Consumer Insolvency Information Session May 29, 2012
BDO – WHO ARE WE? BDO WHO ARE WE? • • We are Chartered Insolvency and Restructuring We are Chartered Insolvency and Restructuring • Professionals (CIRP) and Trustees in Bankruptcy • We are licensed under the Bankruptcy and Insolvency Act p y y (BIA) – a federal statute • We are monitored by the Superintendent of Bankruptcy • • We are Officers of the Court We are Officers of the Court • Most of us are accountants by training
BDO – WHAT DO WE DO? BDO WHAT DO WE DO? • • We solve problems We solve problems • We are honest professionals that try to find a fair solution • We help individuals deal with their debt allowing them to concentrate on their financial rehabilitation and future concentrate on their financial rehabilitation and future • We have a wide range of experience and training that encompasses accounting, law, personal financial planning and counselling • Where we help: Where we help: - Creditors pressuring for payment, threaten to sue or repossess a car, sell home under Power of Sale, or hire a collection agency to recover their debt - Utility companies cut off service because your bills have gone unpaid - In these cases we encourage you to seek advice early In these cases we encourage you to seek advice early - Paying only interest and service charges on a monthly basis and no reduction of debt
Personal Bankruptcy - How can we help you and Personal Bankruptcy How can we help you and your clients? • Your clients need to save money Your clients need to save money. • Why can’t they save? Payments necessary for unsecured debt, over leveraged property, etc. , g p p y, • If your clients were able to reduce their monthly payments for above, could they then start to save? • Personal Restructuring Plans run for a maximum period of 5 years, after which the debt is extinguished, and clients can save even more clients can save even more • If you help them, do you build a client for a long term relationship?
CONSUMER INSOLVENCY CONSUMER INSOLVENCY We are here to help people in need We are here to help people in need
Personal Bankruptcy - What is Happening Personal Bankruptcy What is Happening • Canadian debt levels keep rising in 2011 the ratio of Canadian debt levels keep rising in 2011 the ratio of credit market debt to personal disposable income was 150.8% which includes mortgages and consumer loans • This is up from the previous record of 148.7% • The expansion of personal credit surpassed growth in disposable income di bl i • Overall household net worth dropped in 2011 as the increase in residential real estate was swamped by a fall increase in residential real estate was swamped by a fall in equities, mutual funds and pensions • An RBC survey has suggested that personal indebtedness i t is starting to registered on Canadians ti t i t d C di
Personal Bankruptcy - What is Happening Personal Bankruptcy What is Happening • The survey also reported that 93% y p of the respondents p believed paying down debt was more critical that saving money for the future • The an iet le el of pa ing do The anxiety level of paying down debt was highest n debt as highest amongst 18 to 34 year olds and lowest with those over 55 • Interesting enough those over 55 are the fastest growing segment of the population that are filing proposals or bankruptcy bankruptcy • The survey also stated that 39% of respondents are delaying vacations and major purchases because of the strain of financial burdens
Personal Bankruptcy – Changes made to Credit Personal Bankruptcy Changes made to Credit Levels • The amount eligible to be leveraged against ones The amount eligible to be leveraged against ones personal residence has also been capped and done away is the mortgages that lent 110% or move against a personal residence • Inflation pressure is starting and both Mark Carney, Bank of Canada Governor and Jim Flaherty Finance Minister of Canada Governor, and Jim Flaherty, Finance Minister have issued several warnings and concerns over the last 18 months
Does this Really Happen ? Does this Really Happen ?
Personal Bankruptcy – February 29, 2012 Stats Personal Bankruptcy February 29, 2012 Stats • Only 5 956 010 Canadians contributed to an RRSP Only 5,956,010 Canadians contributed to an RRSP • 26% of eligible tax filers contributed to an RRSP in 2010 • • Total contributed in 2010 $33 9 billion or $717 billion Total contributed in 2010 $33.9 billion or $717 billion that is eligible (amounts to only 5% ) • Mean RRSP contribution 2010 $2,790 • Personal savings as a percentage of personal income (after-tax) income has dropped from 20% in 1982 to 5% in 2009 (lowest was 2 5% in 2009 (lowest was 2.5% in 2005) in 2005) • More than 12 million Canadians do not participate in a defined-benefit plan
Personal Bankruptcy - Exempt property • All RRSP or RIF other than contributions contributed in the last 12 months • Most life insurance policies are exempt except those p p p where the debtor is the beneficiary or their estate • As a result, these funds will not be available for distribution to creditors • Provision of protection is for all registered retirement savings plans (RRSP's, RRIF's and DPSP's • Contributions made in the 12 months prior to the date of p bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate for RRSPs in provinces without RRSP exemption laws (BC, Alberta, Ontario, NB, and NS) and NS)
Personal Bankruptcy - Exempt property Personal Bankruptcy Exempt property • • There is no limit on the amount of RRSPs that can be There is no limit on the amount of RRSPs that can be protected. • There is no need to set up the RRSPs in a locked in plan to make them eligible for exemption to make them eligible for exemption. • RESP’s, are not protected for the non-subsidized portion which will be surrendered to the trustee to the extent of the debtors interest the debtors interest
Personal Bankruptcy – High Income Tax Debt Personal Bankruptcy High Income Tax Debt • Bankrupt individuals with more than $200 000 in Bankrupt individuals with more than $200 000 in personal income tax debts representing 75 percent or more of their total unsecured liabilities are no longer eligible for an automatic discharge from their bankruptcy • These individuals will have to seek a Court order to be discharged of their debts They will have to convince the discharged of their debts. They will have to convince the Court that the relief they are seeking is justified on the basis of their efforts to repay their debts, their financial situation when the debt was incurred and their future i i h h d b i d d h i f financial prospects. Continued…
Personal Bankruptcy – High Income Tax Debt Personal Bankruptcy High Income Tax Debt • The Court will be able to fix conditions on the discharge The Court will be able to fix conditions on the discharge. Specifically, the Court may refuse to discharge these individuals from bankruptcy, suspend their discharge for a period of time, or require the bankrupt to comply with any requirement as the Court may direct. • • This is meant to be an anti-abuse measure targeting high- This is meant to be an anti-abuse measure targeting high- income individuals who may strategically use bankruptcy to avoid paying large income tax debts.
Personal Bankruptcy - Mandatory Surplus Income Personal Bankruptcy Mandatory Surplus Income Payments • Bankrupts are required to make surplus income Bankrupts are required to make surplus income payments to the estate in accordance with directives issued by the Superintendent of Bankruptcy • First-time bankrupts with surplus income will be required to make payments for twenty-one months • S S econd-time bankrupts with surplus income will be d ti b k t ith l i ill b required to make payments for 36 months Continued…
Personal Bankruptcy - Mandatory Surplus Income Personal Bankruptcy Mandatory Surplus Income Payments • Third-time or more bankrupts generally have to appear in Third time or more bankrupts generally have to appear in court after 12 months to determine the terms of their release from bankruptcy (discharge) • These changes are intended to require bankrupts who have the financial ability to make reasonable contributions to their creditors to do so prior to contributions to their creditors to do so prior to obtaining their discharge
Personal Bankruptcy – Second Time Bankrupts Personal Bankruptcy Second Time Bankrupts • Second time bankrupts will be eligible for an automatic Second-time bankrupts will be eligible for an automatic discharge after 24 months from the date of bankruptcy. • If second time bankrupts have surplus the discharge p p g period is extended to 36 months • The above 2 provisions have resulted in an increase in th the number of proposals filed b f l fil d • This measure will only apply to those who have completed mandatory counseling and who have made completed mandatory counseling and who have made payments of their surplus income to the creditors
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