In my last article I talked about how to prevent or stop a garnishee issued by Banks, Credit Card companies and Collection Agencies. In this article I will talk about how to prevent or have released a garnishee from the Federal Government (Canada Revenue Agency, or CRA). This type of garnishee is called a Requirement To Pay.

As you may have guessed, the government has different powers than a bank or credit card company. Because the government is the creditor and the courts are the government, the government does not need to ask itself permission first to garnishee. Therefore, the government offices responsible for collecting past due accounts can issue Requirements To Pay directly from their offices. Therefore to stop their garnishees you have to react quicker; you will not get a “heads up” as you would when a private sector creditor gives you notice that they are about to sue you.

As with the private sector, the faster you act, the more time you have available to arrange payment. So people say to me, “You used to work for the Canada Revenue Agency, when should I call them to discuss payment? After someone from the local tax office calls?”

“No,” I tell them. “April 30th ,when the payment was due.” At this point they look astonished. I explain that this gives them the most time to pay the tax arrears. Then I tell them that if they cannot pay their overdue taxes in eight months, then one day they will likely be filing a consumer proposal or a bankruptcy. Then they look stunned and they will either ask why, (or they tell me that I am crazy).

Everyone will stop working one day, and when that happens, your income will be significantly less than the year before. If you are not paying your Income Taxes in the year you make the money, you will have an Income tax debt to pay without the income necessary to pay it.

Should you decide to wait until the Canada Revenue Agency calls, be prepared to pay off your taxes in a relatively short time period or face a garnishee. Deal with it and work out a mutually satisfactory arrangement. That means one you can afford and that pays the income taxes within the time frames allowable by the Canada Revenue Agency.

Should you wait until the Requirement To Pay was sent, call the person who issued it (their name and phone number are on the requirement To Pay in the top right corner) and try to work out a payment arrangement. If they will not make a payment arrangement, there are only a couple of reasons why.

First, you have been negligent in filing your returns and have become a problem for the government.

Second, what you are offering to pay will never get you out of the problem, i.e., you will be paying this debt off over too long a period of time. They are not allowed to give you advice, so they will either wait for you to bring up bankruptcy or broadly hint at the solution.

Your ability to pay your income tax is not what is left over after everyone else is taken care of, but prior to your normal living. So if your basic necessities (that does not include credit card payments) do not allow you to pay your income taxes, you have to generate more income from your business, or look for another way to make an income.

The Canada Revenue Agency is the only creditor who cannot choose who they extend credit to, therefore, they will take a firmer stance with you if you are a repeat bankrupt.

As with a bank or credit card company, the only way to have a garnishee stopped, if you cannot negotiate a payment arrangement, is to file a consumer proposal, or to file an file bankruptcy. The Canada Revenue Agency will not participate in a debt management program so to pursue that avenue is a waste of time and money.

A Licensed Trustee is the only one who can file either a Consumer Proposal or an Assignment in Bankruptcy. If the Canada Revenue Agency has control of your proposal, they have different standards for approving Consumer Proposals than the private sector.

We can explain this to you, as well as what would be your best alternative based on your specific situation, so please feel free to contact us at 310-PLAN or e-mail us and let us help you with your Canada Revenue Agency garnishee problem.

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Over the years one of the most common questions I am asked is: How Can I Stop a Wage Garnishment?

A creditor (the company you owe money to)  issues a garnishee because they have not been paid, or they have been ignored, or you cannot arrange a satisfactory repayment arrangement with them. For banks and credit card companies issuing a garnishee is a last step because they are required to go to court, get a judgment and have the garnishee issued. The Ontario Wages Act usually keeps the rate of the garnishment to twenty per cent.

The best way to stop a bank or collection agency from garnisheeing your you wages is to be proactive. That means talking to the creditor prior to them getting to the point where they have no other choice but to put a wage garnishment into play. Often creditors take action because they do not know about what’s going on in your life, except the fact that they are not being paid. They do not know about the layoff, or the sickness or the other circumstances that make paying the creditor impossible. If your circumstances change, contact your creditors and tell them.  Don’t wait for them to call you after the account has become delinquent. The sooner you call, the more time you will have to work with your creditors.

How can we help?

If your creditors have a  judgment against you and are going to garnishee your wages, there are only two ways to stop the garnishment: a consumer proposal or by filing personal bankruptcy.

To find out more, call us in Scarborough (or anywhere in Ontario) at 310-PLAN, or e-mail us today to arrange for your no charge intitial consultation.

In this article I have dealt with banks, credit card companies and collection agencies; next week I will talk about how to deal with the Government, a completely different kettle of fish.

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I was reading on the internet about the Canada Revenue Agency (“CRA”) and the registration of liens on real estate and how the CRA secures your debt with them. The author was saying that they could register a Writ of Fieri Facias, or a Writ of Fi Fa, against real estate to secure the claim. This is not true. A Writ of Fi Fa is no longer valid when someone files an assignment in bankruptcy or a consumer proposal.

However, there are three ways that the CRA can secure your liability to them. The first, and only one you would be aware of when it happens, is if you voluntarily pledge security to the crown. The second way, and the one the other writer was probably referring to, is if the CRA were to register a certificate on title to your real estate. They do this with a document general and it can be done without you knowing. This certificate supercedes any writ filed and only stands behind any existing registered mortgages and unpaid property taxes. They are secured to the lesser of the amount of your debt or the amount of the equity in the real estate. Finally, the CRA can register the same certificate under the Personal Property Security Act. Their registration places them ahead of any other registrations on any assets that you own. So if you have pledged a car for security, while a Writ of Fi Fa would not place CRA ahead of the lender, the certificate would give the CRA first priority. The certificate also has a life of twenty years before it has to be renewed.

So what does it mean? If CRA has registered a certificate against you, I would strongly suggest that you meet with us to see if a consumer proposal or a bankruptcy might be the solution to your problem. While you would still have to make arrangements with CRA to repay the secured portion of their debt, the interest clock would stop running. And if they are threatening to register against you but have not, don’t delay, by filing a consumer proposal or a bankruptcy CRA will be prevented from taking legal action including obtaining a certificate.

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The numbers are out; the Office of the Superintendent of Bankruptcy has just announced that the number of individuals who had to claim personal bankruptcy in Scarborough has gone down when compared to last year. 

From January to June of this year, 723 people living in Scarborough filed personal bankruptcy.  There were also 800 people who filed consumer proposals, for a total of 1,523 individuals who filed for protection in the first half of this calendar year.  If this trend remains the same, we project that 3,046 residents of Scarborough will either file a bankruptcy or proposal this year.  So how do these numbers compare to last year? 

In 2009, 1,887 people went bankrupt in Scarborough, and 1,509 proposals were filed, for a total of 3,396 filings.  That would indicate that we may see a drop of 10% in the number of insolvencies filed this year in Scarborough.  This number compares to a 13% provincial wide projected decrease in filings. 

For the economy in general, a reduction in the personal bankruptcy rate is good news.  It means more people are working and are able to pay their debts. 

What can we expect for the remainder of 2010? 

It is my belief that bankruptcies will continue to decline in Scarborough for at least the next few months.  There are no signs of interest rates rising, or unemployment numbers changing.  If there is a dramatic change, the bankruptcy numbers could go up.  Also, if consumer spending is negatively impacted by the new HST, we may also see higher bankruptcy rates. 

One more important point to note:  the good news is that more and more people in Scarborough are choosing to file a consumer proposal as an alternative to bankruptcy.  In 2009, 44% of filings in Scarborough were proposals (the rest filed bankruptcy).  This year, that percentage has increased to 53%.  That’s a big jump.  And it’s a good sign, as more people are choosing to negotiate a settlement with their creditors than file for bankruptcy.

If you would like some more information about filing a consumer proposal in Scarborough as an alternative to claiming bankruptcy, call me at 310-PLAN or email me today to arrange a no charge initial consultation.

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Question: I am currently separated and our divorce should go through any time. We still own a house together. He lives in it with our sons and I live in an apartment. There is no equity in the house since there is a large mortgage and with the drop in house prices. We recently had a real estate agent tell us the value.

I am considering bankruptcy. I have old debts that I just can’t seem to keep on top of.

Will we lose the house?

I also absolutely need a car to get to my job due to the location. I have a leased car. Will bankruptcy effect my lease? I have not missed a payment on my car.

Thank you

Answer: If you file bankruptcy in Scarborough, or in fact if you file personal bankruptcy in Canada, you are permitted to keep your leased car, provided you continue to make your lease payments.

You can also keep your house, provided you continue to make the payments on your mortgage.

A bankruptcy trustee can provide you with more information.

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We have all seen gas prices reach record levels over the past few weeks in the GTA. What does this mean for the number of bankruptcies that will be filed? The answer is they are going to go up. Transportation costs are a basic need, just like housing and food; there is no avoiding it. When the price of gas goes up but our wages remain the same, there is no choice; we simply have less money to spend on other things. If people cannot adjust their monthly budgets, they will find themselves in financial trouble. And what makes the problem worse is that most people pay by swiping their card at the pump because it is convenient. It is not until they get their credit card bill at the end of the month that they see how much they are really spending.

Many people made the choice in the past to move to the suburbs where housing was more affordable and they could commute to work. Now, many of these people are finding out that the costs savings have been wiped out by the higher transportation costs. It may even cost them more to commute than what they are saving by living in a less expensive home. If they looked at the numbers now, it may make more sense to pay for the higher cost of real estate in the GTA, but be able to take public transit to work, or better yet, cycle or walk.

And the higher costs of transportation affect us in a lot of other ways. Pretty much everything you buy at the supermarket these days made its way there by a truck. The higher transportation costs are being passed on the end user.
You may think that these transportation costs issues are putting you in a hopeless situation. What you need to do is keep a close eye on your personal budget to avoid falling into debt. You may have to make some sacrifices, but you have to be realistic. If you are finding yourself in financial trouble, you should be calling (or e-mailing) us today at 310-PLAN, no area code required, and arrange for a personal meeting so that I can review your finances and outline your options.

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New Bankruptcy Rules in Effect Starting July 7, 2008

Two changes became law this week:

Student loans now discharged after 7 years

If you have been out of school for 7 years and still can’t manage your student loans, they can now be included in a bankruptcy or a proposal. The old rule required you to wait 10 years.

Your RRSP is now protected

RRSPs are now exempt from seizure; this means you can keep them (except for any monies you invested in the last 12 months; this prevents people from abusing the system). Before this change, most RRSPs would have been seized by the trustee in a bankruptcy.

Questions?

These rule changes are significant. If you would like more information on how they impact you, contact one of our offices to schedule a consultation.

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A quirk in the law was corrected today. Now, if you file for bankruptcy and your car is worth less that $5,650, you may keep it. (Under the old rules, you had to give it to your trustee.) If your car is worth more than $5,650 and you want to keep it, you will have to pay your trustee the difference.

This change will allow people who have to file for bankruptcy a better chance of starting over without any additional pressures being put on them.

If you would like some more information about this topic or have any other bankruptcy related questions, e-mail or call us at 310-PLAN.

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I usually have a different view of my first meeting with people facing financial difficulty than what they expect; they want to know how to file for bankruptcy; I want to explore their options to see if they can avoid filing for bankruptcy.

So, what are the options we discuss?

Budgeting – maybe this is all the person really needs help with
Debt Consolidation – this could be their solution
Debt Management Plan – these are administered by credit counsellors
Consumer Proposal – “Let’s make a Deal”
Bankruptcy – the final solution

No two people have the same fact situation; my job is to meet with you and work out a plan that’s right for you. If you would like to take that step, e-mail or call me at 310-PLAN.

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This is the spot! You can read about your options: bankruptcy, or maybe a consumer proposal. If you would prefer to watch and listen to what we can help you with, you can view one of our videos. But more importantly, you can meet with a trustee in bankruptcy personally. We will assess your situation, outline your options and recommend a plan that is right for you.
E-mail or call us at 310-PLAN.

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