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Bankruptcy and Consumer Proposal Rate in Canada Increases

by Doug Hoyes

Personal bankruptcy filings in Canada increased in June, 2010, according to personal bankruptcy statistics released by the Office of the Superintendent of Bankruptcy. In the month of June 11,900 Canadians filed a bankruptcy or a proposal, up 7% from the 11,123 filings in May, 2010. Over the twelve months ending in June, 145,233 residents of Canada filed a proposal or bankruptcy, up 6.2% from the 136,749 who filed over the twelve months ending in June, 2009.

For the twelve months ended June 2010 the rate of filings increased everywhere but in Manitoba and Nunavut. Here’s a summary of the rate of increase in personal insolvencies (which includes bankruptcies and proposals) filed by consumers in Canada for the twelve months ended June, 2010:

What does the increase in insolvency filings in Canada mean for the average Canadian?

A quick review of the number shows that in virtually every province the number of insolvencies filed increased, but a more detailed look at the number reveals a very important trend: personal bankruptcy filings in Canada are actually decreasing, while the number of consumer proposals filed is increasing dramatically.

As noted above, over the last twelve months in Canada the total number of residents of Canada declaring insolvency increased by 6.2%, to 145,233. However, the number of personal bankruptcies actually decreased by 1.5%, from 106,933 to 105,360. So why are total filings up 6.2%? Because the number of proposals filed by consumers increased by an astounding 33.7%, from 29,816 to 39,873 filings in the last twelve months.

These numbers prove that the average Canadian is increasingly choosing to file a consumer proposal as an alternative to personal bankruptcy.

Why are consumer proposal filings increasing in Canada?

Bankruptcy numbers are falling, and consumer proposals are increasing for two reasons:

First, the economy in Canada is still showing weakness, which is why overall numbers are still increasing.

Second, and most importantly, in September 2009 the federal government implemented new bankruptcy rules that make filing bankruptcy a longer and more expensive process for many Canadians. The most significant new rule involves the calculation of surplus income. In simple terms, under the new surplus income and bankruptcy in Canada rules, if your family income is higher than the allowable limit set by the government, your bankruptcy will last for an extra year, and you will be required to make extra payments for that extra year. That means that a first time bankrupt, instead of being discharged in nine months, may not be discharged for 21 months.

Clearly, many Canadians with debt problems have analyzed their options, and have decided that a consumer proposal is a better option than bankruptcy for dealing with their debts, and that’s why consumer proposal numbers continue to increase.

With a consumer proposal you make one fixed monthly payment, and that payment doesn’t increase even if your income increases. You know exactly what you are required to pay to discharge your debts, and that’s a great feeling.

To find out if a consumer proposal is right for you, contact a licensed consumer proposal administrator today for a no charge initial consultation. The numbers don’t lie; a consumer proposal may be the right option for you.

Posted on Monday, August 30th, 2010
Filed under: bankruptcy Canada andbankruptcy reform andConsumer Proposal
posted by Doug Hoyes @ 5:35 am No Comments

Consumer Proposal: One of the most important financial tools available to Canadians

by Barton Goth

The consumer proposal is probably the least known of the processes to deal with overwhelming debt, but it is the mechanism that has the greatest capacity for good given our current economic environment. Let’s face it, right now the number one biggest risk to the Canadian economy isn’t the high dollar, it isn’t our level of productivity, it isn’t the strength of our largest trading partner – it is the state of our personal finances.

Barton Goth, Bankruptcy Trustee

After that bold statement I must insert my disclosure. My name is Barton Goth, I am a licensed Trustee in Bankruptcy and Consumer Proposal Administrator here in Edmonton. So I definitely have a bias. However, this statement is not made based solely on observations made in my daily practice, but based on the current state of our overall economy. Let us review:

• During the 2000s, the average Canadian’s asset growth was less than half the pace of the 1990’s and the growth in debt was twice as rapid (Roger Suave, The Current State of Family Finances 2009)

• In recent years household debt has surged three time faster than income and now stands at a record high of more than $1-trillion (Canada’s Brewing Debt Storm, The Globe and Mail Apr. 16, 2010, by Paul Waldie and Steve Ladurantaye)

• The average Canadian owes about $1.47 for every dollar of disposable income (Certified General Accountants Association of Canada, CIBC Economics, National Bank economics and Statistics Canada)

• For many years, debt was rising about 2.5 percentage points faster per year than income, this gap had widened to 4 to 5 percentage points by 2005 and rising by approximately 9 per cent in 2008. (Defusing Canada’s debt bomb, Globe and Mail Apr. 17, 2010, by Don Drummond, Chief economist, TD Bank Financial Group)

As a result of these alarming trends I think the traditional focus of our finances is going to have to move away from the saving and investment side of things, and toward dealing with the debt that more and more people are becoming burdened by. This is why a consumer proposal currently is one of the most important financial tools available to Canadian families. It is a tool that gives Canadians the ability to regain control of their finances before they are forced to consider a bankruptcy. As a result, I predict that we will continue to see a major increase in the number of proposals filed as people begin to realize the gravity of their financial position and begin to investigate what can been done to resolve these difficulties.

For those of you unfamiliar with consumer proposals, you are not alone. The idea of a consumer proposal is relatively new (first introduced into the Canadian insolvency legislation in 1992), but has provided a way for many Canadians over the years with a middle of the road option that contains many of the advantages associated with a bankruptcy, while avoiding some of the more significant disadvantages. A consumer proposal is especially advantageous for those people who cannot afford to pay their debts in full but have enough money coming in each month that realistically they should not be forced into the filing of a bankruptcy, a reality that an increasing number of Canadians are faced with each day.

The consumer proposal is one of the options available through the Bankruptcy and Insolvency Act that provides a court sanctioned way to negotiate a settlement with your unsecured creditors (i.e. credit cards, personal loans, taxes etc.). There are many advantages to filing a consumer proposal. For instance, in a proposal you do not automatically lose any of your assets as you would in a bankruptcy. You are able to have a reduced impact on your credit over the long term than filing bankruptcy, and most importantly, you are able to bring the payments on your existing debt to a manageable level that will fit in your budget. At the same time, because the consumer proposal is a court sanctioned settlement, you only need a majority of your creditors to cooperate with the proposal and you benefit from court protection which mandates that all your unsecured creditors must participate in the proposal and can no longer collect on or charge any interest on these debts.

At a time when the average family is faced with waning savings, growing debt, aggressive lending practices and an uncertain economy, the consumer proposal may prove to be one of the most needed of all financial tools, and one that will assist many families in an effort to regain control of their finances and truly put their house in order.

If your one of the many Canadians who are currently struggling with your finances I have one word of advice, act now and schedule a time to review your finances with a consumer proposal administrator . If you are proactive, rather than reactive, you will be able to catch things early. The earlier you recognize the difficulties you face and the earlier you act, the more likely you will be able to qualify to file a consumer proposals and the quicker you will be able to regain control of your finances.

Posted on Monday, August 2nd, 2010
Filed under: Consumer Proposal andDebt Options
posted by Barton Goth @ 5:26 am No Comments

Consumer Proposal: Will My Creditors Accept My Proposal?

by Doug Hoyes

As we have discussed many time on the Bankruptcy Canada Trustee Talk blog, a consumer proposal is a great alternative to filing bankruptcy in Canada. The concept is simple: instead of going bankrupt, you offer to pay a portion of the amount owing to your creditors, and if they accept you avoid bankruptcy.

Douglas Hoyes, Canada Bankruptcy Trustee

Douglas Hoyes, Bankruptcy Trustee

But why would a creditor accept a consumer proposal? If you owe $50,000, why would they accept a deal where you repay perhaps only $20,000?

There are a number of reasons why a creditor would accept a consumer proposal:

First, and most obviously, a creditor would accept a proposal if they expect to generate more money in a proposal than they would generate in a bankruptcy. Obviously if they were going to get less money in a proposal, they would not accept it. Here’s a simple example:

Joe has $50,000 in debt. He supports his wife and three children, and after paying his normal living expenses like rent, utilities, food, transportation and other costs Joe only has $500 per month available to repay his debts. The minimum payments on his credit cards and other debts are $1,300 per month, so he is falling behind.

Joe met with a trustee, and the trustee calculated that based on Joe’s income and family size he would be required to pay $600 per month in surplus income payments, and his bankruptcy would last for 21 months, so Joe would pay approximately $12,600 during his bankruptcy. He’s worried that he won’t be able to afford the $600 per month in payments.

Joe’s trustee suggest an alternative: instead of going bankrupt, Joe could offer a consumer proposal of $300 per month for five years, or $18,000 in total.

Obviously Joe is paying $18,000 in a proposal, instead of $12,600 in a bankruptcy, but Joe is happy with that plan. He wants to avoid bankruptcy, and he wants to repay as much as he can to his creditors, and for him, $300 per month in a consumer proposal is much more manageable than $600 per month in a bankruptcy. Joe decides to file a proposal.

In this example the creditors are likely to accept the proposal because they are getting more in the proposal than they would get under any other alternative.

Whether or not the creditors actually accept the proposal will depend on a number of factors, including Joe’s prior history with the creditor, and the individual criteria that each creditor uses to decide on how they will vote on a proposal. A consumer proposal administrator can explain the likely chances of success for you at your no charge initial consultation.

Second, most creditors want to be seen as “helping the little guy.” Big banks and credit card companies in Canada don’t want to get a reputation for refusing all reasonable settlement arrangements, so if a consumer proposal is reasonable, most of them will accept it.

Finally, creditors want certainty. In a bankruptcy the amount of money they will realize will increase or decrease depending on the bankrupt’s income during the process. In a consumer proposal, once the proposal is approved, the payment amounts are fixed. There is certainty. Each creditor knows what they will get. That’s another example of how a proposal is a “win-win” solution. You have certainty because you know what you are required to pay each month, and your creditor knows what they will be receiving. There are no surprises.

Is a consumer proposal the right solution for you? The answer depends on the size of your debts, who you owe the money to, what you own, and what you can afford to pay each month. Try our free debt options calculator to review your options, and then contact a trustee to arrange for a free, no obligation initial consultation.

Posted on Monday, May 3rd, 2010
Filed under: Consumer Proposal
posted by Doug Hoyes @ 5:29 am No Comments

Consumer Proposal: The Best Way to Avoid Bankruptcy in Canada

by Doug Hoyes

Doug Hoyes, Bankruptcy Trustee

Doug Hoyes, Bankruptcy Trustee

This is a website devoted to discussing all aspects of bankruptcy in Canada, but today we will discuss the opposite of bankruptcy. Today I present my Top Three Ways to Avoid Bankruptcy in Canada.

Why would I, a bankruptcy trustee, want you to avoid bankruptcy? Because I strongly believe that bankruptcy should be a last resort, a strategy to be used only after all all other options have been evaluated and eliminated. I take every opportunity to encourage all Canadians to explore all financial options before making a decision. This week I was interviewed by the Globe and Mail for a story on How to Avoid Filing for Bankruptcy, and again I made the comment that bankruptcy is a last resort.

Why should you consider all options? Because there are many scams and unscrupulous people that will tell you they can help you avoid bankruptcy, but many times they will simply just take your money. You can read more in our article on Debt Management and Debt Settlement Plans: Scams, or a Good Alternative to Bankruptcy in Canada?

So what are my Top Three Strategies for Avoiding Bankruptcy in Canada?

3 Get help from family or friends. This is perhaps the most over-looked strategy. I have had hundreds of people over the years tell me that they are so embarrassed about their financial situation that they are afraid to discuss it with their family or friends. I’m not suggesting you should tell everyone you know that you are having financial trouble, but reaching out to your family or closest friends is often a good solution. Many times I have encouraged people, particularly younger people, to talk to their parents. While their parents may be disappointed that they are in financial trouble, they will often also try to work with them to solve their problems.

I’m not suggesting that you should borrow money from family or friends. Borrowing money is a good way to lose friends, and an even better way to make Christmas dinner very uncomfortable. What I am suggesting is that you should ask for advice from your family and close friends.

If you don’t ask, you don’t know how people can help. Perhaps a relative can help you find a better job, and with more income you may be able to repay your debts on your own. Perhaps a friend has an extra room at their house; you could rent a room and reduce your living expenses, which will free up cash to help you deal with your debts. Moving back in with your parents may not be fun, but as a temporary measure while you get back on your feet it may not be a bad solution.

Even if they can’t help you directly, getting some advice and empathy from a trusted family member may help you decide on your next steps.

2 My second best strategy for avoiding bankruptcy is to fix it yourself. In fact, this is the strategy used by the vast majority of Canadians who experience money problems. If friends and family can’t help, and if you don’t want to file bankruptcy, you need to take matters into your own hands, and attempt to fix the problems on your own. Here’s how:

Start by making a personal budget. Your budget should list all of your expenses each month. Some will be easy, like your rent and car insurance, because they are the same each month. To ensure that you don’t forget any, review your bank statements and credit card bills for the last few months to see where you spend your money. That should give you an accurate picture of your monthly spending. There are lots of on-line budget tools that can help, like Calendar Budget, an on-line tool where you enter your purchases each day, on a calendar. There are lots of budgeting tips on line as well.

Once you have a list of your expenses, review it. What can you cut? Can you reduce or eliminate your cable bill? Car pool to work? Make your own coffee? Once you see your expenses on a list, you can take steps to cut your expenses. That will tell you how much money you can free up to repay your debts faster.

Your debts are the final piece of the puzzle: Make a list of all of your debts, and arrange them from highest interest rate to lowest, so that the top of the list has your most expensive debts. Those are the debts you want to repay first.

Now, fix it yourself by making a plan to take whatever cash you can free up each month and apply that to your highest interest rate debts first. As one debt gets paid off, use that extra money to attack the principal on the next highest debt, and so on until all of your debts are repaid. If you can keep your expenses as low as possible, you may be able to repay all of your debts on your own.

1 But what if, even with drastically reducing your expenses, you still have more debts than you can repay on your own? You need outside help, and that brings me to my top strategy for avoiding bankruptcy in Canada: filing a consumer proposal. A consumer proposal is a legally binding deal that a consumer proposal administrator negotiates with your creditors. If it’s accepted, you make one monthly payment, your debts are dealt with, and you avoid bankruptcy.

A proposal will work best if you have a job, or a stable source of income, so that you can commit to monthly payments. The good news is that, in most cases, a consumer proposal can be negotiated for less that the full amount owing on your debts, and you avoid bankruptcy.

Which option is best for you? Or do you have no choice but to file bankruptcy? Start with some research: Read our articles on consumer proposals, or read questions posted on our anonymous question and answer blog about consumer proposals. You can even join our on-line support group that allows you to discuss consumer proposals and other options. These posts are real, and people just like you post both the pros and cons about proposals, so you can hear both sides of the story to help you make a decision.

My advice: talk to your family and friends, but also talk to an expert. A consumer proposal administrator and bankruptcy trustee will give you a free, no obligation initial consultation to help you make an informed decision, so do your research, contact a trustee today, and make an informed decision.

Posted on Monday, April 19th, 2010
Filed under: Bankruptcy Alternatives andbankruptcy Canada andConsumer Proposal andDebt Options
posted by Doug Hoyes @ 5:25 am 2 Comments