What is the surplus income penalty?

In many regards, surplus income is a penalty because the more you make, the more you are required to pay into your bankruptcy. If you have a high income, this can mean your monthly bankruptcy payments could be high as well.

The formula for calculating surplus income is not complicated, however, there are many reasons why surplus income is something you need to consider carefully before filing for bankruptcy.

• The amount of your surplus income can affect the length of your bankruptcy. If you have surplus income averaging more than $200 per month, not only will you pay more, your bankruptcy will be extended for an additional 12 months.
• It is important to note that surplus income payments are required by law, as outlined by the Bankruptcy and Insolvency Act (BIA). Failure to report your income or make your required payments while bankrupt means that your debts will not be discharged.
• All sources of income, whether taxable or not, are included in the surplus income calculation. This includes your net pay but also includes child tax credits, child support, and pension income. Any of these amounts can increase your average monthly income resulting in your having to pay a surplus income.
• If you experience a month where you receive three bi-weekly paycheques, instead of the normal two, this could be enough to trigger a surplus income payment.
• If you think your income will increase during your bankruptcy, or you expect to receive a bonus, this may cause a surplus income payment, increasing the cost of your bankruptcy.
• To add to the confusion, your trustee won’t make this calculation until you have been bankrupt for seven months creating a lot of uncertainty if your income fluctuates.

How to avoid surplus income

So how can you avoid this surplus income penalty? The answer is to file a consumer proposal.

For you to file a consumer proposal, your creditors must get more than they would recover in a bankruptcy.  Your trustee will estimate your surplus income payments and any other realizations from all assets available to your creditors in bankruptcy. Even though you need to offer more money to your creditors than you would in a bankruptcy, your payments can be spread over a period of up to five years.

What a consumer proposal solution does is spread out your surplus income over a longer period and decrease your monthly payments to an amount that is more affordable and within your budget.

Once the creditors agree to the payment terms, that’s it. Even if your income increases, your payments in the consumer proposal are fixed.

Overtime may be mandatory where you work, but you know that in a bankruptcy you are paying half of your overtime to the trustee, so you don’t want to work overtime. A proposal solves that problem since your payments don’t increase if your income increases.

How does this affect the cost of filing a consumer proposal?

As an example, if your surplus income would amount to a bankruptcy payment of $500 a month for 21 months your total cost would be $10,500.  You might consider offering a consumer proposal where you pay $200 per month for 60 months, or $12,000. As you can see this makes the cost of filing a consumer proposal slightly more than you would pay in bankruptcy.

Why would you offer $12,000 when bankruptcy may only cost you $10,500? Three reasons:

• First, if your income increases during your bankruptcy, or if you get a tax refund, your bankruptcy could easily cost more than $10,500.
• Second, payments of $500 per month might be a strain on your monthly budget, while $200 per month is easily affordable. So, for you, paying $200 per month for a longer period may be preferable to paying $500 per month for a shorter period.
• In addition to avoiding paying high monthly surplus income, you may have assets you want to keep (such as  RESPs, a second car, home equity) that would otherwise be forfeited in bankruptcy.

Also, you can pay off a consumer proposal anytime, so if you do work overtime you can pay extra in your proposal and pay it off sooner.

What you should do next

Try our Surplus Income Calculator to calculate what your monthly surplus income payment might be in a bankruptcy to see if a consumer proposal is an option to avoid high monthly bankruptcy payments.

What is the cure for high surplus income payments in a bankruptcy in Canada? File a consumer proposal.

An initial consultation can determine if you have a surplus income risk and how a consumer proposal might work better for you. To review your situation, book a free consultation with a licensed insolvency trustee near you.

The post Avoid The Surplus Income Penalty With A Consumer Proposal appeared first on Hoyes, Michalos & Associates Inc..

Probably not.

With that same logic, you should never pay someone to refer you to a consumer proposal administrator. Yet sadly, many people are being tricked into doing just that.

This is the story of someone who was almost trapped into paying an extra $5,853.40 in unnecessary fees to file a consumer proposal.

We recently received an email from an individual, whose name we have removed from this information for privacy purposes, asking what seemed like a relatively simple question:

Please advise if I should proceed with this agreement and if you’ll be willing to help by matching the monthly payments as per below.

You might think that this person was comparing services across different Licensed Insolvency Trustees. I have no objection to that. If you are not comfortable with the trustee you see for consumer proposal advice then, by all means, talk with another Licensed Insolvency Trustee.

However, that’s not what happened here. This was someone who contacted a national debt consulting agency, Consumer Debtor Protection Services, for debt help.

There are so many glaring concerns with the agreement this individual was asked to sign I hardly know where to start. However, I will attempt to review them as best I can. If you’d like to read the full agreement, it appears at the end of this post.

First the totally unnecessary, extra fees

CDPS is charging the debtor an additional $5,853, including HST, for their services. Based on this scenario, the debtor will be proposing to pay his creditors $14,940.65 over 5 years to settle his debts.  This means he is paying an additional fee amounting to 40% of his consumer proposal payments.

This fee is payable on or before the ‘commencement date’ or can be paid via monthly pre-authorized payments.

In other words, the debtor must pay for the services of the debt consultant before their consumer proposal is filed with the government. In fact, it must be paid before they even meet with a Licensed Insolvency Trustee, the only person who can file the proposal.

Based on our experience, we know that many people who work with an unlicensed ‘consumer proposal consultant’ take out cash advances on their credit cards, or take out a payday loan to speed up the process.  If they pay via monthly installments they must wait to file their proposal, which can lead to further complications. This leads me to…

No, creditor calls won’t stop no matter what the agreement says

Under services, CDPs says they will ‘contact Your creditors to obtain balances of Your debts to them’.  They will inform your creditors that you have ‘commenced the proposal process’ and ‘most creditor calls should stop at this point’.

The agreement also recommends that they cancel all pre-authorized payments and post-dated cheques to existing creditors. They also ‘suggest’ that, while the ‘proposal process is ongoing’, the debtor suspend any payments to their creditors.

To be clear, starting the process is not filing a consumer proposal. The protection provided by the stay of proceedings does not begin until a proposal is legally filed with the government, by a Licensed Insolvency Trustee.

In our experience, these calls won’t stop.  In fact, if you stop making payments, your creditors will continue to pursue all collection options, including a wage garnishment, until they receive a copy of your signed and filed proposal documents from the trustee. If someone is on the monthly payment plan with a debt consultant, this may not happen for months during which time the individual still struggles to make minimum payments or stops making payments and deals with the threat of collection.

The agreement even advises clients to contact them immediately if their creditors take any legal action against them, which is an acknowledgment that the unfortunate debtor is still at risk of creditor actions.

Debt consultants do not negotiate with your creditors

At least here they are honest. They even say in their agreement “We do not perform any direct debt negotiation, debt reduction, debt consolidation or debt settlement on Your behalf with Your creditors. We also do not do any activities relating to a debt repayment agreement with Your creditors or relating to obtaining credit from a creditor.”

Why are they this transparent?  Because provincial governments have established laws prohibiting companies from charging up-front fees for debt settlement services.

However, as we’ve said before, this just means that the consultants changed the way they worked.  Sadly, offering someone consumer proposal representation to help them file a consumer proposal has become a massive industry in Canada.

It’s not a better deal

To quote their website:

Consumer Debtor Protection of Canada Ltd is a firm which offers consumer proposal representation services.

One of the selling points agencies like CDPS use to persuade people to work with them is that they get a debtor a better deal than they can achieve because they work for the debtor, not the creditor.

Again, in our experience, this is not true.

In this case, based on the limited information provided, the debtor would make surplus income payments totaling approximately $11,500 if he were to file bankruptcy. A proposal needs to offer a little more than the creditors would expect to receive in a bankruptcy. So, a proposal for $14,950 or 30 cents on the dollar seems reasonable if not marginally on the high side. Based on this limited information, any Licensed Insolvency Trustee would set up a proposal for this amount, without the up-front fee. Depending on the creditors involved, they may even recommend a lower offer.

In most cases we have seen, debt consultants do not arrange a better deal with the creditors that the person could have achieved by working directly with an LIT.  When you factor in the substantial additional fees, they are in fact paying more.

Look, they offer a guarantee

For what is it worth, they guarantee to ‘assist You to prepare a proposal that is approved by Your Creditors”.

CDPS even offers a refund “If Your creditors reject Your proposal that We have assisted You with preparing”.

In our experience, most proposals, if reasonable, are accepted by creditors. At Hoyes, Michalos we have a 99% proposal acceptance rate. This is because creditors know the alternative – the individual will likely file bankruptcy. So, it is unlikely, that the refund happens because a proposal is rejected.

But what if the whole process fails.  What if the debtor files elsewhere? The debtor is sadly out his fee.

We have had many people contact us while in the middle of one of these proposal processes because they found themselves facing very angry creditors and in worse financial shape.  If they are on a payment plan, we can file a proposal right away & save them future fees. But what if they’ve paid up front and they don’t complete the process? Unfortunately, their money is lost. (To be clear, Hoyes Michalos does not work with these types of debt consultants.)

The exact opposite of customized, personalized, local advice

My last, but by far not least objection, is that these services are conducted primarily online and over the phone.  The proposal ‘deal’ as presented is not yet based on full information and may change.

The debtor is responsible for sending beneficial documentation and information via an online portal after the agreement for services is signed.

Their own website may list “Cities We Service” across Canada, but the only address on the website is in Woodbridge, Ontario.

This same agreement was sent via email and is considered valid if signed digitally.  No in-person consultation conducted that we can tell.  While the debtor will be required to meet personally with a Licensed Insolvency Trustee (a regulatory requirement for all trustees), this will be organized by but has nothing to do with the payment for the services provided. In fact, the debtor, despite paying for all this work, is free to choose another trustee if they so wish.

Please stop paying someone for consumer proposal advice

Across Canada, Licensed Insolvency Trustees offer free consultations. If you need to talk with us more than once, every follow-up consultation is also free. During this process, we conduct a full, in-person, debt assessment including collecting information about your income, your assets, and what you owe to your creditors. If we need additional information, you don’t sign anything until all material is already obtained and your proposal to creditor documents are prepared for filing. At Hoyes, Michalos you make no payments until your proposal is legally filed with the government, giving the debtor full creditor protection.

I can only ask that people review who they are working with. Ask if they are a Licensed Insolvency Trustee. (As an aside, debt consultants know this question so, they say things like “CDPC is licensed by the Ontario Government’s Ontario Ministry of Government and Consumer Services. Our registration number is 4707240.”) Make sure the person you are working with to discuss a proposal is licensed by the government to file consumer proposals. If you are not sure, look their name or firm up on the Government of Canada website listing of Licensed Insolvency Trustees.

And, never pay someone for consumer proposal advice.

In this case, I’m happy to say we contacted the individual (who was not a resident of Ontario) and let them know they can arrange a deal directly with a trustee, likely for the same amount, without paying the $5800.  They thanked us for saving them money and let us know they’d talk with a local trustee directly.

ACTUAL AGREEMENT*

*Edited to remove identifying personal information

Please advise if I should proceed with this agreement and if you’ll be willing to help by matching the monthly payments as per below.

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 1 of 9

CDPC CLIENT AGREEMENT

COMMENCEMENT DATE: 17/09/2018

CDPC CLIENT NUMBER: XXXXXX

CDPC CLIENT NAME: Debtor name (“You”)

CDPC CLIENT REPRESENTATIVE: Debt consultant

This Client Agreement (“Agreement”) between Consumer Debtor Protection of Canada Ltd. (“CDPC”, “Us”, “We”) and You sets out all the services which We will perform for You and on Your behalf, beginning on the date set forth above (“Commencement Date”).

SUMMARY OF INFORMATION, ASSESSMENT AND ESTIMATE OF PROPOSAL

Number of Dependents: 1

Monthly Net Income: $3250

Total Unsecured Debt: $49802.19

Home Value: $0

Mortgage Amount: $0

Average Interest Rate: 20%

Monthly Interest: $830.04

Annual Interest: $9960.44

Interest Compounded over Term of Proposal: $74121.6

Interest and Principal over Term of Proposal: $123923.79

Total Savings with CDPC: $108983.13

You are eligible for an approximate proposal of $249.01 per month for a total of 60 months.

This amounts to a total payment in respect of all Your unsecured debt of $14940.65. These arrangements are completely interest free and open as to term. You are entitled to accelerate Your payments at any time to complete Your proposal more rapidly.

You will need to submit information and documents during the term of the Agreement by accessing an online portal. We will provide You with access information for Your portal.

OUR SERVICES: Once You sign the Agreement, We will contact Your creditors to obtain balances of Your debts to them. We will inform Your creditors that You have commenced the proposal process and most creditor calls should stop at that point. Where permitted by law, We will insist that Your creditors communicate with You only in writing. We will collect and organize Your information and help You prepare the materials to present to a Proposal Administrator. Although We will submit the materials on Your behalf and will recommend an Administrator, the final choice of Administrator is Yours. The Administrator is appointed by the federal government. The Administrator will receive the proposal package and submit Your proposal to Your creditors who will approve or reject the proposal. Some of what is required from You is set out in Schedule “A”.

Debt consultant

Debtor name

Client number

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 2 of 9

As needed, We also will assist You with rebuilding Your credit and personal budgeting and We will provide referrals for appraisers, mortgage brokers and others for specialized loans. We will take reasonable steps as are reasonable to amend Your credit bureau information in accordance with any applicable legislation dealing with credit reporting activities. We will attend at creditors’ meetings on Your behalf if needed and We will arrange for legal representation for You for any court claims relating to Your debt and only if the claim commences after the Commencement Date. These are all the services we provide to You and We do not perform any direct debt negotiation, debt reduction, debt consolidation or debt settlement on Your behalf with Your creditors. We also do not do any activities relating to a debt repayment agreement with Your creditors or relating to obtaining credit from a creditor.

GUARANTEE: As between you and Us in this Agreement, We guarantee that We will assist You to prepare a proposal that is approved by Your creditors.

You still remain responsible for Your debts associated with any outstanding student loans where the last day of studies was less than seven years from the commencement of this Agreement.

CONFIDENTIALITY: All Your information will be kept strictly confidential by Us and We abide strictly by all applicable privacy laws. You hereby expressly consent to Our collection, use and disclosure of Your personal and confidential information to enable Us to provide You with Our services.

FEE FOR SERVICE:You agree to pay Us the sum of $5180.00 ($5853.40) plus applicable GST/HST (GST/HST No. xxxxxxxxxxxxx) (the “Fee”) for our services. The Fee will be paid on or before the Commencement Date or as set out in the attached Pre-Authorized Debit and Payment Schedule agreement (“PADAPS”) (and You agree that if You do not execute the PADAPS, You will nevertheless be bound by the payment schedule listed there). If Your creditors reject Your proposal that We have assisted You with preparing, we will refund all of Your Fee. We will provide this refund within 30 days of You executing a full and final release in Our favour.

DISHONOURED PAYMENTS:We are allowed to charge You up to $100.00 for any dishonoured payment of the Fee.

COMPLAINTS AND RESOLUTION OF COMPLAINTS:If You have a complaint about our services, We ask that You notify us by email with sufficient details for Us to address the complaint. We will respond to You within two (2) business days. At that time, We will let You know if the complaint is valid (and will provide You a full explanation if We believe it is not) and the steps We will take to address the complaint. We are committed to ensuring Your experience with Us is a positive one.

CLIENT BREACH AND TERMINATION: You will be in breach of Your obligations under the Agreement (each a “Client Breach”) if:

(i) You do not provide Us with timely, accurate, complete or consistent information or updates to information, especially as to your debts or income, as We may request of You; (ii) Your financial status materially changes for any reason, including a sale of Your property or assets;

(iii) You fail to pay your Fee when due; or

(iv) You do not attend at the offices of the Administrator when scheduled, including if You choose to abandon or discontinue the process and receipt of Our services.

If You commit a Client Breach, We will not be required to refund any of Your Fees if Your proposal is rejected and We may also terminate the Agreement and retain all of the Fee as liquidated damages and not as penalty. We shall also be immediately fully and finally released from all liability to You.

If there is no Client Breach, the Agreement will terminate once our services to You are complete.

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 3 of 9

LIABILITY OF CDPC:In the event We materially breach this Agreement and You have not committed a Client Breach, We shall be liable to You for any resulting damages, however those damages will never exceed the total amount of the Fee.

GENERAL PROVISIONS: This Agreement, together with all Schedules and appendices, is the entire Agreement between You and Us and may not be changed except by both of us in writing. You acknowledge that our services do not relieve You of the responsibility to pay Your legally outstanding debts to Your creditors. All of Our services will be provided out of Our offices at 7 Director Court, Unit #104, Woodbridge, Ontario, L4L 4S5.

This Agreement will be governed by the laws of the Province of Ontario. A digitally-executed copy of the Agreement will be held to be an original copy of the Agreement.

Any notice to be given by You or Us will be effectively given if sent by registered mail, email or other similar means of electronic communications, addressed in the case of notice to Us at the address appearing on the

bottom of each page of the Agreement, and in the case of notice to You at the address You provide to Us. You or We may change the address for notice upon notifying the other.

You acknowledge that You should obtain independent legal advice with respect to this Agreement. You have either obtained such independent legal advice or has waived Your right to do so.

SPECIAL PROVISIONS ONLY FOR CLIENTS OWNING REAL PROPERTY

In the event You own real property of any kind, an additional charge of one hundred and fifty dollars ($150.00) (the “Opinion Fee”) shall be payable to Us. We shall pay the Opinion Fee to a qualified third party for the purpose of obtaining a letter of opinion on any such real property. The Opinion Fee must be paid by You prior to the presentation of a proposal package to a proposal administrator.

EXECUTION

The parties hereto execute this Agreement as at the date indicated below and as evidenced by their respective

signatures hereto:

CDPC CLIENT # XXXXXX

___________________________ __________________

CDPC CLIENT SIGNATURE DATE

By executing this document with your digital signature, you hereby consent to the use of, and acknowledge the reliance by Consumer Debtor Protection of Canada Ltd. on, your digital signature. You agree that, pursuant to

Section 11(1) of the Electronic Commerce Act, 2000 (Ontario), the legal requirement for signature of the document is satisfied with your digital signature hereto.

CONSUMER DEBTOR PROTECTION OF CANADA LTD.

______________________

Per:

17/09/2018

Debt Consultant Name

Client Number

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 4 of 9

SCHEDULE A – Portal and Documents

In addition to the Agreement and the forms attached hereto, you will also be required to complete the Profile, Insolvency App and Budget forms. These can be completed through the online portal, which will be activated upon our receipt of an executed version of the Agreement. You will receive log-in instructions via email. The list of required documents is provided below. These can be uploaded through the internet portal (“Upload a Document”) or faxed to us at 1-888-483-0336. Please ensure that your client number appears on all faxed correspondence.

– Copy of Social Insurance Number/Social Security Number

– Copy of one piece of photo identification (not health card) and an additional piece of

identification

– Tax information—last tax return filed/last tax assessment received

– Copies of your two most recent pay stubs or other payment information

– All pertinent documentation and statements with respect to stocks, bonds, RRSP, RRIF

or RESP accounts

– Copies of any life insurance policies (cash surrender value not exempt)

– Copies of all vehicle registrations and any outstanding loan/lien statements

– Copy of any mortgage statement, where applicable

– Electronic Funds Transfer form (attached to Agreement) for fee payment

– Details regarding any matrimonial or child support payments, if applicable

– Details regarding any pension, deferred profit sharing plan or similar plan payments, if applicable

– Details regarding any death benefit payment or ongoing payments received from a company or organization on behalf of a deceased spouse, if applicable

– Details of any payments to you under any trust arrangement (e.g. family trust) or as a beneficiary from the ongoing administration of a last will and testament, if applicable

– Details of any worker’s compensation or similar payments to you, if applicable

– Details of any accident benefit payments to you, if applicable

– Details of any welfare, unemployment insurance or similar payments to you, if applicable

– Details of any joint bank accounts you may own.

Should you receive any calls from any of your creditors, please report them through the “Online Call Log” in the online portal.

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 5 of 9

Pre-Authorized Debit (PAD) and Payment Schedule Agreement

Pursuant to my obligation to pay the Fee to CDPC contemplated by my Client Agreement with CDPC, I hereby agree to the terms of this Pre-Authorized Debit and Alternate Payment Schedule Agreement and authorize CDPC to debit my bank account: (attach VOID cheque or complete account information below).

The debit will be expected to be processed to CDPC’s account on the following dates, and corresponding amounts:

# Installments Year Month Day Frequency Amount

1

2

3

4

5

6

7

8

9

10

I may revoke my authorization any time, subject to providing five (5) days written notice to CDPC at the address on the bottom of this agreement.

To obtain a sample cancellation form, or for more information on my right to cancel a PAD Agreement, I may contact my financial institution or visit www.cdnpay.ca. Such revocation in no way shall be taken to be a waiver of my obligation to pay the Fee. In the event any pre-authorized debit to be received by CDPC from me at the time specified in this agreement is not received due to my insufficient funds, I will immediately make arrangements to provide this outstanding payment as soon as possible, and agree to pay any applicable Processing Fee and, failing provision of these amounts, I authorize CDPC to debit my account for such outstanding amounts irrespective of any schedule of other payments referred to above and this shall serve as authorization to my financial institution to honour any such request for funds from CDPC. I have certain recourse rights if any debit does not comply with this agreement. For example, I have the right to receive reimbursement for any debit that is not authorized or is not consistent with this PAD Agreement. To obtain more information on my recourse rights, I may contact my financial institution or visit www.cdnpay.ca.

Client Signature: ____________________________

By executing this document with your digital signature, you hereby consent to the use of, and acknowledge the reliance by Consumer Debtor Protection of Canada Ltd. on, your digital signature. You agree that, pursuant to Section 11(1) of the Electronic Commerce Act, 2000 (Ontario), the legal requirement for signature of the document is satisfied with your digital signature hereto.

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 6 of 9

Date:

CONSENT

CDPC CLIENT NAME: Debtor name

CDPC CLIENT#: XXXXXX

I am currently going through a period of financial difficulty and am taking active steps to address and manage my indebtedness. To this end, I wish to advise you that I, Debtor Name, have selected Consumer Debtor Protection of Canada Ltd. (“CDPC”), as my agent to deal with all communications, correspondence and the collection of information with respect to any and all of my financial obligations and I also consider CDPC to be one of my legal advisors in this respect. I request that any addressee or recipient of this Consent direct their communications to CDPC exclusively once they receive this consent. I hereby request that any addressee or recipient of this Consent hereafter contact me only in writing and that they direct such written correspondence to CDPC who will be in the best position to advise you of the progress and steps I am taking in respect of the handling and management of my indebtedness.

I freely and fully authorize any employer, former employer, landlord, school, university, any bank, caisse populaire, finance company, credit union, mortgage broker, condominium corporation, hydro company, telephone company, cable and/or internet provider or any other company with whom I deal on a credit basis, as well as any organization, municipality, police department, provincial or federal government ministry, institution or department, Canada Revenue Agency, social services, WSIB, Revenue Quebec, CSST, or any insurance company who has information about me, and to whom a signed or a copy of this authorization is delivered, to furnish any information, reports, or copies of records which may be requested by CDPC, or its accredited representatives.

I agree that I will have no cause of action against any person or institution who may provide information in compliance with this authorization.

Dated this _______ day of ____________, _____

________________________________________

CDPC CLIENT Signature

Client’s signature hereto is evidence of consent to use a digital signature and the reliance thereon by any creditor.

Under Section 11(1) of the Electronic Commerce Act, 2000 (Ontario), the legal requirement for signature of the document is satisfied with Client’s digital signature hereto.

17/09/2018

2018 September 17th

Debtor name

Client number

Debtor name

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 7 of 9

Creditor Information

Please provide us with your last creditor statements and/or letters if available, and list all creditors and account information as completely as to the best of your knowledge.

Creditor Product Account Number Balance Owing

Creditor #1 info

Creditor #2 info

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 8 of 9

IMPORTANT INFORMATION

– Should you have any accounts that are being included in this program and you bank with the same institutions, do not deposit any funds into these accounts. The banks can garnish funds that remain in their institution.

Please follow these directions:

– Open a new chequing account right away, and change all automatic deposits into this bank account (payroll, government deposits, etc.). Ensure that the new account you are opening is with an institution with which you have no other financial products. For example, if you have included a credit card, or a loan from a certain bank, DO NOT keep funds in an account at that bank.

– Cancel all pre-authorized chequing, and post-dated cheque plans to creditors that are included in this program. If any cheque has gone NSF to a creditor in the past six months, put a stop payment on it as well.

– Although not mandatory, it is our suggestion that, while the proposal process is ongoing, you suspend any additional payments to the creditors without prior written instructions from CDPC.

Your Responsibilities.

– DO keep up with your payments on all secured loans, unless special arrangements have been made with the assistance of CDPC.

– DO keep up your payments to all utilities and necessities. (rent, hydro, telephone, etc.)

– DO NOT discuss your account with any creditor. Should you receive a call from any creditor, advise them that you are being represented by us, give them our telephone number, and that is it. Should you receive repeated calls from any creditor, let us know.

We will provide you with further information regarding ethical and unethical collection practices.

– DO NOT apply for any credit, or use any of the credit accounts that form part of the proposal process, as doing so without the consultation of CDPC may impede or annul the whole proposal process.

– DO inform us immediately if a creditor has taken legal action against you (your Defense is included in your fee, if the creditor has commenced legal action after you have joined up with us, and we will take the necessary steps to ensure you are represented).

– DO NOT be concerned about continuing to receive statements from your creditors. Mail is ok, telephone calls are not.

– DO inform us right away, if a creditor has placed your account in collections, or have taken legal action, so we can help you to file a timely defense, or send the appropriate documents. We are here to deal with all these burdens.

SUITE 104, 7 DIRECTOR COURT, WOODBRIDGE, ON L4L 4S5

TEL 905-482-0334 FAX 905-482-0336 EMAIL INFO@CDPCL.COM

Page 9 of 9

Date:

CONSENT RE MESSAGES

CDPC CLIENT NAME: Debtor name

CDPC CLIENT#: ######

I agree do not agree That CDPC and its representatives may contact me via email or text message and that CDPC may contact me for the purpose of advising me of certain other products or services it may offer which may be of interest to me.

In the event I agree, I understand that I may cease to receive such messages at any time by contacting CDPC in writing and requesting that I be unsubscribed from receiving any commercial electronic messages. I understand that doing so may negatively impact the services that CDPC provides to me.

________________________________________

CDPC CLIENT Signature

Client’s signature hereto is evidence of consent to use a digital signature and the reliance thereon by any creditor.

Under Section 11(1) of the Electronic Commerce Act, 2000 (Ontario), the legal requirement for signature of the document is satisfied with Client’s digital signature hereto.

17/09/2018

Client number

Debtor name

The post Please Stop Paying for Consumer Proposal Representation appeared first on Hoyes, Michalos & Associates Inc..

You will want to offer as little as you can and definitely what you can afford.

Your creditors will ask for the greater of two numbers:

1. The amount they would likely receive if you filed for bankruptcy; and/or
2. An amount large enough to induce them to accept your offer.

The first number is a simple calculation based on bankruptcy rules: how much would you have to pay during a bankruptcy based on the things you own, the money you earn and the number of people that live with you. If you don’t offer to repay at least as much as you’d have to pay in a bankruptcy, then your creditors are better off rejecting your offer in the hopes that you will file for bankruptcy.

Different lenders have different expectations

The second number is based on each lender’s internal policies – right now the consensus is about 1/3 of what you owe.  (If you owe $45,000 in debts you’d have to offer at to repay $15,000).

It is called a negotiation because you “propose” an offer that your creditors may accept, reject or counter.  Very few offers are rejected ‘just because’.  If they are turned down, it is usually because of some inappropriate activity on the part of the borrower (for example, you borrowed $20,000 to buy a car, but instead you took a vacation to Hawaii) or because they feel the amount you’ve proposed to keep as ‘living’ expenses are a unreasonable.  Frankly, this is rare.

Counter offers occur in only about 20% of all proposals.  Creditors usually only counter offer when they control the voting process.  Voting for or against your proposal is based on your debt.  Each dollar of debt represents one vote and we need half of the dollars to vote in favour for your proposal to be accepted.  When one creditor controls more than half of the dollars they tend to become more aggressive in their voting – they know that if they don’t vote in favour of your proposal it cannot be accepted.  In these cases, the creditors often asked for “a little bit more”.   (I should mention that voting is done by fax and e-mail – face to face meetings with creditors happen in less than 1% of all proposals).

That’s all there is to the process.

Who does the negotiating?

The offer you make to your creditors is yours however your trustee helps by providing advice on what creditors would expect and by communicating your offer to the creditors. We have dealt with thousands of different creditors, all the major banks and financial institutions. From experience we have a pretty good feel for what will fly.

So that get’s us back to the guy that will only cost you a “couple of hundred bucks”. They call themselves debt consultants, credit counsellors, financial planners – they all charge a fee to help you ‘negotiate your debt away’. What they really do is refer you to a licensed insolvency trustee to file a consumer proposal.  The reason they refer you to a trustee is because only a licensed trustee can actually file a proposal for you. Lawyers can’t. Accountants can’t. Certainly debt consultants can’t.

The “rip-off” I referred to at the beginning of this article isn’t the deal they are selling you – that’s real. It’s the fees that they charge. You don’t need a referral to speak to a trustee. Call them up, send them an email, stop by a trustee’s office.

Information about consumer proposals and bankruptcy is free – most trustees (including Hoyes Michalos) will meet with you to discuss your situation and help you develop a plan to deal with your debts for free. The only thing the debt consultant brings to the table is the fact that you answered their ad, instead of going directly to a trustee.

The post Negotiating Consumer Proposals. What Your Creditors Expect. appeared first on Hoyes, Michalos & Associates Inc..

A word of caution: Filing for bankruptcy can be a complicated process that can’t be fully understood by skimming through a few articles. We strongly suggest that you take your time and do your research to determine which debt management options are best for your unique situation. Ontario bankruptcy trustees are the best place to go when seeking detailed information about bankruptcy. At Hoyes Michalos we offer you a free initial consultation, which is great because it means that you can test the waters prior to making any commitments.

Bankruptcy costs

Read Transcript

The cost of bankruptcy includes fees that need to be paid when declaring bankruptcy such as government filing fees, court fees, and other administrative fees. The average bankruptcy will require a minimum payment of around $250 per month to cover these costs.

You will also be required to pay something called surplus income. Under the rules of the Bankruptcy & Insolvency Act, you are required to remit to your trustee 50% of your net income over a set minimum threshold. This calculation can become quite complicated and can increase the cost of your bankruptcy so you should always take to your trustee about the possibility of having to make surplus payments.

Another important point to mention is that if you file for bankruptcy you’ll be losing any assets that are non-exempt. You either surrender these assets to the trustee or can make additional payments to pay the trustee their fair market value if you want to keep those assets.

Not all assets are forfeit. Exempt assets in Ontario are covered in the Ontario Execution Act and the Bankruptcy & Insolvency Act. Some of the exemptions  (updated for 2015 limits) include:

• unlimited clothing;
• $7,117 of vehicles;
• $14,180 of furnishings & appliances;
• $14,405 of equipment that you use for your career (tools of the trade)
• RRSPs and similar pension funds except contributions made within the last year.

Particular kinds of life insurance are also exempt.

What happens to my tax refunds?

Another complicated area in bankruptcy is tax refunds and HST credits. If you file for bankruptcy you won’t be eligible for some tax refunds or HST credits. You’ll also lose any windfalls during your bankruptcy. Windfalls include money that you’ve inherited from a family member or the lottery. The moment you’re aware of these, you must tell your trustee immediately.

Are there any debts I still have to pay?

Since secured loans, child support and alimony and some other debts cannot be included in a bankruptcy, you will still need to make your regular payments on these obligations even if you declare bankruptcy.

How can I lower my monthly payments if I have surplus income or assets?

If your income is high enough to trigger surplus income, or you have assets like equity in your home or investments that you would like to keep, talk to your trustee about a consumer proposal. A consumer proposal is an offer to your creditors as an alternative to bankruptcy.  The amount you offer will still be based on what bankruptcy might cost as this is the minimum your creditors will expect. However, with a consumer proposal, you can spread this cost over five years, making the monthly payment much more affordable.

In order to understand how much you’ll repay once you’re bankrupt, your trustee will talk to you about your income, the size of your family and your assets as well as other considerations.

If you would like a personalized assessment of how much bankruptcy might cost for you, call us at 1-866-747-0660 for a free consultation with an Ontario bankruptcy trustee.

The post What Does it Cost to File for Bankruptcy in Ontario? appeared first on Hoyes, Michalos & Associates Inc..

You can read more about the 2024 Bankruptcy Guidelines on our surplus income payments page, or you can use our surplus income calculator to do the math for you.

Numbers are nice, but what does this mean to you? Here’s the simple explanation:

If you declare bankruptcy, the more you earn, the more you pay.  It’s that simple.

So, if you are a single parent with one child, you are a family of two, so your surplus income limit is $3,249 per month. If your net earnings (your income after tax, less child care and medical costs) are $3,649 per month, you are $400 over the limit, so you have $400 of surplus income.

If you are bankrupt you are required to pay half of your surplus income to your creditors, so in this example you would be making a surplus income payment of $200 per month.

If your income goes up, you pay more.  If your income goes down, you pay less.

If you are considering bankruptcy, you should estimate your income during the bankruptcy period, so you can estimate your surplus income and therefore the cost of your bankruptcy.  If you get a bonus, or work overtime at certain times during the year, or if you get laid off for part of the year those factors will influence your surplus income.

If you expect your income to increase and you are worried that you may pay a lot in surplus income, you could consider a consumer proposal as an alternative to bankruptcy.  We negotiate a settlement with your creditors up front, so if your income increases later your payments don’t increase.

Which option is best for you?  Contact us today and one of our professionals will calculate your options and help you decide which option is best for you.

The post New Surplus Income Limits for 2024 appeared first on Hoyes, Michalos & Associates Inc..

Debt consultants charge consumers a fee for their advice. It sounds reasonable as many professions do that, except for the fact that they aren’t experts in the field of insolvency. Only a Licensed Insolvency Trustee can file a bankruptcy or consumer proposal on behalf of consumers in Canada. This means that only Licensed Insolvency Trustees have the thorough knowledge of the process and have a proven track record of helping people through an insolvency.

Debt Consultants: Upfront and Impersonal

Many people seeking advice from debt consultants have been hit with a pretty hefty price tag. If they found the information helpful, then it was worth it. But it’s also worth knowing that many debt consultants charge you for information you can get for free from a Licensed Insolvency Trustee.

In addition to charging upfront fees that are then pocketed by the debt consultant, they also push a one size fits all solution. Instead of impartially weighing your options, debt consultants will push you to the track that they profit off of. For the most part, that’s when they refer you for a consumer proposal. They’ve got a guy for that – in fact, they have 50.

For approximately 50 LITs within these 13 firms, more than 40 % of their Division II filings [consumer proposals] were sourced from these debt consultants.

The OSB is initiating a series of amendments over the next year that will address the risks and issues associated with debt consultants involvement in the insolvency process. Hoyes, Michalos & Associates does not generate business using leads from debt consultants. We also have personalized solutions for each client as each person’s financial situation is different. In many cases, people who come to speak with our team (for free), don’t end up filing a consumer proposal or bankruptcy.

How Can You Protect Yourself?

Our recommendations are simple. Know who you’re dealing with, and make sure to ask the right questions.

• Do not pay any upfront fees
• Do not sign a contract to pay anything until you have met with a Licensed Insolvency Trustee
• Only deal with the Licensed Insolvency Trustee
• Ask what fees you are being charged, and what you are paying for with those fees
• When in doubt, seek a second opinion from another Licensed Insolvency Trustee

Always ask whether or not the person you’re dealing with is a Licensed Insolvency Trustee. If you’re uncomfortable being so direct, the OSB has a LIT registry that lists off all LITs in Canada.

Resources mentioned in today’s show:

• Hoyes Michalos’ articles on Debt Consultants
• Office of the Superintendent of Bankruptcy’s review on LITs business practices involving Debt Consultants
• Contact OSB with a complaint regarding debt consultants
• Do you need a debt consultant? From the OSB

FULL TRANSCRIPT show #143 with Ted Michalos

Doug Hoyes: For the first time ever, the federal government just issued a bombshell report saying that it appears that two very large debt consulting firms in Canada are taking advantage of vulnerable consumers. Let me repeat the three most important parts of what I just said, debt consultants taking advantage of vulnerable consumers.

Civil servants don’t like to point fingers. So for the government to actually put this in writing makes this easily the most amazing report ever issued by the OSB.

Today, I’m joined by my Hoyes Michalos co-founder and business partner, Ted Michalos. So, Ted, you ready to say something that you’re going to regret later today?

Ted Michalos: Thanks. Unlike the civil servants, we’re quite happy to point fingers.

Doug Hoyes: [laughs] So, well, let’s get to it then.

Ted Michalos: Let’s see how it goes.

Doug Hoyes: So here’s the background. The Office of the Superintendent of Bankruptcy, the OSB, which is a division of the federal government is responsible for regulating all Licensed Insolvency Trustees in Canada. That’s Ted, and me and all of our Hoyes Michalos trustees. They enforce the rules and if we don’t comply, we could lose our licence and be out of business. So it’s serious business but it’s pretty rare that the OSB actually takes away someone’s licence. It happens maybe once or twice a year, so it’s rare.

Usually, if a Licensed Insolvency Trustee makes a mistake the OSB works with them to correct the issue. We deal with the OSB all the time and, for the most part, they’re quite reasonable, wouldn’t you say, Ted?

Ted Michalos: That’s a safe comment.

Doug Hoyes: So what has these reasonable government employees so riled up? Well, on April 28th, 2017 the Office of the Superintendent of Bankruptcy issued a report saying that some Licensed Insolvency Trustees have questionable relationships with debt consultants and that it’s costing consumers thousands of dollars.

Now, this doesn’t come as a surprise to Ted and I. We’ve been talking about this for years.

Ted Michalos: [laughs]

Doug Hoyes: In fact, I’ll put a link in the show notes to a YouTube video we filmed of a radio interview we did back in 2011, so that’s six years ago, where we talked about this exact issue.

So, Ted, before we review the OSB’s report let’s start with the definition, what is a debt consultant?

Ted Michalos: All right. So there’s no hard and fast definition for this. We all use it in different ways. I think what the government is saying is debt consultants are unlicensed professionals that are charging people fees to get the same sort of information or advice that they could get from a Licensed Insolvency Trustee for free. So they’re people that are specializing in accessing people’s fears. You don’t want to call a Licensed Insolvency Trustee because it’s scary but you will call somebody who says, “I can help you avoid bankruptcy and get rid of your debts.”

Doug Hoyes: Yeah. And you said the key word there which is “fees”. These are people who charge fees and we’re going to throw some numbers around.

Ted Michalos: And they can be really big fees.

Doug Hoyes: Because … yeah.

Ted Michalos: If you want to get me going, we can have some fun with that.

Doug Hoyes: Oh, we’ll get you going. I’ll quote some numbers in a minute.

Ted Michalos: [laughs]

Doug Hoyes: So why does the OSB care about this then? It’s … they licence us, Licensed Insolvency Trustees, obviously they don’t licence unlicensed debt consultants. So why is this an issue for the OSB?

Ted Michalos: Well, a consumer doesn’t recognize that they’re even is a difference here. So if somebody says they’re a debt consultant, they sound they’re some sort of professional and they’re assuming that somebody is regulating them, with some kind of controls, when in fact there are none.

So Licensed Insolvency Trustees, our obligation is to present an honest and objective analysis. So when we talk to somebody we’ll show them all their options, we’ll tell them these are the things that you can do, these are the ramifications of doing them.

Well, if I was just some person being paid a fee for landing new customers I might not be as forthright or honest. In fact, I know that they’re not. So if the only way I make a fee is if I convince you to do a certain procedure, I’m going to sell you to do that certain procedure.

Doug Hoyes: Yeah, whether it’s the right thing for you to do or not.

Ted Michalos: Right.

Doug Hoyes: So how big a problem is this? How prevalent is this association between Licensed Insolvency Trustees and debt consultants? So let me quote a few sections from the report. And this, again, the government report I’m quoting, I’m not giving you my opinion, this is from the government. “In 2016, in 17 percent of all Division II filings” … that’s a fancy word for consumer proposal …

Ted Michalos: Right.

Doug Hoyes: … “the debtor reported having paid for financial advice before being directed to an LIT.”

Ted Michalos: Right. So that means they spoke to somebody else first and they actually paid a fee for it.

Doug Hoyes: “Fifty-seven percent of 2016 consumer proposal filings” … and, again, I’m quoting from the government report here … “for which prior financial advice was reported were received from LITs who had relationships with two large-volume debt consultants.” So this is not some little, tiny conspiracy here where one guy, you know, meets a couple of people.

Ted Michalos: No.

Doug Hoyes: This is a very coordinated, very large, in essence, attack on the insolvency system.

Ted Michalos: Well, and let’s not hide stuff in all the percentages. So 17 percent of people paid a fee, more than half of those people paid it to two specific companies. So you’re talking about five or six thousand people paid one of these two companies an awful lot of money for advice actually that you can obtain for free.

Doug Hoyes: Well, let me quote one more time from the report.

Ted Michalos: Yeah.

Doug Hoyes: “Thirteen LIT firms,” that’s trustee firms, “including one national-level firm were found to have one or more LITs operating in a frequent and sustained relationship with the two large-volume firms.”

Ted Michalos: Yeah.

Doug Hoyes: And, now, the report does not name names, so I do not know for a fact which large national-level firm they’re talking about.

Ted Michalos: Do you think they use initials in their name?

Doug Hoyes: Well, it could be.

Ted Michalos: [laughs]

Doug Hoyes: And, I mean, because frankly there are all only one, or two or three large national level firms, so it wouldn’t be … isn’t too hard to figure out who it is.

Ted Michalos: Right.

Doug Hoyes: But, again, this … it brings the whole system into disrepute when the two big guys are in effect colluding to, you know, not provide great advice for vulnerable consumers.

Ted Michalos: Yeah.

Doug Hoyes: So, again, the takeaways from these findings, only 17 percent of proposals are affected by this. Well, I don’t know, is that a low number or a high number.

Ted Michalos: Yeah, I think … well, that’s … that report being affected by it.

Doug Hoyes: Right, that report being affected by it. Sixty-four percent of those files involved just two large debt consulting agencies, 13 LIT firms. And these are cases where the debtor unnecessarily paid for consumer proposal advice before talking to a trustee.

So let’s bring this home then. Why should someone … why would someone … let’s start with that. I think you, kind of, already addressed this. Why would someone contact a debt consultant before contacting an LIT?

Ted Michalos: Let me give you a story, somebody that came in to see me last week.

Doug Hoyes: Client stories, here we go.

Ted Michalos: So it’s a married couple, they were in their … if I had to guess, they were in their fifties. They went to see … they answered one of those ads that said you can avoid bankruptcy, we can help you deal with your debts, we can reduce them up to twenty percent. Sounded great, they went in and they sat down with a person.

And the approach was very friendly, right? It was … there wasn’t pressure involved, what it was “We can help you deal with your debts. Yeah, we can do all of that stuff. Here’s the first step, you know, give me $500.00 today. I want you to start out with some paperwork and we’re going to set you up a meeting next week with somebody else.”

All right. They went to the second meeting and it was, “All right, we think you need to do this and, in fact, we need another $500.00 payment and then we’ll get you started by referring you to the third guy.” The third guy was going to be a Licensed Insolvency Trustee but they didn’t know that at the time.

So they had two meetings, were supposed to pay a thousand dollars to meet with some guy to solve their debts. The reason they contacted them in the first place was … wasn’t … there wasn’t the intimating I’m meeting with a Licensed Insolvency Trustee, we used to be called bankruptcy trustees which was probably worse. But it was I’m just meeting with a guy who’s a debt consultant, I specialize in helping people solve their problems, as straight forward as that.

When they got in there they realized that, wait a minute, something about this doesn’t quite sound right, “Five hundred bucks and I can do away with my debts?” They owed $50,000.00, by the way. “Now we need another 500 bucks,” “Well, wait a minute, what was the first $500.00 for?” “Well, that was so we could meet with you and get you started,” “Well, what’s the second one for?” “Well, because we’ve got to get all this stuff ready and …” I mean, they just became suspicious because of the way this thing was unfolding.

And, to their credit, they did a little homework on the internet and they discovered, “Well, wait a minute, these guys aren’t Licensed Insolvency Trustees, these guys … they’re nothing, I mean, they’re not regulated by anybody, they’re asking us for a fee and now they’re sending us to this third guy.”

Doug Hoyes: Yeah, and to put it in perspective, so let’s say I’ve got a problem with my car.

Ted Michalos: Okay, you have a problem with your car.

Doug Hoyes: Thank you. So I’ve got a couple of choices, I can go to a, you know, certified class A mechanic … I think that’s what they’re called, right?

Ted Michalos: Yeah, yeah.

Doug Hoyes: And he can … he or she can take a look —

Ted Michalos: Unless they work for Canadian Tire, then they’re something else.

Doug Hoyes: Then it’s a different story. So they can take a look at my vehicle and tell me what’s wrong or I could pay an automotive consultant who isn’t a class A mechanic, who’s just some guy who could say, “Yeah, I think you need this, this and this,” I could pay them a fee and then go to the expert. Well, does that make any sense?

Ted Michalos: Right, just … well, you know, the perfect commercials are those LifeLock guys, right, “Oh, I’m not a dentist, I’m a dental monitor,” you know, you don’t want to talk about —

Doug Hoyes: I have not seen those. I have not seen those commercials.

Ted Michalos: It’s on TV. You go down, you sit down and the fellow, “Yeah, you got a really horrible cavity, I’m going to lunch now,” “Aren’t you going to fix it?” “Oh, I’m not a dentist, I just tell you that you have a cavity.”

Doug Hoyes: Yeah. And so if I’ve got a medical problem wouldn’t I just go right to the doctor, like, doesn’t that kind of make sense?

Ted Michalos: Right.

Doug Hoyes: So what you just described there then is exactly our problem with what debt consultants do, you go to someone who isn’t licensed, doesn’t have the training and the expertise, they charge you a bunch of money and all they’re actually doing is referring them to a Licensed Insolvency Trustee —

Ted Michalos: Right, correct. What they’re doing is they’re identifying that you’ve got more debt than you can deal with and they think you make enough money every month that you can afford to pay some fees to deal with those debts. So they’re not trying to determine if this is the best solution for you or even the right solution, they’re trying to determine do you fit their criteria for somebody that they can sell this product to.

Doug Hoyes: And so how does this differ from what we do?

Ted Michalos: All right. So as a Licensed Insolvency Trustee … more than half the people I speak to don’t end up having to file, so they don’t need to file a proposal to the creditors or file a bankruptcy, what they need is somebody to help them analyze where they’re at. So a Licensed Insolvency Trustee will consider your finances, so what do you own, who do you owe, how much income do you have coming in, what are you spending every month and then is there a way to solve this problem through the various tools that we have.

The first tool is can we just help you with your budget? Well, there aren’t any fees involved with this, this is helping you help yourself or should you be refinancing. In the current real estate market, it’s amazing how many people are just going out and getting second mortgages. And we can do a show on that, I’m sure.

Doug Hoyes: Oh, in fact I’m …

Ted Michalos: We probably have.

Doug Hoyes: … pretty sure last week’s show as on real estate. So the point is we’re not charging any upfront fees.

Ted Michalos: Right. And if we did we would get in trouble. I mean, that’s one of the advantages of dealing with somebody that’s regulated by the government, we’re not allowed to charge you upfront fees. If we do, we’ve got to disclose them to everybody and they come out of any eventual fees that we’re allowed to collect for the work we are licensed to do.

Doug Hoyes: Yeah. So if you were to do a proposal, and you’re going to file it next month and you gave us $500.00 today, we would have to take that $500.00 and put it towards your proposal payments.

Ted Michalos: Correct.

Doug Hoyes: It’s pretty much that simple.

Ted Michalos: And the debt consultant puts it in their pocket.

Doug Hoyes: So there’s a huge difference there. Well, we’re now hitting into the idea of the actual dollars involved. So, again, let me, you know, pull out the government’s report and read you a couple of paragraphs here, because this is kind of amazing. “Costs of insolvency for consumer debtors. Debtors” … and, again, I’m quoting from the government’s report here, these are not my words, not my opinions. “Debtors served by LITs who had ongoing relationships with debt consultants usually ended up paying thousands of dollars more for the administration of their insolvency than debtors who were not sourced through a debt consultant.”

Ted Michalos: Yeah, that makes sense, because you’re paying somebody twice.

Doug Hoyes: Like, that’s not hard to understand there, is it?

Ted Michalos: Right.

Doug Hoyes: They are paying thousands of dollars more. “Typically, debt consultants required a consumer debtor to sign a fee agreement for consulting services prior to being introduced to a selected LIT. Debtors typically understood the role of the LIT as being limited to meeting with the debtor to file the proposal developed by the debt consultant.”

Ted Michalos: Right.

Doug Hoyes: So and, again —

Ted Michalos: And that’s completely backwards the way that the system is supposed to work.

Doug Hoyes: That’s completely backwards. And so, again, we can talk about clients we’ve dealt with. And you, kind of, described it pretty well with the clients you met with recently, they go the debt consultant and the debt consultant says, you know what, the trustee is bad.

Ted Michalos: Well, the trustee doesn’t represent you.

Doug Hoyes: The trustee does not represent you, right.

Ted Michalos: The trustee’s not there to help you, the trustee’s there to make money.

Doug Hoyes: That’s right, the trustee is just there to make money. And, in fact, they’ll often say the trustee represents the creditors.

Ted Michalos: Right.

Doug Hoyes: And the reason they say that is you’re going to pay the trustee money and the trustee is going to give that money to the creditors, obviously, therefore they’re working for the creditors. Whereas me the debt consultant I only work for you, I don’t care about anything other than you, so you’re paying me as this unbiased advocate for you.

Ted Michalos: Yeah.

Doug Hoyes: What’s your response to that?

Ted Michalos: Well, the problem with that is that there’s very little advocacy going on. So the concept behind being an advocate is that you’re in somebody’s corner, you’re going to fight for them. There’s very little fight involved here. They get you to fill out some paperwork, they’ll forward that to the LIT that they have the relationship with and that’s what they’re going to do.

The LIT will tell them this is what needs to be offered for the creditors to agree. There’s no secrets here, there’s no magic, you know, you’re not dealing with a guy who knows something more than anybody else on the street.

Doug Hoyes: Well, but what about the argument that you work for the creditors?

Ted Michalos: Yeah, and we’re officers of the court, so we have a fiduciary responsibility to everyone involved, anyone who’s involved in the insolvency process, the individual that’s in trouble, the creditors that are receiving the payments from the trustee, the Office of the Superintendent and the courts. We have to maintain this middle of the road.

The analogy I always use is we’re referees. So think of us at … as a hockey game, right, we’re the guys who enforce the rules. We don’t write the laws, we tell you if you’re offside, if you’re onside. And it’s the same for either team, we don’t look at one side or the other. If we do, we’re not doing our job, you won’t have us back as a referee.

Doug Hoyes: Right. And that’s a key point. Upfront we tell you here are the rules, here are how they work, so you know what you’re getting yourself into.

Ted Michalos: Right.

Doug Hoyes: And this whole notion that we work for the creditors, well, no. Ultimately, you come to us, you select us to be your LIT and if we do a lousy job you’re going to be telling all your friends that we did a lousy job. If we treat you fairly and get the result that you want, you’re going to be telling all your friends that it worked out great. We’ve been in business since 1999 so that’s, what, eighteen, nineteen years now.

Ted Michalos: Yeah.

Doug Hoyes: And a lot of our work is referral work. People have dealt with us, they send their friends and their family members. So I can, pretty much, guarantee you the debt consultants aren’t getting a lot of referral work.

Now, let me read another paragraph, because this will blow your brains, from the … again, from the government report. “In the cases reviewed, the amount of the consulting fee portion of the agreement between the consumer debtor and the debt consultant averaged approximately $2,400 and reached as high as $4,200.” Like, what more do I need to say about that?

Ted Michalos: Right. So what you need to understand, anyway, listening to this is that what the OSB is doing here is trustees are paid a portion of what you pay to your creditors as an administrative fee. And they’re saying whatever you pay to this debt consultant before you pay any proposal payments is now an additional pure fee and they’re right.

So I’ll give you a numeric example. You’re going to pay back $20,000 on $60,000 worth of debt, about a third and that’s a pretty typical proposal.

Doug Hoyes: Typical proposal, yeah.

Ted Michalos: The fees on that $20,000 are going to run about 4,500 bucks, somewhere in that … does that sound right, 20, 18, 36 … no, about $5,100. There aren’t any upfront fees, that’s what the trustee will get paid over the four or five years while you pay it out.

If you went to a debt consultant first, they would charge you … probably on that size of debt, $1,500, three payments of $500 each. So now instead of paying fees of $5,000 you’ve paid fees of 6,500. So have you got so much money in your pocket that you can afford to pay an extra 1,500 that you didn’t have to pay. That’s really the question.

Doug Hoyes: It’s crazy. Well and let me read you one more sentence from the government’s report, “For lower-value proposals” … so that would be a, you know, proposal where maybe the total payments are 10,000, 15,000 something like that …

Ted Michalos: Right, right.

Doug Hoyes: … “the consulting fee commonly ranged from 20 to nearly 40 percent of the value of the proposal.”

Ted Michalos: Sure, because if you were paying back $10,000 … so let’s say you owed about 30 … the fees for that would be somewhere in the neighbourhood of $3,200. If you paid $1,500 in consulting fees up front, now you’re paying $4,700.

Doug Hoyes: But and to pay 40% more for something and get zero extra value is crazy.

Ted Michalos: Right.

Doug Hoyes: It’s like, well, you can go to this place and get your oil changed for a hundred bucks or you can go over there and pay a hundred and forty. Okay, if it’s the same thing, I think I’ll take the hundred, thank you very much.

Ted Michalos: Yeah. Well, and people have to understand that … this may come across as sour grapes because we have a bias, because we’re the Licensed Insolvency Trustees and we don’t deal with these guys. But the reason we don’t deal with these guys is because, frankly, I think they’re crooks. I mean, if you can get advice … competent advice for free or go to a not-for-profit and maybe they charge you 10 bucks … well, talk about that some more … what’s the point in paying somebody $1,500? Like, I just don’t get it.

Doug Hoyes: Yeah, their argument is we are looking out for you. And so you go to the trustee and the trustee is going to say, “Well, you need to file a proposal where you pay $300 a month for five years. Do you know what, you really only need to pay $150 a month.” The trustee is charging you more money because they make more money.

Ted Michalos: Right.

Doug Hoyes: But, guess what, it’s the creditors who vote on the proposal. So if we recommend that you file a proposal and pay 300 bucks a month, we can offer a proposal of $150 but the creditors are going to say, no, we want more money, we do a couple of hundred of these every month.

Ted Michalos: Right, yeah.

Doug Hoyes: And we’ve been doing them for years and years and years.

Ted Michalos: Right. So we keep track of what creditors vote which ways and what their minimum expectations are.

Doug Hoyes: Yeah. We’ve got a very detailed internal system … and you can’t see it because this is a radio show … but on the other side of these walls here we’ve got a group of six people who do nothing but proposals and they keep track of every single one we do. So if someone comes in to see me and they say, okay, I owe money to the Royal Bank, or to Canadian Tire or CIBC or whatever we can go … look in our system and see all the previous votes that company has done.

Ted Michalos: Right.

Doug Hoyes: And we know that, you know what, they’re going to look for this particular term, they want thirty cents on the dollar, they want fifteen cents on the dollar, whatever. So a debt consultant doesn’t have access to that kind of information.

Ted Michalos: Well, they never actually interrelate with the creditors.

Doug Hoyes: They never talk to them, no.

Ted Michalos: I mean, that’s the other part of this thing that really drives me crazy is they’ll tell you when you come see them, stop making your payments, stop answering the phones, oh, don’t worry about those collection letters. The reason they’re doing that is once you stop dealing with any of these … your debts in the normal course of business you’re pushing yourself down a road.

And so you’ve talked to the debt consultant, they’ve told you to do all these things but you haven’t made your decision yet how you want to solve the problem. Well, they’re forcing you into a decision. Once you stop making those payments it’s not like you can catch them up again.

So now you’re two months down the road you haven’t made a decision and somebody’s threatening you with a lawsuit. Well, it’s too late to just try and negotiate, or budget or do something else, you need a real solution and they’ve got you. They’ve got a hook in you now, they’re going to say, “Well, look, we’ll get you in to see our guy really quickly. You got to pay us that fee and get it done.”

Doug Hoyes: Well, it’s kind of like going to a real estate agent and saying, “I want to buy a house,” and they say, “No problem, we can get you a better deal on a house.” So I’ve got two different real estate agents who I’m thinking of hiring and one of them says, “We can get you that house for $300,000,” and the other one says, “No, that house is worth $450,000” okay, I guess I’ll go with the $300,000 one.

Ted Michalos: Right.

Doug Hoyes: I put in my bid at 300,000, well, guess what, it gets rejected. The buyer has no obligation to take something that’s well below market value.

Ted Michalos: Right.

Doug Hoyes: I mean, again, let me read from the government’s report. “The OSB took a look at proposals and the OSB’s comparison of the data identified a consistent difference in the frequency of files with very low proposed values,” that’s just what I just talked about, underbidding on a proposal.

Ted Michalos: Right.

Doug Hoyes: “LITs working with debt consultants filed five-year consumer proposals with payments under $100 per month about 14 to 19 percent of the time, this compares with only 4% of such proposals filed by the control group of LIT.”

So in your experience, Ted, I mean, okay, would you say that, yeah, it’s probably less than 4% where we’re doing a proposal, that’s four hundred … or a $100 a month or less?

Ted Michalos: Right. Yeah, I mean, the reason that somebody does a proposal that size is that, well, they’ve been … they’re afraid of the whole idea of a bankruptcy. And I don’t want to turn this into a bankruptcy versus proposal thing. But if you are on social assistance or a fixed income, limited means and somebody convinces you to pay $75 a month for five years when you could pay probably less than $100 a month for nine months who are they helping. I mean, they’re putting money in their pocket because they put you into a proposal, they got to charge you a fee. Probably the right answer for that person was a bankruptcy but that’s not what this show is about.

Doug Hoyes: Yeah, a bankruptcy or doing nothing. And, as I said earlier in the show, these debt consultants, overwhelmingly, are recommending consumer proposals.

Ted Michalos: They are because, in most cases, they don’t … they can’t charge any sort of a fee or … yeah, a consulting fee if you’re going to do a bankruptcy. So if the correct answer is that you need to file bankruptcy it’s hard to justify paying them $1,500 when the bankruptcy itself probably only costs $1,800.

Doug Hoyes: Yeah, the typical bankruptcy would do, if you have no surplus income, no assets, you’re probably paying a couple hundred bucks a month for nine months.

Ted Michalos: Right.

Doug Hoyes: The average fee that a debt consultant charges is $2,400, the OSB said that.

Ted Michalos: Yeah.

Doug Hoyes: So why would you pay $2,400 to a debt consultant who is doing nothing and then actually only pay the trustee $1,800, it makes no sense.

Ted Michalos: Right.

Doug Hoyes: They have to justify their fees and the way they do that is by putting you into a proposal, making a low-ball offer. And then of course what happens, the creditors come back and say, “Well, we’re not accepting four cents on the dollar, that’s crazy,” and then who gets blamed for it, oh, it’s the LIT, the debt consultant says, “Oh, sorry, I’m out of the picture now.”

Ted Michalos: Yeah. Well, and a worse example … so let’s say the creditors do agree to it, you get three years into paying $75 a month and you stop paying because it’s … you … it just wasn’t sustainable. Well, your bankruptcy would have been over a year and a half ago, you would have had all that money in your pocket and now you’ve got to file bankruptcy anyway because the proposal … you weren’t able to complete it. I mean, the debt consultant really doesn’t care because they got their fee upfront, they got their first transaction in. Once you’re … once they’re through with you it’s … I mean, they’re on to the next guy.

Doug Hoyes: Yeah. And the way we get paid … and, again, our fees are licensed by the federal government, regulated, every LIT gets the same percentage of the pot in a proposal, we get paid as we send money to the creditors.

Ted Michalos: Right.

Doug Hoyes: So the creditors accept the proposal and then every few months we’re sending them what’s called a dividend, a payment towards the debt, we get our fee at that point. So if the creditors vote no on the proposal we’re not getting paid, if we make the proposal too onerous that you can’t afford it and it fails we’re not getting any further payments after that point.

Ted Michalos: And, of course, the debt consultant was paid in full before they referred you to actually file the proposal.

Doug Hoyes: Yeah. So whether it works or not —

Ted Michalos: So their money has come and gone.

Doug Hoyes: Yeah, they don’t care whether it works or not. So okay. Before we get to the practical advice section of the podcast, I want to discuss what the OSB is actually going to do about this and what you think they should do.

So I’ll tell you what they say they’re going to do. They’ve issued this as a … kind of, a moral suasion, let’s throw it out there. From the OSB’s report they say that, quote, “Over the next year the OSB will initiate a series of amendments to OSB directives, BIA forms and compliance programs to address the risks and issues identifies … identified in this report. Areas of focus will include fulfillment of the LIT’s responsibilities and all aspects of the insolvency process,” et cetera, et cetera. So they’re saying that “we’re going to make some tweaks”.

Ted Michalos: Right.

Doug Hoyes: Okay. I guess making some tweaks is better than doing nothing. I mean, if there’s some murderer running around I don’t know if tweaks is the answer but —

Ted Michalos: But one of the challenges they have is the largest firm in the country is guilty of this, so …

Doug Hoyes: Yeah. As they said, that’s in their report that it’s a large and a —

Ted Michalos: So it would be interesting to see how they tweak the largest firm in the country.

Doug Hoyes: Yeah. It’s kind of like a banking regulator, knowing that the biggest bank in Canada is doing bad stuff, well, what are you going to do, shut down the biggest bank in Canada, that’s kind of hard.

Ted Michalos: Yeah. And that was just an example, we don’t know if the biggest bank in Canada is doing bad stuff. [laughs]

Doug Hoyes: No, no, I’m sure they’re perfectly reasonable people and doing everything fantastically but …

Ted Michalos: [laughs] Certainly.

Doug Hoyes: Okay. So what the OSB is saying is “we’re going to make some minor tweaks”.

Ted Michalos: Right.

Doug Hoyes: What do you think they should do? This is a very serious problem, they’ve identified the fact that consumers on average are paying $2,400 to these debt consultants who do nothing.

Ted Michalos: Well, it’s better than that. They can tell from filing patterns which trustees or which Licensed Insolvency Trustees are doing this. So, for example, if a trustee doesn’t have an office in St. Catharines and they’re doing 25 new files a month in St. Catharines, probably they’re getting work referred to them from somewhere, right?

Doug Hoyes: How is that possible, yeah.

Ted Michalos: They haven’t got an office but they’re doing all that work. So they easily know who it is that’s guilty of this. If a trustee does 95% of their files are consumer proposals and very few bankruptcies, well, probably they’re not seeing the public themselves, they’re getting their work referred to them.

Doug Hoyes: Because, on average, most trustees it’s a relatively even split between proposals and bankruptcy.

Ted Michalos: Yeah, pretty even split. And, intuitively, that’s what it should be. So, if you’re giving people the right advice, either you can help them without filing anything, or half the time they’ll file a proposal to repay part of the debt or half the time, you know what, file the bankruptcy, get on with your life more quickly.

If a debt consultant is not getting the fee for bankruptcies or telling them they don’t need any help, well, you know what they’re going to sell them. What should you do, the biggest single thing, don’t pay any fees up front.

Doug Hoyes: Well, but I’m asking —

Ted Michalos: If anybody … well …

Doug Hoyes: And we’ll get into that.

Ted Michalos: What can the OSB do.

Doug Hoyes: What should the OSB do?

Ted Michalos: Oh, that’s right, yeah.

Doug Hoyes: What should the OSB do. So I’m appointing you the superintendent of bankruptcy now.

Ted Michalos: Well, that’s great. Woohoo.

Doug Hoyes: That’s great, you’re the new guy.

Ted Michalos: Oh, and I want my eight weeks vacation. That’s a different conversation.

Doug Hoyes: Yeah. So what —

Ted Michalos: Do I get a pension?

Doug Hoyes: Yes, you get a pension. So what should they be doing?

Ted Michalos: All right. Well, again, so they can identify easily who they think are the … I’m going to call them the guilty LITs, the people that are acting in a way that’s not —

Doug Hoyes: The guilty parties. Okay, so they’ve got this list, they know who’s doing it.

Ted Michalos: — correct. Yeah, right. So the first thing they should do is moral suasion, okay, we know who you are, we’ve identified you, fly right.

Doug Hoyes: And that’s exactly what this report is.

Ted Michalos: Right, so that’s the first step.

Doug Hoyes: I mean, this is the first shot, the shot across the bow.

Ted Michalos: Yeah. So the second step is, if somebody’s not smart enough to pay attention to that, well … they call it a Chinese customs inspection. So the example is you send a load of produce into China and they’re not going to ban its arrival but it will sit on the docks until it’s rotten and then they’ll release it.

So the trustee, they just … all of our trustees fees have to be approved by the Office of the Superintendent before we can actually complete a file. So they could just slow down the paperwork and … it doesn’t have to be anything … what’s the word I’m looking for …

Doug Hoyes: Yeah, gum up the works is what you’re talking about.

Ted Michalos: Yeah, right.

Doug Hoyes: So what you’re talking about in a bankruptcy there’s a letter of comment that’s issued at the end of the file and that’s when we can draw our final fees. Well, right now for us that happens pretty much automatically, we push a few buttons on the computer, a few minutes later —

Ted Michalos: Comes right back.

Doug Hoyes: — comes right back.

Ted Michalos: Yeah.

Doug Hoyes: But, yes, they could do a manual review and it could take weeks, weeks or months.

Ted Michalos: And with a proposal they could … just they could simply start reviewing proposals.

Doug Hoyes: Well, they could request creditor’s meetings.

Ted Michalos: Yeah.

Doug Hoyes: And, in fact, they have been doing that in … we … you know, the discount clauses issue, which we’re not going to get into because we don’t have the time for that and it’s already been solved. But that’s exactly what they were doing. They identified an anomaly.

Ted Michalos: Right.

Doug Hoyes: And so they said whenever they see that anomaly we’re going to request a creditor’s meeting. And in most cases, in most consumer proposals we do there is no creditors meeting or, if one is required, it’s just a paper thing, you know, here, sign a piece of paper.

Ted Michalos: Right, it’s done by fax and email.

Doug Hoyes: Done by fax, nobody actually shows up. But the OSB could say “we are going to chair all those creditors meetings”.

Ted Michalos: Yeah.

Doug Hoyes: So for that big trustee firm that’s doing this and for those LITs that we know are getting most of their work from these guys, let’s have creditors meetings for every single one of your files.

Ted Michalos: And that dramatically increases the cost of the LIT doing the work, because we don’t get paid by the amount of time we put into a file. We get paid a percentage of the money that’s flowing through. So if suddenly have to do an extra five or six hours worth of work the file isn’t profitable anymore.

Doug Hoyes: Especially on … and it’s a real hassle for the debtor because now you got to take a day off work, you got to show up at this meeting, you got to answer questions —

Ted Michalos: Yeah. And there’s anxiety, why am I having a meeting, my friend did one of these with Hoyes Michalos down the road and there was no meeting.

Doug Hoyes: Hoyes Michalos. Everything was fine. They could also do examinations of the debtor.

Ted Michalos: Yeah, to find out how much did you pay and was it properly disclosed. But here’s the … I mean, if they really want to do something about this, if they find out that a fee was paid to a debt consultant they have the right to have it deducted from the trustee’s fees in the file. And so, suddenly, it’s not the consumer paying the fees up front, it’s the LIT paying the fees. And I think that would dramatically change things too. Because if you … if I was going to get paid $4,000 worth of fees on a proposal and I had to pay $2,400 … or had $2,400 deducted because I paid a consultant first, I don’t know that I would do the file.

Doug Hoyes: It gets to the … well, and if it was a $2,400 fee and the $2,400 deduction, you’re working for free.

Ted Michalos: Well … right.

Doug Hoyes: So at some point it doesn’t make any sense. Well, and I guess the other thing they could do is actually print a list of the offending parties.

Ted Michalos: Sure. I mean, if they published a list saying these are the guys that are performing this practice, without saying good or bad, just saying these are the people that are using debt consultants —

Doug Hoyes: These are the facts.

Ted Michalos: — you can decide for yourself if it’s worth the money.

Doug Hoyes: And you think word would get around pretty quickly, consumers would go, okay, and …

Ted Michalos: Yeah. We’ve been harping on this thing now for over a decade and they’re still in business. In fact, they’re probably busier than they’ve ever been, so …

Doug Hoyes: Right, and so that’s why we’re doing this podcast today in the hopes that we can actually get the word out that this is a serious issue … and, again, this is not just our opinion, the government has finally after … I mean, again, we’ve been on this case for five, six, seven years. They’ve finally done some research and issued a report that says, “We’re going to think about it, we might do something.” So hopefully it’s progress.

Ted Michalos: Yeah, yeah.

Doug Hoyes: Okay. So we’ve given the OSB advice, we know you’re watching, so hopefully you’ve taken these things into account.

Ted Michalos: [laughs] Listening, it’s radio.

Doug Hoyes: Absolutely. Well, this is going to be on YouTube as well if the video recording works, so …

Ted Michalos: So I should look up every once in a while.

Doug Hoyes: Exactly. So and … you know, for the OSB I’m … you know, Ted and I are more than happy to fly to Ottawa, and chat with you in person and give you our thoughts. But what about the person who is listening to us now, the actual individual who’s got some debt issues and they’re trying to figure out, okay, who can I trust, should I go to a debt consultant, what about you guys, how do I know if I’m being treated fairly, what practical advice can you give me?

Ted Michalos: Right. So this is where I was going before. So we jumped the gun a little bit. So let’s start this by saying that, at the end of the day, it’s your decision. If you decide that there’s value in paying these guys a fee before you actually talk to a Licensed Insolvency Trustee, we’re not going to stop you. I mean, it’s … you’re an adult, you got to decide what’s right for you.

But some warning signs for you. You shouldn’t ever have to pay an upfront fee. So if somebody meets with you for free and at the end of the meeting they say, “Well, okay, but now to go any further you got to give me 500 bucks,” wait a minute, trustee is not going to ask you for $500.00. That’s probably money that’s going to a debt consultant.

Doug Hoyes: And that’s real simple advice to understand.

Ted Michalos: Yeah.

Doug Hoyes: We do not charge upfront fees, number one, because we think it’s unethical but, number two, we’re not allowed to, the rules say we can’t do it.

Ted Michalos: Right.

Doug Hoyes: So you do not pay us anything until the paperwork has been filed with the government.

Ted Michalos: So there’s a test for you, right? So you met with somebody because they’ve done that first meeting for free, at the end of the meeting they ask for money, all right. So at this point you shouldn’t be signing anything. Don’t make any sort of commitments, you want to think about this some more.

The follow-up question as soon as somebody asks you for money should be, “Are you a Licensed Insolvency Trustee?” and if that doesn’t make you comfortable, “Are you actually going to do the work for me?” Because if they’re a debt consultant, they can’t. If the guy comes back and says, “Well, I’m going to refer you to my guy down the street. He’s going to actually do the filing,” okay, so why am I paying you money then.

Doug Hoyes: Yeah, when I go in for my surgery consult I would like to talk to the surgeon, not someone who knows the guy who knows the guy who knows the surgeon.

Ted Michalos: Right.

Doug Hoyes: I mean, I want to know who I’m dealing with. So don’t pay upfront fees, don’t sign a contract to pay anything until you’ve met with an LIT. Only deal with an LIT. And I guess, even more basic than that, ask “what fees am I being charged?”.

Ted Michalos: Right, what’s the upfront cost … what are you asking me to pay and why.

Doug Hoyes: And we’re happy for you to ask us that question too because, again, our fees are set by the government, we’re … it’s right in the proposal what we’re getting paid.

Ted Michalos: Right. And, again, if the guy says it’s 1,500 bucks and you think that’s $1,500 well spent, then I respect your decision to do that.

Doug Hoyes: Yeah, I mean, there are lots of people who will go talk to their accountant or their lawyer first and pay their accountant or lawyer money, okay, that’s fine, I’ve got no problem that, particularly if you’re in a business situation maybe it makes a lot of sense because there may be tax implications and whatnot.

Ted Michalos: Right.

Doug Hoyes: But in that case you know what you’re getting, they charge you by the hour, you’ve been dealing with them in the past and they have no incentive to refer you to one person or another.

Ted Michalos: Right.

Doug Hoyes: They’re probably giving you independent advice. But when you’re dealing with a debt consultant … and I guess the other question you could ask them … so, “Okay. You’re going to be referring me to someone. Do you only refer to one different party?”

Ted Michalos: Yeah, “Can I get a list? Who should I be taking to?”

Doug Hoyes: Right. I mean, with the not-for-profit credit counsellors that we deal with in most of the cities we’re in they have a list of three or four different LITs that they’ve met with, preapproved, they know they’re legit. So they don’t send everybody to the same person in most cases, they spread them around.

Ted Michalos: Right.

Doug Hoyes: So … okay, so I think that’s really good advice. What are your final comments then on anything to do with debt consultants, the OSB or people who are listening who may have issues with any of this?

Ted Michalos: Well, so I get the attraction, the debt consultant is allowed to, basically, play on your fears, not only of the debts that you have but of having to talk to a Licensed Insolvency Trustee. It was better for them when we were called bankruptcy trustees, because that’s an even scarier name. So they are playing on your anxiety and your fear, because you don’t want to do that. You want to do something better.

So any time a deal sounds too good to be true, it probably isn’t true. They’re going to meet with you for free up front, because the first time they meet with you it will be, “Yes, come on in for a free consultation.” And more and more these are being done over the internet or by phone now. But the conversation always end with, “Okay, I think we can help you. I need that 500 bucks.” And so they’ll immediately ask you for money and that’s your warning sign, wait a minute, you haven’t done anything yet, why do I need to give you money.

Doug Hoyes: Yeah, it’s pretty much as simple as that, don’t be signing anything, don’t be paying any money before something is filed, deal with a Licensed Insolvency Trustee. Simple as that.

Ted Michalos: Yeah. And you … and, yeah, you can use the second opinion thing on trustees. So you go to see a Licensed Insolvency Trustee and call another one, go see another one. I mean, we call that opinion shopping but, quite frankly, it’s your life, you got the right to look around and make sure you’re comfortable with the people you’re dealing with and you’re getting advice that you can live with.

Doug Hoyes: Well, and I think I met with two people in the last week who had been to see another LIT and they just weren’t comfortable, they didn’t understand the explanations they were getting, well, great, go see someone else then, we get a lot of work from that too, so …

Ted Michalos: Right.

Doug Hoyes: Excellent. Well, I think that’s an excellent way to end it, that’s our show for today, full show notes, including links to the bombshell government report.

Doug Hoyes: And all of the previous videos and articles we’ve written on this topic can be found at hoyes.com, that’s h-o-y-e-s-dot-com.

If you want to have your say, there’s a link on the OSB webpage so that you can send a message directly to the government explaining that you don’t think vulnerable consumers should be scammed by debt consultants who only want to take their money. So feel free to take advantage of that.

Thanks for listening. Until next week, I’m Doug Hoyes. That was Debt Free in 30.

The post Debt Consultants: Why You Should Avoid the Extra Cost appeared first on Hoyes, Michalos & Associates Inc..

When we speak to people for the first time it’s not uncommon to discover that they have be experiencing financial distress for a number of months (or even years) before reaching out to discuss their situation with us. During this time they are taking on more debt, and usually very expensive debt – especially payday loans. This means they pay more interest on their debt for longer.  Sometimes this interest cost is so high it takes away from their ability to provide necessities for themselves and your family. It’s hard when you are choosing between paying the rent, buying groceries or making a debt payment.

If you only making minimum payments towards your debt then you are paying nothing but interest. Nothing in your payments is benefiting your ability to get out of debt.

Sometimes people delay looking a bankruptcy as a solution as long as possible in order to continue to maintain access to their credit cards. Yet what they are often doing is using new credit on one credit card to be able to have enough money to keep their other credit card afloat.

And the costs of delaying are not just financial. Avoiding the decision to talk with a Licensed Insolvency Trustee has a negative impact on the quality of life that many of our clients experience while they continue to try to tackle an insurmountable debt load with no particular plan.

So for many struggling to pay off their debts, delaying bankruptcy could mean:

• Money wasted in the form of interest because you were making minimum payments with no effect on the principal balance;
• Selling off or cashing in assets to keep up with credit card payments when these assets are protected in a bankruptcy (such as RRSPs) or could be preserved through a consumer proposal;
• Consolidating credit cards to a single loan with the same unmanageable interest rate thereby postponing the inevitable, all the while paying more in interest;
• Conversations with creditors on the phone explaining why payments have been missed or when the next payment will be made;
• Threats of litigation on behalf of creditors and perhaps even experiencing a loss of wages through a wage garnishment;
• Stress; and
• Sleepless nights.

Waiting longer to file bankruptcy itself does affect the fee for filing bankruptcy. Bankruptcy fees are guided by government household income standards and money received from assets that your creditors would expect your trustee to collect. And these payments will be much less than the debt payments your are struggling with today.  That is why holding off on the decision to file is actually costing you money.

There is also the opportunity cost of postponing your ability to begin to rebuild your finances.

Yes, many people are afraid to file bankruptcy because it will appear on their credit report. However if bankruptcy is the right answer for your debt troubles, then the sooner you file the sooner you can begin to rebuild. Most first time bankrupts complete their bankruptcy in nine months. Once your bankruptcy is finished, your debts, and all their monthly payments, go away. All that money you were paying in interest can now go into savings. In addition, you can apply for a secured credit card after filing bankruptcy to use for convenience and to re-establish a new credit history. In other words, your financial life starts over right away, not when your bankruptcy is removed from your credit report.

If your debts have become too much to handle and you know you need to do something to get rid them, set up a free consultation with one of our local trustees sooner rather than later. If you’re having difficulty meeting your monthly financial obligations, simply having a conversation will give you the tools you need to make the best decision for yourself and your family. You will also find that we consider personal bankruptcy to be a final resort and that we will always explore alternatives to bankruptcy when we meet you.

The post Why Delaying Your Bankruptcy Can Cost You More appeared first on Hoyes, Michalos & Associates Inc..

Debt Is Different For Everyone

The size of debts, types of creditors and other factors, like how and when the debt was incurred, will be different in every single consumer proposal ever filed. Debt is incurred in different ways, by different people, for different reasons.  The reasons for wanting to file a consumer proposal may be different too; some people file because they face the threat of legal action, some because the size of the debt is too overwhelming to maintain and some because they have recently suffered an unexpected event like a drop in income, marital breakdown or medical problem.

Common Requirements of All Proposals

What all consumer proposals have in common is that they are filed by individuals who find themselves unable to repay their debts.  Only if you’re insolvent, do you qualify to be eligible to file a consumer proposal. All consumer proposals filed in Canada must be done so by a licensed trustee and must comply with the rules and regulations outlined in the Bankruptcy & Insolvency Act.

What all consumer proposals must provide for is a greater benefit to creditors than they’d receive in a possible bankruptcy scenario.  There’d be no sense in a creditors accepting a consumer proposal if they’d likely see a higher repayment from a bankruptcy.

A trustee experienced in filing consumer proposals with many different creditors get’s to know what individual creditors are looking for and what will work. It’s for this reason that almost every consumer proposal filed at Hoyes Michalos is accepted by creditors.

What this means is that the factors in determining what a consumer proposal will cost are the same for everyone however the end result of the calculation may be different.  All negotiations are based on what you own and how much you make. How much you choose to offer however can depend on how fast you want to pay off your proposal and what your budget looks like.

Our video on what a consumer proposal costs explains more:

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Tailoring A Consumer Proposal For Success

A consumer proposal may be offered over a period of up to five years. Many people take advantage of this to stretch their monthly payments over as long a term as possible to reduce the burden on their monthly budget.  However, there’s nothing to say a consumer proposal cannot be offered over a shorter term, as some people prefer to pay off their consumer proposal early, to put it behind them.

You may hear claims that a consumer proposal can reduce your debt by 80%. That may be true in some cases, but not all. Someone who has no assets and low income may benefit by such a sizable reduction, however, someone who has a moderate or high income, or assets to their name, may be expected to offer to repay a larger portion of their debt.

The amount to be repaid in a consumer proposal will also be determined by the wishes of the creditors involved. Some creditors may not be too concerned with how much of the debt is being repaid, so long as the offer is better than what might be expected in a possible bankruptcy. However, some creditors may only accept a consumer proposal if they are receiving at least one third, half or two thirds of the debt regardless of how little may or may not be available through bankruptcy.

Because each person’s situation is unique, the benefit of a consumer proposal is that it can be tailored specifically to meet your needs.  If you are dealing with debt, contact us today for a free consultation.

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Cashflow before you file your consumer proposal

When you are in financial difficulty, it’s hard to imagine you can ever have enough money. Today your cash flow may not cover all your household and monthly expenses, including rent or mortgage payments, car payments, food, clothing, utility costs, insurance and all of the other expenses that you can’t avoid. Often this is because debt payments are taking up too much of your current monthly income.

Some people try to solve a negative budget problem by making only the minimum payments on credit card bills, but this won’t help you get out of debt.

You need a plan to deal with debts that you can reduce your stress and get your fresh start. But that plan has to balance your budget and a consumer proposal can help make this happen.

Why your budget is important

When considering a consumer proposal, the most important question is, can I afford the monthly payments?  

To be sure that the cost of your consumer proposal fits within your budget, your trustee will look at your monthly expenses and determine whether you can afford to complete the process.  

A consumer proposal will offer you protection from your creditors, stop interest charges, but it must offer your creditors more than they would receive in a bankruptcy. However, you must be able to afford the payments. That’s where your budget comes in.

Your trustee will review your budget to see what expenses will disappear (like credit card payments) and where you might cut back to help you better make ends meet.

If you don’t know if you can afford your monthly proposal payments it could mean added, unnecessary stress.  Skipping proposal payments is dangerous because legally, you are only permitted to miss two monthly payments over the course of the proposal.  If a third payment is missed, the proposal is automatically annulled.  Once annulled, you lose the creditor protection that your proposal offered, and your debts could go back into collections.  This is why it’s so important to be prepared and be honest with yourself and your trustee about where your money is going.  A budget helps you make sure your proposal is affordable at the start and makes sure that you will be successful and receive your Certificate of Completion, so your debts are eliminated for good.

How to prepare a consumer proposal budget

At Hoyes Michalos we will send you a link to provide some income and expense information to your trustee to help prepare your consumer proposal.  However, here are some line items you will want to include in your budget:

Income items to include:

• Employment income
• Pension income
• Child support or alimony
• Government benefits (child tax, welfare, disability)
• Other income

If you are self-employed or operate a business, you need only include your net income, after deducting relevant business expenses.

A consumer proposal considers a household budget so your trustee will ask for this information for both you and your spouse.

Expense items to include:

Household expenses

• Rent or mortgage payment
• Property taxes
• House / content insurance
• Utilities – hydro, gas, water
• Telephone / cell phone
• Cable / internet
• Furniture

Transportation

• Gas
• Car loan / lease
• Public transit
• Car repairs / maintenance
• Vehicle insurance
• Plate renewals

Living Costs

• Food & groceries
• Restaurants
• Entertainment
• Laundry / dry cleaning
• Grooming / toiletries
• Clothing
• Smoking
• Alcohol
• Gifts and donations

Health

• Life insurance
• Disability insurance
• Prescriptions
• Dental

Other

• Child care / babysitting
• Banking fees
• Gifts / allowances
• Memberships
• Pet care

If you pay for expenses annually (for example memberships, insurance or Christmas gifts) do your best to estimate how much you will need to set aside every month to cover these costs.

Eliminating current debt repayment

You will notice we did not include monthly debt payments in your consumer proposal budget other than those you wish to maintain which are typically secured loans like your mortgage or vehicle financing. Assuming you wish to keep these assets you will need to keep up with these payments which is why they are included in your budget.

When you make a consumer proposal, you have no unsecured debt payments. As I mentioned earlier, today your minimum payments on credit cards, high-interest installment loans and payday loan repayments are likely why your budget is negative.

When making a proposal to creditors, your trustee will look at your income minus your expenses before debt repayment. This number is hopefully positive. If it is not, your trustee can talk about ways to reduce your expenses or, if you feel it makes sense, return an expensive car to reduce your outgoing costs enough to bring your budget into balance.

Your trustee will want a list of who you owe money to. Based on your total debts and your creditors your trustee will know what minimum percentage to offer. This can be balanced out with your budget to see how much you can afford to repay.

Why a consumer proposal is better for your budget than bankruptcy

We talked earlier about how much your creditors will expect to receive and that they will want more under a debt proposal than they would if you were to file for personal bankruptcy. Since your creditors will be paid more you might wonder how this is good for your budget.

How long a person may be bankrupt is affected by how much income they make. Government rules say the more you make, the more you must pay in a bankruptcy and the longer you must make those payments. Someone who files bankruptcy the first time with surplus income payments is mandated to be in bankruptcy for 21 months. This time period cannot be lengthened or shortened. This can make monthly bankruptcy payments high relative to your available cash flow.

Consumer proposals can have a repayment term of up to five years. Spreading out your payments by up to the allowable 60 months can help you lower your monthly payments. This can mean the difference between a balanced budget and continuing to struggle to pay your everyday living costs.

Budgeting after your consumer proposal is filed

After your consumer proposal is filed, you will be required to attend two credit counselling sessions. One of these sessions will be devoted to how to budget and live within your means. While the primary reason to file a consumer proposal is to eliminate your debt, the second goal is to ensure that you don’t rely on credit to cover everyday living expenses moving forward. A consumer proposal can give you a fresh start and now you can work towards building some savings for the future.

Contact us to see if a proposal can help balance your budget

A consumer proposal can eliminate your debt, allow you to keep your assets and help you get back on track financially.

If you are dealing with debt, contact us for a free initial Debt Free in 30 debt assessment during which we will review your budget, help you determine how much you can afford to pay and what offer you might propose to your creditors.

The post How to Make a Consumer Proposal Budget That Works appeared first on Hoyes, Michalos & Associates Inc..

Is this a good idea?  Perhaps, but only in very specific circumstances.

Advantages of Borrowing to Pay Off a Consumer Proposal

Improved Credit Report

A note indicating you filed a consumer proposal will remain on your credit report for three years after you make your final payment, or six years in total (on your Equifax credit report).  If your proposal takes five years to complete, the note remains on your credit report for a total of six years.  If you can borrow to pay off your proposal after two years, the note disappears after five years, so your credit report looks “cleaner” much sooner.

Improved Credit Score

If you have debt and pay it on time, your credit score will generally improve.  While you are in a consumer proposal you have no unsecured debt; by getting a loan to pay off your consumer proposal, you now have debt, and as long as you are making your payments, your credit score may improve.

Peace of Mind

By paying off your consumer proposal early, you know that there is no chance that you will default on your proposal payments.  Federal law states that a consumer proposal is automatically annulled if you fall three months behind in your payments.  By paying it off early, there is no chance that you will miss any future payments, and that’s great peace of mind.

Sounds great.  So what’s the problem?

Disadvantages Of Using A Loan For Proposal Payments

High Interest Costs

The most obvious disadvantage of borrowing while you are in a consumer proposal is that your credit score isn’t great, so you are likely to pay a high interest rate.

Let’s assume you have $10,000 left owing to complete your proposal, and a finance company is willing to lend you $10,000, secured by your car or house.  They will likely require a high interest rate to compensate them for the risk of lending to someone who has not yet completed their proposal.  If the interest rate is 20%, is it worth paying an extra $2,000, or $4,000 or whatever it will take in interest and fees to pay off your proposal early?

Only you can answer that question, but always remember that there is no interest on your consumer proposal; so by borrowing you are paying more, perhaps a lot more, than you would pay to simply complete your proposal as scheduled.

Back in Debt

You filed a consumer proposal to eliminate debt.  Do you want to go back into debt to finish your proposal early?  Doesn’t that somewhat defeat the purpose of filing a proposal?

Higher Risk

By borrowing, you have now put yourself at risk of default.  If you pledge your car as security, and you can’t make the payments on your new high interest loan, you now risk having your car repossessed.  Is that a risk you are willing to take?

Credit Report

Equifax maintains information about most debts, the filing of a consumer proposal, for a maximum of six years.  So if you are already four years into your consumer proposal, if you pay it off over the next year, the note disappears in another year (six years from the start of the proposal).  If at the four year mark you get a loan to pay off the proposal, and it takes you a year to pay off that loan, the note about that loan stays on your credit report for six years, so you have “restarted the clock”, which may not help your credit score.  Paying off your proposal early by accelerating your payments may be better for your credit score than taking on new debt.

Crunch The Numbers

Here’s my advice: You should only consider getting a loan to pay off your proposal early if there is a very compelling reason to borrow.  Perhaps your parents are willing to co-sign a loan for you, and they can borrow at very low interest; so financially it makes sense.  Perhaps you want to buy a house in a few years and you want to start rebuilding credit immediately, and for you it’s worth the extra interest cost.

That may be true, but let me give you a word of caution: Everyone (but you) makes money if you borrow.  Obviously the lender makes money, but here’s something you may not have considered: your consumer proposal administrator (that’s me) also wants you to pay off your proposal early, because then I get paid early.  A Consumer Proposal Administrator is paid a percentage of the funds that are distributed to the creditors, when the money is distributed.  So, if you pay off the proposal early, the creditors get paid early, and I get paid early.

That’s great for me, but is it great for you?  Again, only you can decide.

3 Better Ways To Pay Off Your Proposal Early

I agree that you should pay off your proposal as quickly as possible, but I’m not a big fan of borrowing to do it, because of the interest cost. Here are some tips for paying off your proposal early, with no interest:

1. Increase the amount of your payments. If you are currently paying $400 per month in your proposal, increase your payment to $425 per month.  You probably won’t miss the extra $25, but you will pay off your proposal faster, with no interest.
2. Increase the frequency of your payments. Instead of paying $400 per month, switch to weekly payments of $100 (if you get paid weekly), or bi-weekly payments of $200 per month (if that matches your paycheque). Paying based on your paycheque frequency makes budgeting easy, you won’t miss the extra payment, and your proposal will be done faster.
3. Make a lump sum payment.  Did you get a bonus at work?  A tax refund?  A gift?  Use some or all of that money to make a one-time, lump sum payment to pay off your proposal faster.

We all worry about losing our job or having our hours reduced, so paying off your proposal early eliminates the risk that you won’t be able to continue to make your payments.  Whether or not you should borrow to do it is up to you, but consider all options before incurring any additional debt.

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