in karate. He has downsized and simplified his life to better protect him from financial vagaries and to minimize the disorganization associated with ADD.
Bryan adds with pride, “It’s a great feeling to get your life back and become a fully contributing member to society again.”
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