News Flash January 13, 2012 – BC Bankruptcy Exemptions Reinstated.

It was reported in our blog of March 27, 2011 that a court decision on November 17, 2010 Thow (Re) (Exemptions from Seizure), 2010 BCSC 1561 turned the bankruptcy exemptions in BC upside down.

Although this decision related to a bankrupt that cannot be described as honest or unfortunate; it affected all those individuals that are honest and unfortunate, and simply looking for a fresh financial start.

The Court found, on a very strict interpretation of the applicable legislation, that the exemptions set out in the Court Order Enforcement Act of British Colombia, only apply if the value of the asset does not exceed the exempt amount. That is: if the value of your home, or car, is greater than the exempt amount (ie: $12,000, or $5,000), you are not entitled to any exemption in a bankruptcy.

Although there are many vehicles worth less than $5,000, I have not been able to find any homes in B.C. worth less than that.

What did all this mean?

If you made an assignment in bankruptcy in B.C., you would lose the right to retain up to $34,000 in equity. This was a significant issue and would affect many honest unfortunate people in financial difficulty trying to get a fresh start.

I am happy to report that that decision of November 17, 2010 has this day January 13, 2011 been overturned in the Atwal appeal.

This means that the exemptions are back the way they were before the decision in Re: Thow as follows:

Equity in a home in Greater Vancouver and Victoria = $12,000. In the rest of the province = $9,000;

Equity in Household items = $4,000;

Equity in a vehicle = $5,000; The vehicle exemption drops to $2,000 if the debtor is behind on child care payments (to facilitate the enforcement of Maintenance Orders)

Equity in work tools = $10,000;

Exemptions are in effect for all registered retirement savings plans (RRSP’s, RRIF’s and DPSP’s (Deferred Profit Sharing Plans).

Contributions made in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate.

Equity in essential clothing and medical aids is unlimited

The Financial Consumer Agency of Canada (FCAC) today (January 10, 2012) issued a Consumer Alert on debt reduction companies. FCAC is warning Canadians: Be very cautious about companies that claim they can negotiate a deal with your creditors so that you will have to pay only part of your debt. This process is often called “debt reduction,” “debt settlement,” “debt relief” or “debt negotiation.”

Consumers who are looking for information on dealing with their debt will find tips on getting out of debt on FCAC’s website at fcac.gc.ca.

You can see the full press release at this link.

For more information cautioning consumers please refer to this link.

Thanks to trustee in bankruptcy Fabien Tremblay we now have a French language version of “Quickly get a good credit rating after Bankruptcy or a Consumer Proposal.”

One of the major purposes of Canadian bankruptcy law is to give a person a fresh financial start. Part of that fresh start is to re-establish a good credit rating so the person can fully participate in the Canadian economy.

BankruptcyCanada.com has developed a FREE comprehensive step by step procedure that will rebuild a person’s credit rating in the quickest possible time. The steps will allow a person to get a secured credit card and a car loan shortly after he or she is discharged. Provided the income tests are met, a year after a bankruptcy discharge the person should be able to qualify for most loans at excellent interest rates.

Two years after a bankruptcy discharge the person will be able to get the most difficult credit of all – a mortgage – at the same interest rate, as the most credit worthy person who has never been in bankruptcy.

Full information, including all the forms required, is available at:
http://www.bankruptcycanada.com/Obtenir-du-Credit-apres-une-faillite.htm

Voici les étapes que nous allons développer:

Étape 1 – Obtenez votre Certificat de libération ou le Certificat d’exécution intégrale de votre proposition.

Étape 2 – Nettoyer votre dossier de crédit. Vérifiez votre dossier de crédit et écrivez au bureau de crédit pour corriger toute erreur.

Étape 3 – Obtenez un nouveau crédit. Vous devez maintenant contracter un nouveau crédit pour démontrer votre capacité d’emprunt et de remboursement. Une bonne façon est de demander une carte de crédit garantie par un dépôt. Obtenir une telle carte garantie, à l’adresse que nous vous indiquons, est presqu’assuré. Vous devriez aussi obtenir d’autres formes de crédit, comme un prêt reer ou un prêt auto etc.

Étape 4 – Accumulez votre mise de fond. La mise de fond minimale est de 5% pour un prêt garanti par la SCHL. Pour se qualifier pour un tel prêt hypothécaire, vous devez avoir été libéré depuis au moins 2 ans et 1 jour, et avoir au moins 1 année de crédit rétabli.

Étape 5 – Contactez un courtier en prêt hypothécaire qui possède de l’expérience avec des personnes ayant fait faillite ou ayant traversé des difficultés financières.

I was interviewed a few weeks ago by Tom McFeat, a reporter with CBC News. His article about common myths about bankruptcy is at this link.

In the article the CBC explores the facts and myths behind the following questions many people have about filing bankruptcy to eliminate debt problems:

Will I lose everything if I file for bankruptcy?

Will my friends, family and employers find out I went bankrupt?

How many people in Canada actually file for bankruptcy?

What happens to my credit rating if I file for bankruptcy?

Does bankruptcy erase all of my debts?

How much does it cost to go bankrupt?

If I file bankruptcy, will I be ever be able to get a credit card or line of credit again?

What will happen to my spouse’s credit rating if I go bankrupt?

How serious is filing for bankruptcy?

This was published by the Office of the Superintendent of Bankruptcy on November 24, 2011. A copy with live links can be found at this site.

Bankruptcy Abuse and Fraud

The majority of people who declare bankruptcy are honest, but they have experienced such significant financial problems that the only way to resolve them is through the bankruptcy system. Their difficulties may result from a change in employment, income or family situation, a serious illness, or poor financial management.

There are cases, however, where people abuse the system and continue to obtain and use credit knowing that they can’t repay the money they are borrowing. There are also people who use bankruptcy to get out of situations that they have created themselves through bad faith and fraud.

The Office of the Superintendent of Bankruptcy (OSB) is responsible for supervising the administration of bankruptcy files in Canada and investigating cases where offences may have been committed. It may intervene before the Court in cases where bankrupts have failed to meet their obligations or when their conduct is deemed to be inappropriate. Trustees in bankruptcy and creditors may also make representations to the Court in such matters.

Offences under the Bankruptcy and Insolvency Act (BIA) and the Criminal Code

What are the offences?
How are offences discovered?
Can I report offences?
What are the penalties?
Case summaries Updated
List of all criminal/penal sentences rendered since 2010 Updated

When bankrupts fail to respect their obligations

What are the obligations of a bankrupt?
What is considered misconduct?
How is misconduct reported?
What are the consequences of misconduct?
Case summaries Updated

The Wage Earner Protection Program (“WEPP”) provides guaranteed and timely compensation of up to $3,400 in 2011 to workers for unpaid wages, vacation pay, and severance and termination pay earned in the six months preceding an employer’s bankruptcy or receivership.

The Wage Earner Protection Program (“WEPP”) is being expanded to give further protection to cover employees who lose their jobs when their employer’s attempt at restructuring is unsuccessful and ends in bankruptcy or receivership. The enhanced protection is estimated to provide an additional $4.5 million annually in support to workers affected by the bankruptcy or receivership of their employer.

It is currently anticipated that the Implementation Act will come into force in November or December 2011.

The Implementation Act (once in force), will provide for the following modifications to the WEPPA:
• The modification to the WEPPA will be effective for bankruptcy and receivership proceedings commenced after June 5, 2011;
• The WEPP will be extended to include both proposals proceeding commenced under Division I of Part III of the Bankruptcy and Insolvency Act (“BIA”) and proceedings commenced under the Companies’ Creditors Arrangement Act (“CCAA”); and
• The definition of WEPP eligible wages by the WEPPA will be extended for the periods of:
o six months prior to the commencement of the proposal proceeding under the BIA and, ending on the date of the bankruptcy or the receivership of the employer; and
o six months prior to the beginning of the proceedings under CCAA and, ending on the date of the bankruptcy or the receivership of the employer.

Should there be any questions regarding the foregoing, we encourage you to call Service Canada at 1 866 683-6516.

A Personal Proposal Story

“A Personal Proposal Story” is one of the chapters in our book The Personal Insolvency Guide. This book is available for FREE at this link.

Peter was worried sick. He felt like a failure. He had always been supremely confident and felt he could accomplish almost anything he set his mind to. Now he had grave doubts. He was a failure, he thought, at 27 years of age!

Peter had started a business a few years ago. The business supplied and installed customized audio systems in vehicles. There was excellent demand in this niche market and the business thrived. Peter had opened a second location in a town about 100 kilometres away and his best friend was managing this location.

Then things started to go wrong. The second location was not doing well and sales were poor. Peter had spent the whole weekend going over the books and it was a disaster! Not only were the sales low but also he found out that extending credit made up a large part of the sales. He knew a large percentage of the debt was not collectable.

He had made it clear to his friend that under no circumstance was he to extend credit. It was cash up front or payment by credit card.

“Why did you do this?” he asked his friend.

The friend was contrite. “I am sorry, Peter. What can I say? I thought I was doing the right thing.”

Peter knew the business could not survive. He went to the bank and they immediately appointed a receiver. In time, the bank was paid out from the proceeds from the inventory and the collection of accounts receivable. So was Canada Revenue Agency (CRA).

When the dust settled, Peter found he was personally liable for the business debt he had personally guaranteed. There was also his personal debt to contend with, made up of credit card debt of $5,000 and income tax owing of $5,000. In total he owed $80,000.

Peter went to see his father, a successful businessman. Peter’s father listened to Peter’s story. He didn’t criticize Peter and didn’t say, “I told you so.” Instead, he asked a few questions about the debt and said that Peter had to get professional advice as soon as possible. Peter’s father said he knew a trustee in bankruptcy and did Peter want him to set up an appointment? Peter said he did.

“Do you want me there too?” asked Peter’s father.

“I do,” replied Peter.

****

Peter and his father were now meeting with the trustee. The trustee had reviewed Peter’s financial information and had asked a number of questions. One question concerned Peter’s current income.

Peter said he was working as a salesman in an audio store and was making about $1,800 a month, take-home pay.

The trustee said he could only see two options for Peter. One was bankruptcy, which would see all the debt erased, including the CRA debt, and would see Peter discharged in nine months.

“What is the second option”, asked Peter.

“It’s a proposal,” the trustee replied. “But since you do not have an income sufficient to make payments on a proposal it would have to be a “Lump sum” proposal with funds put up by a third party.”

The trustee explained that if Peter earned enough to pay say $20,000 over 40 months, he thought that would be acceptable to the creditors and Peter could file a proposal, thus avoiding bankruptcy.

Peter’s father said he would like to know more about this and said he might be prepared to put up the money.

The trustee explained that there were two types of proposal available; a consumer proposal and a division I proposal (see Page 83). There was some discussion on the major differences between the two:

The trustee said that the consumer proposal was deemed to be accepted after 45 days if creditors do not call for a creditors’ meeting and fewer than 50% of the dollars are voted against the proposal. Also if the proposal was not accepted you would not be automatically bankruptcy but the stay of proceeding, protecting you from your creditors would be dropped.

The trustee explained that in a division I proposal at least 66.6 percent (2/3) in dollars and 50% plus one in number of eligible creditors who vote must approve; The results of the vote would be known in 21 days and if the proposal was not accepted then Peter would be bankrupt.

The trustee explained that the terms of a proposal were only limited by imagination and the following rules:

 Creditors had to be better off than in a bankruptcy;
 Creditors have to approve the proposal or have it deemed to be approved by them not voting 50.0+ % of the dollars against a consumer proposal;
 The proposal had to be approved by the court or in the case of a consumer proposal have it deemed to be court approved.

The trustee explained that the creditors who voted would bind all unsecured creditors to the proposal, even the creditors who did not vote and those who voted against the proposal. He further explained that if the creditors did not accept the Division I Proposal, then Peter would be bankrupt effective the date of the creditors’ meeting, at which votes were cast.

Peter’s father asked the trustee what the advantages were of the proposal compared with a bankruptcy.

The trustee said that the bankruptcy was cheaper and would only cost about $1,800. The fact of a bankruptcy would be erased from the credit bureau report 6 years after the discharge from bankruptcy or about 7 years after an assignment into bankruptcy.
The advantages of a proposal were that the credit bureau record would be erased 3 years after the proposal terms were satisfied or about 40 months after the proposal was filed.

There was another possible advantage, the trustee stated but it would depend on a value judgement by Peter as to whether it really was an advantage. That was that a proposal was not a bankruptcy.

The trustee asked Peter if it was important to Peter not to go bankrupt. Peter said it was.

Peter’s father asked the trustee how much the lump sum should be. The trustee said it was up to Peter and his father to come up with the dollar amount. The trustee informed them that if the creditors accepted the proposal they would be paid the proposal amount in approximately three months.

Peter and his father conferred for a few minutes and then Peter’s father told the trustee that he was prepared to put up $16,000.

Peter told the trustee that he would like to file a Division I Proposal rather than a Consumer Proposal because he wanted to know the result as soon as possible. i.e. in 21 days and did not want to wait 45 plus days. He also said that he liked the idea of immediately going into bankruptcy if the creditors did not accept the proposal.

Peter explained that this perhaps would encourage the creditors to vote for the proposal since the alternative was they would get nothing if he went into bankruptcy. He also said that if the creditors did not accept the proposal he would have to file bankruptcy in any case so why not have it happen immediately.

Peter also felt that maintaining the continuity of the stay of proceeding was important to him. He explained that since in a consumer proposal the stay of proceeding was dropped if the creditors did not accept the proposal this made him vulnerable to having his wages garnisheed.

He asked the trustee if he thought that would work. He also asked the trustee how he would be paid.

The trustee said he felt that that amount would be acceptable. He said his fees would be about $4,000 and would come out of the $16,000.

The trustee said he would draft the proposal and have it ready to sign in two days. He said he would need a bank draft from Peter’s father in the amount of $16,000 at that time. He explained that he and Peter’s father would sign an agreement that the $16,000 would be returned to Peter’s father if the creditors did not accept the proposal, or the court did not approve it.

The trustee also reminded them that the creditors’ meeting would vote on the proposal 21 days after the proposal was filed and if the proposal was not accepted that Peter would be bankrupt effective that date. The trustee said that Peter was required to attend the meeting and that he thought Peter’s father should also attend.

Peter and his father said they understood and made an appointment for Peter to attend at the trustee’s office in two days to sign the proposal and associated documents. Peter’s father said he would have the funds in the hands of the trustee the next day.

****

Peter and his father were now at the trustee’s office at the creditors’ meeting. There were three creditors in attendance, including a representative from CRA. The trustee had checked the Proofs of Claim that the attending creditors had provided.

The trustee chaired the meeting. He reviewed the report he had sent to all the creditors giving the background and the terms of the proposal. He also reminded the creditors that he was recommending that the proposal be accepted since the creditors in the proposal would get about $12,000 or 15 cents on the dollar. While, if they voted against the proposal and Peter was placed into bankruptcy they would get nothing.

The trustee said that the purpose of the meeting was to consider and vote on the proposal. The trustee told the meeting that he had three voting letters voting in favour of the proposal. The trustee asked if there were any questions.

The creditors asked a number of questions of Peter concerning how the business failed.

The representative of CRA informed the meeting that she would be voting against the proposal unless CRA received 100 cents on the dollar of the $5,000.00 CRA debt.

Peter and his father conferred for a few minutes.

Peter informed the meeting that he was prepared to go into bankruptcy if the creditors did not accept the proposal. Peter’s father said that he was not prepared to put up any more money.

The trustee called for voting letters to be filled out by the three creditors present.

The trustee took a few minutes to tally the votes and then announced that the creditors had accepted the proposal as follows:

Five votes were in favour of the proposal in the amount of $30,000 and one vote was against in the amount of $5,000.

The trustee said he would immediately make an application to court to have the proposal approved by the court. He informed the creditors he would notify the creditors of the court date.

The court did approve the proposal. Later the trustee paid out the required monies to the creditors and issued Peter a Certificate of Completion as evidence of the successful completion of the proposal and erasing of his unsecured debt.

****

This proposal story illustrates some of the most powerful features of a proposal:

 Creditors representing only $35,000 of the $80,000 in debt voted to accept the proposal but ALL the creditors are bound by the terms of the proposal.
 CRA (Canada Revenue Agency) voted against acceptance of the proposal but they too are forced to accept the terms of the proposal.
 A third party (the father) funded the proposal with the funds he advanced to be refunded to him if the creditors did not approve the proposal. This is a fairly common occurrence and provides a very persuasive motive for the creditors to accept the proposal. i.e. The creditors will get $12,000 if they accept the proposal and nothing if they refuse to accept it.

Why the “Occupy” protests will fizzle out in Canada.

The call for the September 17, 2011 Occupation of Wall Street was started in a blog post on July 13. 2011 by the Vancouver activist group, Adbusters.

The “Occupy” movement moved to Canada on Sunday, October 16, 2011 but has little traction. Most of the protests had fizzled out as of October 18th. There is just a hand full of protesters in Toronto. The exception is Occupy Vancouver which reportedly still has hundreds of protesters in front of the Art Gallery.

It’s not difficult to figure out why the Occupy movement in Canada has little staying power. The Canadian economy is strong, with perhaps the best performance of the western countries. There have been no bank failures in Canada unlike the US. Also, there have been no financial bailouts in Canada except for the automobile industry.

The unemployment rate in Canada was last reported at 7.1 percent in September of 2011. From 1976 until 2010, Canada’s Unemployment Rate averaged 8.53 percent reaching an historical high of 13.10 percent in December of 1982 and a record low of 5.90 percent in September of 2007.

This contrasts with the US with its economy in crisis, an unemployment rate of 9.1 percent and its politicians unable to stop their partisan bickering and come to grips with a solution.

But what about the occupy group’s most recognizable goal; “the reform of an unfair economic system that breeds greater inequality between a wealthy elite and everyone else”? An examination of the facts, do not support that conclusion for Canada. Let’s examine the Gini Index for some answers.

This is a list of the Gini Indices for some countries (Lower means there is less of a difference of income for top versus low income earners.):

Denmark 24.7
Sweden 25.0
Norway 25.8
Finland 26.9
Canada 32.9
Australia 35.2
UK 36.0
New Zealand 36.2
US 40.8
China 46.9

Source of data:
http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

The Gini Coefficient

The Gini coefficient, invented by the Italian statistician Corado Gini, is a number between zero and one that measures the degree of inequality in the distribution of income in a given society. The coefficient would register zero (0.0 = minimum inequality) for a society in which each member received exactly the same income and it would register a coefficient of one (1.0 = maximum inequality) if one member got all the income and the rest got nothing.
In practice, coefficient values range from around 0.2 for historically equalitarian countries like Bulgaria, Hungary, the Slovak and Czech republics and Poland to over 0.6 for Central and South American countries where powerful elites dominate the economy.

The evolution of the Gini coefficient is particularly useful as it reveals trends. It shows the evolution towards greater equality in Cuba from 1953 to 1986 (0.55 to 0.22) and the growth of inequality in the USA in the last three decades during which the Gini went from 0.35 in the ’70′s to 0.40 now (and it is still rising!). Most European countries and Canada rate around 0.30, Japan and some Asian countries get around 0.35, some reach 0.40 while most African countries exceed 0.45.