The Office of the Superintendent of Bankruptcy recently released its statistics for bankruptcies and proposals across Canada for the month of December 2011. Presumably, this means that the annual report for 2011 will also be released in the near future.

I’m going to fire a bunch of figures your way. The trend is consistent – fewer people are filing bankruptcies.

• Total consumer insolvencies (bankruptcies and proposal) for December 2011 decreased by 7.5% compared to December 2010

• Total consumer insolvencies for the year ended December 2011 decreased by 8.9% compared to the year ended December 31, 2010

• Consumer bankruptcies for the year ended December 2011 decreased by 15.9% compared to the year ended December 31, 2010

• Consumer proposals for the year ended December 2011 increased by 6.4% compared to the year ended December 31, 2010

Across the board, the numbers for Ontario were in line with these trends. The first thing that stands out to me though is with respect to consumer proposals. Fewer people are insolvent, but more people are filing consumer proposals.

It’s important to consider why somebody would normally choose to file a consumer proposal instead of personal bankruptcy. Here are the normal reasons.

• Bankruptcy might mean losing significant personal assets

• Bankruptcy might mean paying surplus income

• A previous bankruptcy means not being eligible to be discharged from bankruptcy for at least 24 months

• A proposal usually means paying a fixed monthly amount through a single payment

I’m not going to try to guess at what all these numbers mean. The main reason that I talk about statistics like this is to try to reassure people that they are not the only ones in a difficult situation. If you need help to deal with your debts, you have to start somewhere.

People are often nervous about talking to a trustee in bankruptcy because they are afraid of the B word. Remember that our role is to assess your circumstances and provide information about all of your options for dealing with your debts. It’s about helping you make an informed choice. If the right choice is to file a bankruptcy or proposal, we will help you through the process. Even if it doesn’t mean filing a bankruptcy or proposal, we can also help you identify other choices that might be better for you.

Even if the tax man is not going to literally knee you in the cojones, it can sure feel like it sometimes. Following mankind’s basic survival instinct, many people choose to run and hide from their tax debts.

Is the tax man going to catch you? Nobody knows for certain, but I don’t like your chances if he does.

I’m not going to go on at length about the Canada Revenue Agency’s powers. You can read about that here. More importantly, I want you to ask yourself how long you want to keep running.

If you want to deal with your tax debts, the first step is to get your taxes filed up to date (even if you can’t pay the debt). Here’s why:
• You are legally required to;
• Once you know how much the debt is, you can assess the severity of the situation; and
• You’ll be required to even if you file a consumer proposal or personal bankruptcy to deal with the debt.

If it’s not realistic to pay your tax debts, you should talk to a trustee in bankruptcy about your legal options for protecting yourself from the CRA and dealing with the debt. The most common options are to file a consumer proposal or personal bankruptcy.

Either option gives you protection from your creditors and a fresh start from your debts. Whereas bankruptcy might mean losing some of your assets and paying surplus income, a consumer proposal allows you to repay a fair portion of the debt through a single monthly payment.

Want to talk about your situation? Feel free to call us at 310-PLAN or send me an e-mail.

Earlier this week, the Office of the Superintendent of Bankruptcy (OSB) released the new guidelines for determining the amount of “surplus income” somebody is required to pay in his or her bankruptcy.

What is surplus income? The basic concept is that you pay more if you make more, regardless of what your expenses are (for the most part). Higher income means paying more, which means there will be more money returned back to the people you owe money to.

The government sets monthly income limits based on the size of the family. If the bankrupt person’s income is under the threshold, that person is not required to make extra payments into his bankruptcy. If the income is above the threshold, the person is required to pay 50% of the extra – the “surplus” – into his bankruptcy. It’s a little more complicated than I’ve described here, but you get the general idea.

Here are the figures for 2012:

Family of 1 – $1,980
Family of 2 – $2,465
Family of 3 – $3,031
Family of 4 – $3,680
Family of 5 – $4,174
Family of 6 – $4,707
Family of 7 or more – $5,241

If you want help estimating the amount of surplus income you would be required to pay, please check out this payment calculator.

The reality is that the surplus income rules are a penalty for people with relatively higher incomes. For some people, that penalty becomes too high to manage their monthly living expenses. In that sort of situation, a consumer proposal would probably be a better choice.

A consumer proposal fixes your monthly payment at a reasonable amount to repay a portion of your debts. Unlike bankruptcy, you maintain control over all of your assets and aren’t required to pay “surplus income.” However, to have your creditors agree to a consumer proposal, you would have to offer more money in total than they would expect to receive from bankruptcy. Because payments in a consumer proposal are over a longer period than bankruptcy, the monthly amount is less even if the total is more. It’s designed to be a compromise that both you and your creditors are happy with.

If you are struggling with your debts and want to talk about your options, please call me at 310-PLAN (310-7526 with no area code). I’ll ask you some questions to understand your circumstances, and then provide you with information about all of your options. You can also send me your questions by e-mail.

Monday February 20 is Family Day in Ontario. For most people, that means time off work and a chance to spend some more time with your family. Whether it’s Family Day or any other day, struggling with debt repayment can make it difficult to enjoy the other aspects of your life.

When I meet with people, my focus is on providing information about the different options for dealing with the debts. Your focus should be thinking about your plans for the future of your family and what you need to do to get there. Here’s a short video from Doug Hoyes, talking about your options for dealing with your debts.

When you’re ready, please feel free to call me at 310-PLAN or send me an e-mail.

It is a confusing time for people who are struggling to pay their debts. I say confusing because there is a wide assortment of people offering you advice to “deal with your debts” through advertisements on the radio and internet, myself included.

The tricky part is that it’s hard to know whom you can trust. Some places are legitimate. Some places are not.

I’ve written about this subject many times, very recently in fact. Doug Hoyes and Ted Michalos discussed the problem with unregulated debt consultants on “Ask the Experts” in Waterloo Region.

The easy response from the less reputable places is that we speak negatively about them because they are competition for us.

Here’s my retort. In January of this year, the Financial Consumer Agency of Canada (FCAC) issued a warning about companies offering to reduce your debts. The FCAC is a federal regulatory agency. From the FCAC website, here is the statement who they are and what they do. My point is, the FCAC is not “competing” with anybody for your business.

What did the FCAC have to say in its alert? They say to be wary of:

• Up front fees;

• Aggressive sales tactics over the phone. Some places will call you like a telemarketer, without you having initiated contact;

• Unrealistic claims about reducing your debt;

• Misleading information about protecting your credit rating. Stopping payments or paying back less than the full amount of your debt will hurt you credit rating; and

• False claims about government involvement or approval.

If you have read about a consumer proposal, you might think that that is what I was just describing. Wrong.

A consumer proposal is a legal proceeding under the Bankruptcy and Insolvency Act. A consumer proposal is administered by a licensed trustee in bankruptcy. A consumer proposal is for people who are unable to repay the full amount of their debts, but don’t want to file personal bankruptcy.

The role of a trustee is to provide you information about all of your options so that you can make an informed choice about how best to deal with your debts. That often means not using our services at all beyond the initial consultation. The consultation is free of charge.

Scott Schaefer & Ian Martin

The theme for the show is to go back to basics. What are your options? Is a consumer proposal better than bankruptcy? What is the role of the trustee?

Keep in mind that our job is to listen to you and provide information so that you can make informed choices. I encourage you to give it a listen. Also, the show is now available by live webcast.

If you want to speak with somebody now, please feel free to call our office at 310-PLAN (310-7526 with no area code) or send me an e-mail.

It’s now the middle of January and the New Year is well under way. Now is the time when people are starting to implement their resolutions, but remember that it is never a bad time to make positive changes in your life. At this point, you’re probably expecting me to preach about the importance of setting a budget and sticking to it…

A budget sounds like a great idea, but it’s a lot of work. Tracking every dollar that you spend can be tedious. It’s the sort of thing that most people have trouble sticking with.

Don’t set yourself up for disappointment with unrealistic goals. If you are not going to stick to a detailed budget, don’t bother. I’m not advocating sticking your head in the sand. I’m simply advocating taking a more practical approach.

I think that it’s more important to consider the purpose of a budget. The concept is to provide yourself with information so that you can make decisions on how best to allocate your money.

Most of your regular monthly expenses (rent, utilities, groceries, insurance, etc.) are pretty consistent from month to month. Look back over the last few months to determine how much it costs you each month for these necessities. Now consider how much your pay cheques are in a month. How you use your money above the cost of necessities falls into three categories:
• Discretionary expenditure
• Savings
• Debt repayment

I don’t want to oversimplify, but the rest is really up to you. Nobody can tell you your priorities. You set your own priorities and how you allocate your money will follow.

Here’s a suggestion. I like to set aside money in a savings account for unplanned emergency expenses. Based on my income and necessities, I decided on an amount and transfer money from my main account to this savings account with every pay cheque. Set up the transfer with online banking and it’s virtually no work at all.

If you want to save for a specific expenditure – vacation, home improvements, whatever – set up another account. Schedule an online transfer from every pay cheque so that you save up the money over time.

Everything is golden as long as you’re paying your bills and saving toward your goals. What can foul this up is unexpected reductions of income, significant unplanned expenses or pre-existing debt loads that are beyond repayment. That’s a discussion for another day.

Looking for more information on (not)budgeting? Check out what Doug Hoyes has to say.

Now is the time of year when people both reflect on the past and make plans for the future. If you aren’t where you want to be financially, you should be asking yourself what changes you need to make.

If you have an unmanageable mountain of debt, it’s important to understand your options for dealing with those debts. Maybe a consumer proposal or personal bankruptcy is the best way of moving toward your financial goals.

That might sound a little backwards since people tend to associate bankruptcy with failure. Here’s how I look at it: filing a consumer proposal or personal bankruptcy means that you have had difficulty in the past. Can you change the past? Neither can I. What’s more important is dealing with the past so that you can work toward your goals.

My role is to listen to you and provide information so that you can make the best choice for you and your family. If you want to talk about your circumstances, please feel free to call me at 310-PLAN or to send me an e-mail.

I am plesaed to say that I will be appearing on Talk Local, Rogers TV’s talk show about issues impacting residents of Waterloo Region.

The show is to air on Wednesday December 14 at 7 pm with the topic of advice for navigating the stress of holiday spending. Here’s my preview: MAKE A PLAN (AND STICK TO IT)

In case you hadn’t noticed, it is now the first week of December. That means that Christmas is just around the corner. It probably also means you find yourself filled with stress over holiday shopping. Say it a different way. Though the shopping can be stressful, it’s the holiday spending that causes the real problems.

Any number of people will offer you advice on how to navigate the pitfalls of holiday spending. Here’s what it comes down to for me: KNOW YOUR LIMIT.

I’m not trying to be doom and gloom by using the OLG’s slogan for responsible gaming. If you use your credit cards to make your holiday purchases and aren’t sure when or how you are going to pay it off, you are gambling on your future. The overused expression “I’ll make it work” does not count as a plan.

Here’s an interesting tool that I found to help you estimate the real cost of paying off your high interest credit cards.

Let’s say that you put $2,000 of purchases on your credit card this December. If the interest rate is 18% (and you don’t already have a balance on the card), your minimum monthly payment is $60. That doesn’t sound so bad. However, you’ll be making that payment for 13 years and 10 months, paying almost $3,800 in total.

How does that feel? It’s like you’re still paying for your purchases from before 1999. Put that in perspective. We’re talking about when all the talk was about the Y2K problem.

What if you already have a balance owing on your credit card and this year’s purchases take you up to $5,000? You’ll be making your minimum payment of $150 monthly for 18 years and 10 months, paying almost $9,800 in total.

What if you have two other credit cards that also have a balance of $5,000 each? That’s a monthly payments of $450 for 24 years and 11 months, paying almost $29,800 in total. I’ll stop now.

Clearly, my message is to make careful use of your credit cards. Temptation is everywhere. The 60 inch HD TV you’ve had your eye on is $500 off. You can buy a Blackberry Playbook for less than $200. There are even ads suggesting you buy a new car for that someone special in your life.

The shine from these toys will fade in short order. Without a plan, the stress of paying for them will be with you for much much longer.