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.
Consumer Proposals in Toronto
In November 1992 the Bankruptcy Act received a broad overhaul for the first time since 1966. If you can imagine the changes that had taken place in Canadian society between those years you can understand that this was due; probably overdue. One of the main changes to the Act, other than re-naming it the Bankruptcy and Insolvency Act (BIA), was the introduction of something called a Consumer Proposal. It was a game changer.
A proposal of any kind is really an offer or a proposition, where one party extends that offer to another party in the hope that it will be accepted and both parties will mutually benefit from the new arrangement. Proposals had been around for 72 years, from the time the Bankruptcy Act was first made into law. But the proposals that were in use before 1992 were primarily intended for business and corporate use and were very difficult for the ordinary insolvent debtor, the ordinary non-business person, to use. There were many obstacles and speedbumps in the process which made it expensive and that alone drove people to use the bankruptcy itself as the only practical way they could resolve the debt problems.
Some trustees, in Toronto primarily Murray Hahn of the firm Clark, Henning & Hahn, tried to be as creative as they could and use the proposal option to allow their customers to try to reach a deal with their creditors. Up to a point it worked OK, but in the long run there were simply too many administrative problems and the initiative turned into a major problem for the government and the courts. But at least the need for a proposal regime designed for the consumer debtor had been established.
So in 1992 Parliament made the necessary amendments to the Act and November 30th of that year it became law. Interestingly the new Consumer Proposal system turned out to be pretty much what Murray had come up with on his own, only the law had now been tweaked to remove as many of the previous speedbumps and obstructions as possible. Anyway, we now had something called a Consumer Proposal for people to use.
At first very few people even considered the Consumer Proposal. All they thought about was Bankruptcy and, I guess, it took trustees a while to get use to the Consumer Proposal process themselves, so it was hard for them to explain it properly as a viable option to the tried and true bankruptcy process. So the first few years saw relatively few Consumer Proposals in use, but over time this began to change. Word got out. People, including trustees, got more familiar with it and therefore more comfortable with it, too. So today, 2016, roughly half the filings under the BIA are for Consumer Proposals, instead of the meagre number of the first few years.
So what exactly is a Consumer Proposal? Well, as they say, it isn’t rocket science. It is, however a very effective alternative to a Bankruptcy. Let’s start with what I said earlier: a proposal of any kind is an offer, a proposition. So that’s what a Consumer Proposal is, an offer. But really, it is a very specific and unusual offer.
A Consumer Proposal in Toronto or anywhere else in the world can only be made through a Licensed Insolvency Trustee (LIT) by an Insolvent Person. (I capitalized that term because it is legally defined under the BIA.) An Insolvent Person is someone who can demonstrate that he is unable to pay his debts as they generally come due. For most people that simply means they can’t meet their minimum monthly payments.
So, the Consumer Proposal is one of the options or solutions that the BIA provides for people who have run into serious debt trouble. The other main option, of course, is a Bankruptcy, but the Consumer Proposal is very different – on many levels.
The first noticeable thing about a Consumer Proposal, as opposed to a Bankruptcy, is that the debtor does not offer up all his property to the trustee for the general benefit of his creditors. As a matter of fact, his property, such as a house or investment, is not generally part of the negotiations. Instead, the debtor offers money to his creditors, in terms that he can actually perform. Since he couldn’t meet his minimum monthly payments the new terms will be something less that the regular monthly payment total. Sometimes a lot less.
For instance, let’s say the debtor’s debts amounted to $50,000.00, to 10 different creditors, 7 credit cards, 2 lines of credit and 1 personal loan. The minimum monthly payments total $1,000.00. His circumstances have deteriorated over the past year and he no longer can come up with the $1,000.00 every month. So, he makes a Consumer Proposal offering $500.00 a month, all he can afford.
Since the BIA puts a maximum time limit of 5 years to the terms of a Consumer Proposal, our debtor’s Consumer Proposal offer can be 60 payments of $500.00, a total of $30,000.00.
The second thing about a Consumer Proposal is that it operates very much like a Consolidation Loan, except there is no loan. If the Consumer Proposal is accepted by the creditors and approved by the court it becomes legally binding on all the unsecured creditors. This makes it effectively the new amount that the debtor owes and once our debtor has paid the $30,000 he will be out of debt. But to whom does he pay this $500 a month? To the trustee, of course, though with a Consumer proposal the trustee is called the Administrator.
So our debtor has made a $30,000 Consumer Proposal offer to his unsecured creditors. Now the ball goes over to the creditors’ court. Will they accept it or will they want more money. On the surface of it one might assume that the creditors probably would reject it. They not only would be losing $20,000 in capital, they also lose all the interest they would make over that 5 year span, because the moment the Consumer Proposal is filed all interest charges cease, and it stays that way for the duration of the Consumer Proposal. Depending on the interest rates, the creditors might be losing another 20,000 or more in lost interest.
However, there are some other factors that come into play which act as an inducement to the creditors to look more favourably on some kind of compromise.
The first of these is that if they simply ignore the Consumer Proposal after 45 days from the date of filing they will be stuck with those terms. The BIA makes approval a default unless the creditors get involved and at least voice an opinion on the terms offered.
The second thing is the alternative. It is usually quite evident to the creditors that the debtor is insolvent (otherwise he wouldn’t have been allowed to file the Consumer Proposal in the first place) and that the trustee has reviewed with debtor all the options available to him to resolve the debt trouble. Those other options include bankruptcy, so the debtor’s decision to make a Consumer Proposal instead of a Bankruptcy was a choice, not an obligation. It will likely be that if he has to do the Bankruptcy his creditors will receive a lot less than they would from the Consumer Proposal. In fact it is practically guaranteed that the creditors get more out of a proposal than they would out of a corresponding Bankruptcy. Otherwise why would they accept the Consumer Proposal?
If the Consumer Proposal terms he offered his creditors are not accepted the debtor may, probably will, go bankrupt. The creditors may be sufficiently un-enamoured with our debtor’s offer to want more money, but this can only be negotiated if they request a meeting to discuss it. If there is no request for a meeting at the 45 point the Consumer Proposal is deemed accepted as offered.
If the creditors do demand a meeting there can be some back and forth negotiating – through the trustee/administrator – until a deal is reached, or the creditors finally decide they are not interested in making a deal. In this latter case, the debtor will usually end up filing a Bankruptcy. Fortunately, the vast majority of Consumer Proposals are accepted.
After the creditors have said yes, the Consumer Proposal must be approved by the court. Fortunately this seldom, very seldom, requires an actual court hearing. 99.9% of the time the court approval of the Consumer Proposal is automatic, after a 15 day wait from the time the creditors said yes.
Once the court approval is obtained the rest is up to our debtor. The monthly payments start and must be kept up, with very little margin of error. If the Consumer Proposal falls 3 full monthly payments in arrears at any time over the next 5 years it will be deemed annulled. In other words, our debtor has a two month cushion to work with. He can enlarge this cushion by pre-paying the proposal if he has the means. For instance, let’s say 6 months after the court approved the Consumer Proposal our debtor gets a new job, making more money. The terms of the Consumer Proposal don’t change, so perhaps now instead of only paying the minimum $500 he can afford to $700 a month. It’s an open contract, so he he’s free to do that. If he does, after 5 such payments he will have added another 2 months to his cushion. That cushion can save the Consumer Proposal a year or two later if he runs into temporary trouble and can’t make even the $500 for a few months, so it’s a great idea to put as much as possible into the Consumer Proposal if he has the means.
When our debtor has paid the full $30,000 he will be officially out of debt to those 10 creditors he had at the beginning.
The effect of a Consumer Proposal on a person’s future credit prospects, as well as the speed with which he recovers his “good name” will depend on a lot of factors, like every credit granting decision. But one point always present in the process of determining whether to do a Bankruptcy or a Consumer Proposal is the reality of the current situation. An Insolvent Person can’t pay his debts the way the creditors have the right to demand. Unless that problem is resolved our debtor will never recover his “good name”. So the most practical and effective way to approach these decisions is to take a realistic look at the circumstances and determine what the priorities should be. It’s not much good gazing at the horizon if you’re going to trip over something at your feet.
As a final bit of information on Consumer Proposals I’d like to point out that our experience shows a large majority of Consumer Proposals in Toronto are successfully performed and they are fully paid in an average of 50 month – 10 months early. A win for everyone.
Consumer Proposal Explained
Richard Killen Trustee in Bankruptcy explains how a consumer proposal works.
Can I Still Operate a Business
Richard Killen explains the truth behind your limitations or restrictions during a bankruptcy or consumer proposal.
10 Debt Danger Signals
After the expense of the holidays, many of us wonder how much debt is too much. Yes, Canadians are used to carrying record debt loads, but there comes a point where the burden may become too heavy.
Here are 10 danger signs that could reveal your spending is out of control:
1. You are making only minimal payments on your credit card balances as you head towards maxing them out.
2. Even so, you continue to use them for everyday purchases, such as groceries or gas.
3. You are using one credit card to pay off another. The fact that you have more than one or two credit cards is in itself a danger signal.
4. You borrow money to make it from one payday to the next.
5. You miss payments and due dates for bills and loans.
6. Creditors are after you for payment, threaten to sue or repossess your car, furniture or television, or hire a collection agency to recover the money for them.
7. You argue a lot with family about money, or hide your spending habits from them.
8. The size of your debt grows month after month. Or it has grown so large that you are afraid to look at the real total.
9. Extra money earned through overtime, tips or bonuses is relied on as part of your regular monthly income.
10. Thoughts about money and debt crowd out all others and put your life under a cloud.
Although your situation may be dire, it is never hopeless.
If you feel your debt load is becoming too much, come into Richard Killen & Associates for a free assessment. As a federally licensed trustee, we can take you through all the possible financial coping strategies – whether it is debt consolidation, negotiating with creditors, a consumer proposal or even a personal bankruptcy – and find out what works best for your particular situation. And you make all the decisions.
After all, we’re talking about your peace of mind, right?
Consumer Proposal Rejection?
So the consumer proposal that you’ve filed in Ontario will soon be presented to your creditors. You’ve worked with a Licensed Insolvency Trustee, such as Richard Killen & Associates, to come up with a reasonable payment plan for your debts They helped you fill out the necessary forms and filed them for you with the Official Receiver.
Protections are in place
As soon as the consumer proposal is filed a legal protection goes into place – automatically. This means that none of your creditors can start, or continue, any collection effort against either you, or your property. In other words, all your creditors must direct their attention to your proposal, through the trustee. (In a consumer proposal the trustee’s title becomes “administrator.”)
Like most things in the law, there is an exception to this general principle. In this case a secured creditor, like a mortgage holder, can enforce his security rights under his contract with you. So if you wanted to keep your house or car, you would have to keep up your payments, or the creditor would have the right to repossess it from you. So that creditor can’t be included in your proposal.
But, as far as regular, unsecured creditors, you don’t make any more payments towards those debts because they will get paid through your consumer proposal. There is no point in their continuing to write to you, call you, demand payments from you, put the account in collection, garnishee your wages and so on, because the proposal has taken over your obligations to them.
So you’ve filed. What happens next?
Once the proposal is filed, the administrator must tell your creditors about it. A copy is sent to all of them and they are invited to file a claim to let you know, within 45 days, whether they are in favour of your offer or not. If they are, which is what normally happens, then you’ve got a deal. If not, we will have to have a meeting with the creditors, where everything can be discussed and eventually voted on.
To be approved at a vote, all it takes is a simple majority. The creditors get one vote for every dollar you owe them. That means the larger creditors are more important than the little ones. To be accepted your proposal must get 50% plus one vote.
Wondering what your chances are that the creditors will accept the proposal?
Your chances are good
While we cannot guarantee that any proposal offer will be successful, the vast majority of these legally binding settlements that we negotiate are accepted. The trustees at Richard Killen & Associates take a lot of time and effort to understand your situation – including what level of payments you can afford – and have a lot of experience in dealing with creditors. We generally know what they are likely to accept. In short, we listen to them and we listen to you, and then help you craft a compromise that both you and your creditors can live with.
Why not handle it yourself?
The big advantages of doing a consumer proposal instead of handling negotiations with creditors yourself are:
- The filing of the proposal takes away the creditors’ other options; they must come to the table.
- You don’t have to get everybody to agree. The majority rules.
- A proposal works with all your creditors collectively.
- You don’t have to pay 100% of the debt. You can reach a compromise amount.
If the creditors representing the majority of the dollar value of your debt vote to accept the proposal, then it will become legally binding on all the creditors (and you).
Initial rejection is not the end
Though it is not a great sign, a rejection of your proposal, along with a subsequent meeting, is just part of the process. It usually means the creditors want you to offer more money, but this amount is still under negotiation. You still have the opportunity to make a deal. The trustee will continue to work with both sides to come up with an acceptable compromise. Often by adding a few dollars to the monthly payments, or by extending the payment period by a few months, the creditors will be satisfied.
So, is a proposal better than bankruptcy?
That is a good question. We get asked it a lot.
Very few people want to go bankrupt. They do so because they have to. Doing a proposal avoids bankruptcy, but whether it is the right move depends on individual circumstances. Only you can really answer that question.
For the creditors, it usually boils down to how much money they will receive. Creditors are keenly aware that what’s been offered them is better than what they’d receive in a bankruptcy. They know that if they come back and ask for too much more money that they may make you believe that a bankruptcy is the better way to go. They don’t want that either.
Whether a proposal or a bankruptcy is the right way for you, is something you need to discuss with the trustee. That’s what we at Richard Killen & Associates are here for. Call us.
And again, don’t worry too much. At the end of the day, most reasonable consumer proposals in Ontario are accepted.
How To Rebuild Your Credit Rating
Your credit rating has taken a beating. You regularly pay bills late. Sometimes you can’t make even minimum payments. Perhaps you’ve gone through a bankruptcy or the consumer proposal process.
But what now? How do you rebuild your credit rating?
OK, you’ve absorbed the bad news. If you’ve gone through the bankruptcy or consumer proposals process with a licensed trustee such as Richard Killen & Associates, you would have had some credit counselling sessions that would give you valuable advice about how to manage your finances and restore your credit rating.
Replace Bad Credit With Good
You would be shown, for example, how to use credit wisely. You should buy only what you can afford to pay back and make payments on time. In fact, all your bills should be paid on time.
Simple to say, hard to do. The credit counselling sessions provided by Richard Killen & Associates Ltd. will give you strategies on how to achieve this discipline.
As a credit-redeeming strategy, you might even want to purposely get a loan, though it will probably be at a high interest rate. Just borrow $1,000 or so and make sure you make your monthly payments religiously. Automatic debit from your account is probably the best way to ensure that. After six months or so you’ll be receiving an R-1 rating from this creditor. That’s a start.
But Don’t Go Overboard
The loan-on-purpose strategy notwithstanding, you shouldn’t get too much credit. The more you have available to you, the more tempting it is to use. Having too much credit can also hurt your credit report. So do not fill in too many applications for credit and loans because every time you do, your credit history is checked, which can affect your score.
Get a Secured Credit Card
A secured credit card requires you to have a balance. So, for example, if you have a balance of $500, then you might have a credit limit of $500, maybe more depending on the creditor and your arrangements. In effect, it is a no-risk or small-risk credit card. But the very act of using the card and paying your credit card bills on time will help to restore your rating.
No Minimum Payments
Get in the habit of paying your bills, especially your credit card bills, in full, rather than making a minimum payment and carrying the balance. We can’t stress this tactic too much. It is the key to good credit card management.
There are many strategies you can use to get back to financial health. The best first step could be a free consultation with a licensed trustee at Richard Killen & Associates Ltd., who will help you to understand your options in dealing with credit challenges.
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.