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Dealing with Debt

July 9, 2018 by

photo o a businessman at his workplace with a tablet computer

Consumer Proposal vs Home Equity Loan or Second Mortgage: The 100% proposal

If you are struggling with high interest credit card debt or balancing multiple loan payments every month you may be looking for a way to consolidate your debt into your home mortgage, a second mortgage or a home equity loan.  This assumes that the equity in your home is greater than what you owe.  But you need to ask yourself, is this the best option or are there other options that are better?  Before going to your bank, mortgage broker or a credit counsellor, you should consider seeing a Licensed Insolvency Trustee (“LIT”) to talk about a consumer proposal.

A consumer proposal is a way to combine your unsecured debts into one lower monthly payment and may allow you to get out of debt sooner. Yes, even when you are paying your debts in full plus the fees of the LIT.  And you are not subject to any qualifying criteria or interest rate fluctuations.  So, when does it make sense to either file a consumer proposal or refinance the equity in your home.

Home Equity or Debt Consolidation Loan

Homeowners can consolidate credit card debt, lines of credit and other personal loans into their mortgage either by refinancing or by taking out a home equity loan or a second mortgage. A debt consolidation loan secured by the equity in your home will usually carry a lower interest rate than the debts you are combining into your mortgage.

While a lower interest rate can mean a lower monthly payment than the total of your individual payments, whether you save money will depend on the term of your loan.  It is very important to understand that interest is still being charged on your new loan. The longer your mortgage or loan amortization is, the more interest you will pay.  The shorter the amortization period means less interest but a higher payment.

As well, it is important to note that a debt consolidation loan does not reduce your total debt.  If you consolidated $50,000 in credit card debt, you end up with a $50,000 home equity loan or second mortgage.  Your total debt has not decreased.  Only the interest rate has decreased.

You should also be aware that you have now transformed your unsecured debt into secured debt either by increasing your current mortgage or by placing a second mortgage on your home.

When a Second Mortgage is Not a Good Option

A concern with a secured debt consolidation loan is the risk that you may lose your home if you default on your payments. If your debts are more than you can reasonably repay even when rolled into your mortgage, debt consolidation may not be the best choice.  If you suddenly become unable to make your mortgage payments, your lender will likely take action to recover their loan by foreclosing on your house.

A second mortgage is also not a good solution if it does not deal with all your debt problems. If you have debts that cannot be combined into your mortgage, or you continue to use your credit cards and accumulate new debts, you could find yourself owing more than you did when you started.

A Consumer Proposal is not a Loan

A consumer proposal is like a consolidation loan, except you don’t borrow any money.   You just start making payments and it’s interest free.  Filing a consumer proposal allows you to maintain control of your assets and keep your home by making a proposal to pay the equity in your home to your creditors over a period of time.  It is not a new loan; it is a payment over time.  And the interest clock stops.

A consumer proposal is also a good option if the total amount of all your unsecured debts exceeds the equity value in your home.  Even if your equity is greater than what you owe, it can still be a viable option if you are getting harassing collection calls.

How much you will have to pay will depend upon the equity in your home, the amount of unsecured debt as well as your income; however, it is certainly a viable option for consolidating high interest or multiple unsecured debts and/or even tax debt.  An LIT can provide a complete assessment of your situation and outline the payments.

Scenario

Let’s assume you have sufficient equity in your home to pay your debts in full and let’s assume you choose the Consumer Proposal route.  We have set out below a schedule of what it would cost an individual to pay their creditors in full plus the fees of the LIT. We have used a range of between $50,000 and $100,000 of debt.  We have calculated the amount of the LITs fees utilizing tax rates in British Columbia.  The actual fees would be the same across the country. The total cost would range between $65,144.64 and $128,435.78.

Table 1

A Consumer Proposal has a maximum term of 60 months.  Monthly payments would range between $1,085.74 and $2,140.60.   The fees of the LIT are calculated in accordance with Rules set out in the Bankruptcy and Insolvency Act.  There are be no additional costs or fees and no interest.

Now if you wanted to borrow the money to pay off your debt through a consolidation loan, a second mortgage or refinancing of Home Equity Loan, we have set out a table below showing the cost of borrowing.

If you borrowed the same amounts at 11% amortized over a five-year term, the cost of borrowing ranges between approximately $15,227.27 and $30,454.54 which is slightly more than the proposal.  This utilizes the same term as a consumer proposal.  The total amount paid under the proposal is almost exactly the same. However, if you have a variable interest rate, which could easily change over the term of the mortgage, the cost of borrowing would rise.   It also doesn’t consider any fees that may have to be incurred for appraisal and legal fees that are usually extra.

Table 2

As you can see, the cost between the two options is not very different at all.  However, should the term of the loan be longer than 5 years or the interest rate be different than set out above, the cost of borrowing would certainly be more expensive.   The consumer proposal has no such variables.

The other intangible is qualification.  You will have to qualify for the loan and arrange for a lender who probably wants an appraisal etc.  This all takes time.  Meanwhile your creditors are pressuring you for payment and threatening enhanced collection action.

To qualify for a consumer proposal, you only need to owe less than $250,000 (not including the mortgage on your principle residence). A proposal to your creditors can be prepared and signed in a very short time.  The other advantage is that it then provides you the certainty of retaining your home.

What if I can’t afford to pay the monthly amount under the consumer proposal?

As we all know, it is not cheap living in Metro Vancouver.  So what if you can’t afford the monthly payment under a consumer proposal.  Don’t worry.  There is another option.  A Division I proposal is available to lengthen the term and lower the payment.  And yes, it is still interest free.

Is a Debt Management Program Better?

Some would argue that a Debt Management Program (“DMP”) is a better option as you only pay 100% of your debt as opposed to 100% of you debt plus fees.  That is a misconception and a misrepresentation of the facts.

A DMP in this scenario would not only have you pay 100% of the debt but the fees of the DMP Company as well.  The DMP Company gets paid a monthly fee from the debtor of about 10% of the monthly payment but, it typically maxes out at about $75 per month and they receive funds from the creditors for administering the plan.  The fee they receive is usually around 22%.

Using these figures the total cost of a DMP for $50,000 would be approximately $65,500.  Creditors receive full payment.

Can I Pay Off my Consumer Proposal Early with a Mortgage or other borrowings?

As previously stated, a consumer proposal is like a consolidation loan, except you don’t borrow any money.   You just start making payments and it’s interest free.  To borrow money to pay off a consumer proposal doesn’t make good financial sense.  You will be paying interest on the loan whereas you can maintain the payment in the proposal which is interest free.   It would, however, start the three-year time period that a consumer proposal remains on your credit record earlier.

As well, until your consumer proposal is paid in full, it may be difficult to convince a lender to lend you more money because they are likely worried that if you default on your proposal, all your old debts are revived and can return.

Summary

In our view, a consumer proposal is a better option than a Home Equity Loan, second mortgage or Debt Management Plan for the following reasons:

  1. There is one monthly payment;
  2. It includes all creditors, even income taxes.
  3. The proposal is interest free. Once accepted by the creditors, there are no variables that would change the terms or the final cost;
  4. There is no credit check and no qualifying; and
  5. You get to retain the equity in your home.
Consumer proposalRefinancing, 2nd mortgage, HEL, DMP
One monthly paymentRisk of foreclosure
Interest free, no future variablesLess equity in home for the future
Includes all creditorsDMP cannot include government debt
No prepayment penaltyPossible penalty for early payout
No credit check or qualifyingAdditional costs fees, qualifying
Retain equity in homeInterest rates fluctuations
Debt free and fresh financial start

In all cases, to achieve a fresh start, a consumer needs to change the habits that got them here in the first place.  They need to get their spending under control.

Before you take out a second mortgage on your home to pay off credit card or other unsecured debts, talk to an LIT about your options. Find out if a consumer proposal will save you more money in the long run. Don’t rush to make a decision before you make an expensive mistake.

The professionals at Boale, Wood & Company Ltd. will put your mind at ease and help you understand your options.

We will sit down with you and review your situation and help you to decide the best course of action to become debt free and make a fresh start.

Call us.  It’s not too late.  (604) 605-3335.

 

 

 

 

 

 

 

 

 

 

 

Filed Under: Articles, Blog, debt, front, money management

Take Control of Your Debt

June 6, 2018 by

Money pouring out of cupped hands

One of the top concerns of the Bank of Canada is the high level of Canadian household debt.  Notwithstanding those concerns, the level of household debt continues to rise, hitting 171.1 per cent of disposable income in the third quarter of 2017.  If your debt is starting to feel overwhelming, minimum payments might keep the calls from coming but, you realize that you’re treading water.  Is it time to panic or deal with your debt head on?

There are some tips that can help you take control of your debt and build towards a sound financial future to avoid having your debts get out of control.

  • Prepare a budget so that you know where you are spending your money. A budget will help you identify areas where potential savings can be made. For anyone who is tech savvy, you can download a number of free apps which might make tracking expenses more fun. The results of will show you how much is left over for debt servicing and where your money is being spent.
  • Curb your spending habits. One of the most common ways to get into debt is overspending.  Everyone needs to know where they are spending their money.  It’s the little things that nickel and dime you to death that are the problem.
  • Figure out the best way to reduce debt. Two well known methods are called the Snowball Plan. This starts with trying to pay off the smallest debt and leads up to the largest.  This occurs while you are still paying only the minimum payment on all your other debts.  The other method is called the Avalanche Plan. The Avalanche Plan method starts by throwing as much money as you can at the debt with the highest interest rate.  Again all while still paying only the minimum on all your other debts. Once that highest interest debt is paid off you go onto the next highest interest debt and so on and so forth.
  • Lastly get some professional help. Some of you will get a better sense of where you are financially and be able to get out of it on your own. But for most, it won’t be that simple. The amount of money left over at the end of the day will show that you only have enough left over to make minimum payments, which will only leave you treading water. And if something happens where you income is suddenly reduced, you might not even be able to make the minimum payments and you will soon fall behind on the payments.  Then the calls will come.

So, the best way to meet that debt head on is to take control. Licensed Insolvency Trustees are the go to professionals of choice when dealing with debt.  We are mandated to explain all of your options to you.

The experienced professionals at Boale, Wood & Company Ltd. understand the stress that financial difficulty can cause.

We know that realizing that you are experiencing financial problems is a hard thing to do for most people and sometimes you feel helpless. But instead of feeling helpless, let us help you gain control of your debts and understand your options.

Start by scheduling a meeting with us to discuss the solution best suited to your situation. This meeting is free and there is no pressure or obligation for you to make a decision right away.

We have the expertise to find the solution best suited to you.

Call us, it’s not too late. (604) 605-3335.

 

 

 

 

Filed Under: Articles, Blog, debt

Self-Employed and Can’t Pay CRA?

June 6, 2018 by

stopwatch with the word tax printed on the dial

The June 15 deadline for self-employed individuals to file their 2018 tax return has come and gone.  And if you don’t have the funds to pay your tax bill you are probably wondering what can be done.

If you owe taxes and are struggling to come up with the funds to pay the Canada Revenue Agency (“CRA”) you need to speak with us right away.  Don’t delay.

There are debt advisors out there who state that they can “settle” or “reduce” a tax debt with Canada Revenue Agency. If it sounds too good to be true, then it probably is.

They don’t “negotiate” and they don’t “settle” tax debts. CRA is not your typical creditor.  They didn’t choose to lend you money and become a creditor.  They become a creditor by virtue of the self reporting tax system we have.  And they want to be paid. In full.

They are not business people in the traditional sense.  Collectors have no authority to settle or reduce a tax debt save and except for circumstances governed by the Income Tax Act or the Bankruptcy and Insolvency Act.

They also have extraordinary powers.  This would include issuing garnishees to banks, investment sources, and to your customers. They file liens and writs on a daily basis.

CRA uses a number of methods to try and collect the tax debt:

Firstly, CRA collections will demand payment. If you pay, all further action stops. If you don’t pay, the collection action gets stepped up a notch.  There is no negotiation over how much you owe. The collector has no authority to do that.

If you fail to pay, the agent assigned to your case will begin contacting you to try and find out as much as they can about you.

Once you have engaged in a dialogue, the agent may try to negotiate with you if you provide further information. They may offer to consider a payment plan. They will provide you with a financial disclosure form asking you to disclose where you live, work, bank, monthly income and expenses, debts, and assets.

Payment plans are based on essentially two things;

  1. Income available over and above basic household needs or in the case of a business, monthly operating costs.
  2. Your ability to borrow or liquidate assets to satisfy the debt.

Lastly, if you can’t make the payment, for whatever reason, the CRA collections department will take action. Remember that financial disclosure form? It now proves very handy for that agent:

  • Your banking information will be used to freeze your account;
  • Your employment information will be used to garnish your wages;
  • Your housing information will be used to place a lien on your home.

So when you hear debt advisors saying they can settle the debt.  Be careful.

So, the best way to meet that debt head on is to take control. Licensed Insolvency Trustees are the go to professionals of choice when dealing with debt.  We are mandated to explain all of your options to you.

The experienced professionals at Boale, Wood & Company Ltd. understand the stress that financial difficulty can cause.

We know that realizing that you are experiencing financial problems is a hard thing to do for most people and sometimes you feel helpless. But instead of feeling helpless, let us help you gain control of your debts and understand your options.

Start by scheduling a meeting with us to discuss the solution best suited to your situation. This meeting is free and there is no pressure or obligation for you to make a decision right away.

We have the expertise to find the solution best suited to you.

Call us, it’s not too late. (604) 605-3335.

 

 

 

 

 

 

Filed Under: Articles, Blog, CRA, debt

Can I Pursue an Undischarged Bankrupt For Collection?

June 6, 2018 by

Businessman holding a blank notepad. Room for you text.Yes, but not until the Licensed Insolvency Trustee (“LIT”) is discharged AND the bankrupt is not discharged.

When a person declares bankruptcy, there is a Stay of Proceedings that prevents creditors from pursuing collection of their debt.  The Stay is automatic.  It is not a Court Order and doesn’t have to be applied for.  It is set out in the Bankruptcy and Insolvency Act.

The Stay of Proceedings protects the debtor from any collection activity by his unsecured creditors and allows the LIT to administer the estate without creditor interference.  When the debtor is discharged all his unsecured debts, with a few exceptions, are erased.

In some cases the debtor does not obtain a discharge from their bankruptcy.  This is usually due to the debtor failing to perform the duties imposed upon them, or hasn’t paid the estate pursuant to a Mediation Agreement or Court Order.

Once the LIT is certain the debtor is not going to honour his obligations, the LIT would typically proceed to close its file and seek their own discharge from the bankruptcy.

At this point the Stay of Proceedings is lifted and the debtor’s creditors can pursue him for debt collection just as though he was never in bankruptcy.  However, there is nothing stopping the debtor from then going back to the LIT to comply with their duties and seek their discharge.

This is why it is so important for debtors to obtain their discharge.  It’s not about getting onto bankruptcy, it’s about getting out.

Call us.  It’s not too late. (604) 605-3335.

 

 

 

 

 

Filed Under: Articles, Blog

Half of British Columbians need raise to pay off debt

June 6, 2018 by

Headline: Half of British Columbians will need a pay raise to help pay off debt.

Via: The Vancouver Sun

 

 

Filed Under: Articles, Blog, debt

BOC progress report

June 6, 2018 by

Headline: Bank of Canada deputy governor’s “Progress Report on the Economy”.

Via: Bank of Canada

 

Filed Under: Articles, Blog, economy

IMF flags housing at economy risk in Canada

June 6, 2018 by

Headline: IMF Flags Housing, Competitiveness as Canada Economy Risks.

Via: Bloomberg

 

 

Filed Under: Articles, Blog, housing market

Media Covers Lawsuit Aimed at Son of Ponzi Schemer

May 28, 2018 by

The popular online publication Vancouver Is Awesome, and the North Shore News have published a new article on the latest development in the on-going story regarding Virginia Tan.

Last year, Tan admitted to fraudulently raising at least $30 million from investors as part of a Ponzi scheme. The admission was part of a settlement with the BC Securities Commission.

This latest story covers details of a lawsuit aimed at Tan’s son.  The story, by reporter Jane Seyde, explains:

Bankruptcy trustee Boale, Wood and Co. filed a notice of claim against Marcus Soon-Keen Tan of North Vancouver, alleging six properties he acquired in connection with a real estate development in Surrey since 2011 were bought with funds his mother defrauded from investors.

The bankruptcy trustee is asking the court to transfer ownership of the properties to the trustee for the creditors’ benefit or for Marcus Tan to pay back investors whose funds were allegedly used to buy or make payments on the properties.

The trustee has also asked the court for records tracing money received by Marcus Tan from either of his parents and for assets bought by him with funds from either of them.

No statement of defence has been filed and none of the claims have been proven in court.

You can read the story in Vancouver is Awesome,  or on the North Shore News online.

 

Filed Under: Articles, Blog, front, Media, News

Breaking Down BC’s Reliance on Real Estate

May 16, 2018 by

Headline: Breaking down the B.C. economy’s risky reliance on real estate: Experts say a market crash could have serious consequences and something needs to change.

Via: CBC News

Filed Under: Articles, Blog, housing market

How Money Affects Health

May 16, 2018 by

Headline: How money affects health — what you can do to stay in control.

Via: Global News

 

Filed Under: Articles, Blog, debt

Home Sales Fall

May 16, 2018 by

Headline: Canada home resales fall in April, lowest in over 5 yrs-CREA

Via: Reuters

Filed Under: Articles, Blog, housing market

Will Bankruptcy Affect My Employment?

May 16, 2018 by

If I declare bankruptcy, will it affect my employment?  This is a fairly common question that a Licensed Insolvency Trustee (“LIT”) gets asked at the initial interview stage.

You may be wondering if your current or future employer will discover a bankruptcy filing and whether that impacts your ability to obtain work or keep your job.

In a typical bankruptcy, the LIT doesn’t need to notify your employer.  However, there may be situations when filing bankruptcy may affect your application to take on a new job.  Below we answered some of the most common questions around bankruptcy and employment issues.

Will My Current Employer Find out I’ve Filed for Bankruptcy?

As part of the usual bankruptcy process, your employer is not told that you’ve filed a bankruptcy.

The only time an LIT will notify your employer that you have filed a bankruptcy or consumer proposal is in cases where there may be a garnishee in place or where the LIT needs payroll information to determine surplus income or prepare tax returns.  In most cases where the LIT requires information from the employer, we request the debtor to obtain it for us so we don’t have to contact the employer directly for it.

Can I Lose My Job if I File for Bankruptcy?

It is illegal in Canada for an employer to fire someone because they filed for bankruptcy.

Certain professional associations have professional conduct standards that require an individual to disclose if they are bankrupt.  Often these are professions that involve the handling of money and/or trust accounts.  Examples are insurance/investment broker, real estate agent, lawyer or accountant.

Professionals often file a consumer proposal as an alternative to bankruptcy.  Since someone who has entered into a repayment arrangement through a consumer proposal is not a bankrupt, they are generally excluded from these professional guidelines. However, any professional should first check any regulations with their professional association or society before filing.

In general, if the debts you owe are personal in nature and not the result of fraudulent or poor business practices, an insolvency filing shouldn’t impact you professionally.  However, if you are considering an insolvency filing, it’s still important to satisfy yourself of the disclosure requirements to your professional association.

If I File for Bankruptcy, Will I be Able to Get a Job?

You are not required to disclose that you have filed for bankruptcy or a consumer proposal when applying for a job. Potential employers may ask if you are currently bankrupt as part of the application process. They may also choose to conduct an insolvency search or credit check as part of hiring process. This is more common if you are applying for a position that involves significant financial trust.  If you think that an employer is going to ask or perform a background check, it is always better to be up front about it.

Some positions require employees to be bonded by the firm’s insurance company to protect against employee theft and dishonesty.  Bonding provides the firm with compensation in the case of a loss.  It’s a protective measure for the employer. In reality, a bankruptcy on your credit report is not necessarily a bad thing.  It shows that you have dealt with your debt.  If you are undischarged, then you only have one obligation and that is to your LIT.  Unfortunately, if you are unable to be bonded, an employer may choose not to hire you for these types of positions.

As an undischarged bankrupt, you can also be precluded from holding certain roles such as a director of a company, a society or other similar type position until such time as you are discharged from bankruptcy.

Consider filing a Proposal

Many concerns regarding the impact of a bankruptcy on employment do not apply in the case of a proposal. A proposal is a repayment arrangement made with your creditors, to repay a portion of what you owe.  While a proposal is still a legal process administered under Insolvency legislation that can only be filed through an LIT, you’re not a bankrupt when you’re in a proposal.  As such, a proposal can often solve some of the situations that arise in terms of your employment and looking for debt relief solutions.

A Licensed Insolvency Trustee will carefully review your financial situation and provide you with the best course of action without unduly affecting your employment.

Boale, Wood & Company Ltd. has helped thousands of individuals and families overcome debt for more than 14 years.  

Call us.  It’s not too late. (604) 605-3335

 

 

 

Filed Under: Articles, Blog, employment, front

Office of the Superintendent of Bankruptcy Issues Directive on Counselling

May 16, 2018 by

In previous newsletters, we addressed the issue of possible changes being proposed to the counselling directive by the Office of the Superintendent of Bankruptcy (“OSB”).  The OSB issued its draft directive in October 2017 and commenced public consultations, inviting comments from stakeholders.

On January 29, 2018, the OSB issued its final Directive relating to the qualifications of Insolvency Counsellors, referral arrangements and debt advisors, along with the transition phases and its plan to revamp the entire counselling curriculum. The Directive can be found here.

The OSB has stated that the first phase of amendments will contribute to a level playing field for all LITs and reduce risks to the integrity of the consumer insolvency process related to:

  • LIT involvement in prohibited referral arrangements; and,
  • reliance on intermediaries whose activities are incompatible with an LIT’s legal and professional responsibilities.

It will also provide LITs with flexibility to accommodate debtor circumstances in the delivery of insolvency counselling, and by ensuring insolvent Canadians continue to benefit from:

  • Access to insolvency proceedings at regulated rates;
  • Open choice of an LIT; and,
  • Protection from unnecessary costs and predatory activities.

The second phase of the counselling amendments, including on line modules, will de developed in 2018 and beyond.  No timetable for the implementation has been set.

Improved protections

The aim of the Directive is to ensure that:

  • consumers are not charged more for the insolvency process than is allowed under the BIA. This will be accomplished by having the counsellor registered against the LITs license and not be involved in any unregulated and unnecessary services or predatory activities.
  • consumer debtors and bankrupts are free to choose whatever LIT they want and make an open choice of an LIT, rather than being directed to a specific LIT chosen for them under an arrangement negotiated by the person who will then provide their BIA insolvency counselling.
  • consumer debtors and bankrupts receive clear and accurate information, regarding responsibility for insolvency counselling, related fees, and the roles and responsibilities of debtors, LITs and registered BIA Insolvency Counsellors.
  • consumer debtor’s or bankrupt’s informed consent to the LIT is now required prior to the sharing of that debtor’s insolvency information with ahird-party BIA Insolvency Counsellor.

Additional delivery flexibility

  • Directive No. 1R4 provides flexibility to accommodate an insolvent person’s circumstances related to participation in insolvency counselling by video conference in order to avoid significant inconvenience; or at the third-party location of a registered BIA Insolvency.
  • Upcoming renewal of the BIA insolvency counselling curriculum will provide further delivery enhancements, such as the addition of on-line learning modules at no cost to the debtor.

LITs relying on third-party BIA Insolvency Counsellors

There is no restriction from LITs relying on third-party BIA Insolvency Counsellors.  However, these counsellors must meet registration requirements under the Directive and adhere to the same professional standards as LITs themselves are required to follow including adherence to all relevant provisions of the BIA, its Rules — including the LIT Code of Ethics – and Directives from the OSB.

The Directive applies only to LITs.  It does not restrict a third party to provide unregulated products and services to Canadians outside the scope and parameters of federal insolvency legislation.

Conclusion

It is our view that the changes to the Directive will enhance the counselling process for consumers and provide delivery flexibility for LITs where the debtor is in a remote location or where there are other circumstances where a face to face meeting would be inconvenient. The Directive comes into force on October 1, 2018.  Until that time, the previous Directive applies. Details regarding this Directive can be found here.

Boale, Wood & Company Ltd. has helped thousands of individuals and families overcome debt for more than 14 years.  

Call us.  It’s not too late. (604) 605-3335

 

 

 

Filed Under: Articles, Blog, front, OSB

Case Law Update Re: Gwidz

May 16, 2018 by

Recently, the BC Supreme Court provided some much needed clarification relating to the non-exempt equity in a bankrupt’s home at the date of bankruptcy and where the bankrupt and the Licensed Insolvency Trustee (“LIT”) have reached an agreement on the amount.

In this case the bankrupt was granted a discharge on the condition that he pays into his estate approximately $27,000, enforcing an agreement entered into between the bankrupt and the LIT almost two and a half years earlier at the outset of bankruptcy.

The issues in this case are whether the increase in property value can be categorized as after-acquired property, subject to realization by the Trustee, and whether the Bankrupt can invoke the principle of promissory estoppel.

The Court concluded that payment amount represented a fair assessment of the bankrupt’s non-exempt interest in his home at the date of bankruptcy.  However, in the intervening years, the bankrupt’s share of the equity had substantially increased, attributable solely to the rising markets in the Lower Mainland of British Columbia.

Previously, the leading case on this issue was the 2016 Ontario Court of Appeal decision in Lepage (Re), (2016 ONCA 403). The ONCA ruled that even where an LIT disclaims its interest in a bankrupt’s property, or reaches an agreement at the date of bankruptcy for the non-exempt equity, any increase in equity amounted to “after acquired property” which then became part of the bankrupt’s estate.

The BC Court declined to follow this analysis, noting the comments of the ONCA in Lepage were not supported by the case law, calling it “one-off where the court determined the bankrupt needed to provide a healthy payment to CRA whom the debtor had defrauded”.

Ultimately, the BC Court found that the agreement between the bankrupt and the LIT ought to be enforced, and that in exercising its discretion and considering the rehabilitation of the bankrupt, the interests of creditors, and the integrity of the bankruptcy process, a payment in accordance with the agreement was the appropriate condition of discharge.

In Lepage, the Court found that the increase in the property values were after acquired property and that the valuation was done at the discharge hearing.  In Gwizd, the date of bankruptcy is used for valuation purposes.

What is lost in this issue is what happens when the property value drops to a point where there is no longer any equity and the bankrupt decides that he shouldn’t have to pay.  To our knowledge, this scenario has not played out in any reported decisions.

These cases put LITs and debtors alike in a potentially untenable position.  LITs have usually used the date of bankruptcy as the “date for which asset values are determined”.  Or the date in which the LIT determines that it has an interest or no interest in an asset.  But there is case law that supports that LITs should be diligent in their efforts to deal with assets and that they should not be speculators.  A debtor also relies on the LIT for advice and makes decisions based on that advice.

Time will tell if anything further comes of these decisions in future discharge applications either in BC or other jurisdictions.  It should also be noted that the LePage decision is the Ontario Court of Appeal which is distinct from the Gwizd decision that was decided by a Master.

The full text of the Gwizd case can be found here.

Boale, Wood & Company Ltd. has helped thousands of individuals and families overcome debt for more than 14 years.  

Call us.  It’s not too late. (604) 605-3335

 

 

 

Filed Under: Articles, Blog

A Closer Look at December 2017 Insolvency Stats

May 16, 2018 by

Consumer insolvencies in BC decreased in December 2017 overall by 15.0 percent from November 2017.  Consumer proposals decreased 13.6 percent while bankruptcies decreased 17.0 percent.

The proportion of proposals in consumer insolvencies in BC accounted for 61.28 percent during December 2017 while they accounted for 51.79 percent for all insolvencies across Canada for the same period.

Consumer insolvencies in BC for the 12-month period ending December, 2017, increased overall by 6.6 percent compared with the 12-month period ending December, 2016. Consumer bankruptcies decreased by 9.9 percent, while consumer proposals increased by 20.6 percent. Consumer insolvencies in all of Canada decreased 2.4 percent over the same period last year.  BC accounted for 8.78 percent of all insolvencies in Canada in December 2017.

The proportion of proposals in consumer insolvencies in BC was 61.28 percent during the 12-month period ending December, 2017, up from 54.18 percent during the 12-month period ending December 2016.  It indicates the popularity of consumer proposals as a way for consumers to deal with their debt and with dealing with a Licensed Insolvency Trustee over other unregulated service providers.

While insolvencies across Canada are down overall by 2.9 percent, bankruptcies are down 8.5 percent, but proposals are up by 2.8 percent.  Proposals also make up 52.57 of all insolvencies in Canada in 2017 up from 49.66 percent in the previous twelve months.

The insolvency statistics indicate the increasing benefits of the protections provided to consumers under the Bankruptcy and Insolvency Act over other non-legislated options, whether that is a consumer proposal or a bankruptcy.   It also indicates that consumers are seeing the benefits of seeking the professional advice of a Licensed Insolvency Trustee rather than those of other non regulated service providers.

If you would like to know exact details of how a consumer proposal or a bankruptcy would benefit you in dealing with debt, call us at (604) 605-3335 to schedule a free consultation. Call us.  It’s not too late.

For more on the all Canada stats, please see this article.

 

Filed Under: Articles, Blog, insolvency stats
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