What does the average bankrupt look like?

What does the average debtor look like? What is the difference between you and the average bankrupt… meet Joe Debtor.

For those of you who have not heard of Joe Debtor, this is ananalysis that is done every couple of years by one of my colleagues in Toronto  (Doug Hoyes of Hoyes Micholas). It is a statistical summary that provides a picture of the typical insolvent person and it is very interesting. This is a great way to help you determine how positive or negative your current financial picture is.

Who is the Average Joe Debtor
Who is The Average Joe Debtor

Some of their key findings were as follows:

The average age of someone filing for a bankruptcy or a consumer proposal was 43. Interestingly this is 2 years older than the last time they ran this study. This suggests there is greater risk for those approaching retirement (see The Aging Face of Personal Debt: Squeezed From All Sides). This makes logical sense as we see our baby boom generation age, and all can appreciate the pressure many will face as the move to having to live on a fixed income.

Another one of their findings is that 28% of those who had filed a bankruptcy or a consumer proposal listed marital breakdown as one of their major causes of financial problems.

Of those who filed for bankruptcy or a consumer proposal they found that 81% of them were working at the time of their filing. So you don’t need to be struggling with employment to have financial difficulties. This makes sense as we see the average Canadian’s debt to income ratio climb (the last figure was this rate sat at 165%, meaning that each individual in Canada, on average, owes $165 for every dollar they bring home.

The big finding, in my opinion, is that the average person who filed for bankruptcy or a consumer proposal in this study had a total unsecured debt of $61,096. Not only is this 2% higher than in previous years, but this is 3 times the national average.

There are a number of interesting trends that this study identifies, and trends that deserve a little more attention. But the most important thing to take from this report is that you are not alone. Financial troubles are not limited to the sick, the unemployed, or the homeless. We live in a society where the average insolvent person is no different than you or I.

If you would like to arrange a time to have your situation examined by a professional, you can call me at 780-435-5110, email me, or visit us online at gothandcompany.com.

2013 Bankruptcy Guidelines

2013 Suprintendent Surplus Guideline
2013 Suprintendent Surplus Guideline

Each year the Office of the Superintendent of Bankruptcy updates the Surplus Income Guidelines that are used to determine the cost and length of every bankruptcy filed in 2013.  I have just received an advanced copy of these numbers and thought you all might be interested to see them. For those of you who are unaware the Superintendent Surplus Income Guideline is a set of figures that the government sets and distributes to each trustee in Canada and they are important because they are used to calculate the cost and length of a bankruptcy.  These numbers are supposed to be adjusted each year to account for inflation and other changes to our cost of living, although whether or not the increase is sufficient when we are paying 1.11 per liter at the pump, it is definitely debatable. Regardless, these are your 2013 Surplus Income numbers:

Size     Allowable Net Income
1                      2006
2                      2497
3                      3070
4                      3728
5                      4228
6                      4768
7+                    5309

I know this may look like Greek too many of you, but let me explain.  When you file for bankruptcy your cost of bankruptcy is largely determined by the amount of money you make and the number of people you support.  Essentially the government sets a threshold and if your income falls below the allowable amount per your circumstances then you qualify for the minimum cost, which is set by the trustee’s office.  However, if your income is higher than the allowable amount, then the cost and length of your bankruptcy are dependent on a formula that is based on these figures.

Here is an example of how you would calculate your cost of bankruptcy if you were a single individual making $2,736.00 after taxes each month.  First you take his income and subtract out the amount allowable above ($2,736.00 – $2006.00 = $730.00).  The difference, which we calculated to be $730.00 is considered to be his surplus income.  The way the legislation works is that you don’t have to pay the full amount of the surplus income into the bankruptcy as 50% of it you get to keep.  But the other half becomes the payment ($730.00 / 2 = $365).  So in this example the anticipated payment would be $365.00 per month.  The other part of this calculation deals with the length of bankruptcy.  The legislation stipulates if your Surplus Income figure is $200 or greater, you bankruptcy will be extended.  If this is the first time a bankruptcy is filed it will be extended from 9 months to 21 months.  So in this example, if we assume one individual who has never filed bankruptcy before, who makes $2,736.00 after taxes each month, based on these new figures he would be paying $365.00 per month for a total of 21 months.

Admittedly, this is a complicated calculation.  The basic principle is the more you make the more a bankruptcy will cost, but to determine what you would expect you are best to contact me directly.  Feel free to either call me at 780-435-5110 or contact me through the web and I would be happy to help clarify things.

2012 Annual Bankruptcy Statistics released

Annual Bankruptcy Statistics Statistics
2012 Annual Bankruptcy Statistics

The 2012 Annual Bankruptcy Statistics were just released by the Office of the Superintendent of Bankruptcy. What they show is that both personal bankruptcies and proposals declined almost 4% across Canada. This is the third year in a row that we have seen a decline. However, as Sharon Hoyes pointed out (see Personal Bankruptcies in Canada Decline in 2012), this is despite a consistent increase in the level of consumer debt across Canada over the same period of time.
Another interesting trend is that we continue to see more Canadians are looking for ways to avoid a bankruptcy and as a result we see that the decrease in total bankruptcies of 8.3% in 2012. Which is contrasted with an increase number of consumer proposals filed of 4.2% in the same period (to read a good article about this see Record Number of Consumer Proposals Filed in Canada in 2012). While this was an all time high number of proposals filed across the country of 46,903 in certain areas in Toronto there were actually more proposals filed than bankruptcies.
While we haven’t quite seen this trend of more proposals than bankruptcies here in Alberta, we do see a reduced number of bankruptcies and increased consumer proposals) as compared to 2011. Here in Edmonton we saw the number of consumer bankruptcies filed dropped by 24% and the number of consumer proposals increased by 4.3%. Across Alberta we see the difference is even greater as the total bankruptcies filed dropped 18.1% and the total number of proposals filed increased 14.3%.
For any of you who are not aware, a consumer proposal is one of the most common alternatives to bankruptcy, and one that clearly is becoming a more common option for those in financial distress. One of the major reasons for it’s increase in popularity is that it contains many of the benefits of a bankruptcy (i.e. court protection, the ability to stop a garnishee and court action, eliminate all interest etc.), avoids many of the disadvantages of a bankruptcy (i.e. monthly reporting, long term stigma of filing a bankruptcy, loss of assets etc.) and at the same time will allow you to pay a portion of your outstanding debt over time in a fashion that actually fits into your budget. It is an excellent alternative to the filing of bankruptcy and works very well for people who can’t afford to pay their debts in full but still have the ability to pay a portion of their debt.
Regardless of the statistics, the increasing amount of consumer debt, or the health of the economy. If you are struggling with debt you clearly are not alone and it is important that you know there are ways to deal with this debt. If you are not sure what way to turn I would recommend you talk to me or another Bankruptcy Trustee in your area. You will be provided a free consultation that is designed to help you to assess where your finances are at and what options you can qualify for. There is no cost or obligation for doing so and we are happy to help.

If I co-signed a loan for a previous partner is there any way that I can have my name removed from that document?

This is alwasy a difficult issue, but ultimately you have very few options to try and have him removed forom this document.  Ultimately it is up to the lender you are dealing with, in order to get your your name removed they are going to have to agree with it.  In most instances this will require your ex to  qualify for the loan based on their own income and credit history.  Unfortuneatly this is often one of the reasons you likely want your name removed and it may prove to be a challenge.

Typically lenders are very cautious when it comes to removing anyone from an account as it leaves them in a position where they are exposed to greater risk (i.e. if you can’t make payments on a joint debt there are two people they can chase for payments, but if they let your ex off, then everything will be based on you).  Obviously the lender is not a fan of increased risk as they want as many avenues open to collection should their be a default.  So don’t be surprised if they aren’t very cooperative.

Regardless, I suggest you contact the lender and ask them to remove your name. Depending on the current credit-worthiness of the other person that signed for the loan (your ex) they may or may not grant your request. Unfortunately, the fact that you are no longer partners does not relieve you from the obligation to repay the debt and there really isn’t any way to change this.

Credit Counselling: Do you know who is giving you that advice?

I just read an interesting story in the Toronto star that shed some light on one of the major players in the credit counselling industry. If you haven’t read it and you are considering enlisting the advice of a credit counselling service you should read Consolidated Credit Counseling Services of Canada operates without certified counsellors.

Now here is my first caveat, there are many very good, very qualified credit counselors across the country. For example, Money Mentors in Alberta. Over the years I have practiced I have found that the counselors employed by Money Mentors have consistently provided solid advice and I don’t hesitate to refer those people who are in a position where they can afford to pay their debts in full. However, in recent years we have seen a large increase in the number of organizations offering credit counselling services and unfortunately there seems to be a number of those who are not as qualified as one might assume.

For reference, I have never had any direct experience with Consolidated Credit Counselling Services of Canada (CCCS), as they don’t have much of a presence here in Alberta. But I was very surprised to read that CCCS, an organization that is often quoted by the national media when reporting issues related to consumer finance, apparently doesn’t employ a single certified counselor. This is no small organization; in 2011 they generated total revenues of 8.4 million dollars in 2011 (according to documents filed with Canada Revenue Agency). Even more interesting, they are reported to be a member of the Ontario Association of Credit Counselling Services (OACCS), an organization that requires members to employ certified counselors. I am not sure what I am missing, but as a consumer looking for qualified advice I would definitely be concerned.
The more I read on this topic, and there are some very interesting articles out there (see Doug Hoyes’s Credit Counsellors vs. Bankruptcy Trustees: What’s the Difference? and Laurie Campell’s Blog Post The fat is in the fire for debt settlement services.) the more I realize how careful one must be when looking for advice on how to manage your debts. Clearly there are a lot of things going on in the world of Consumer Finance and as a consumer it has never been more important to be vigilant. How can we be vigilant… do your homework.
If you are struggling to pay your debts you need to meet with a professional. My first recommendation is that you are safest to meet with a licensed Trustee in Bankruptcy. Now I know the moment you hear the word Bankruptcy it sounds scary, but bankruptcy is only one component of the work a Trustee is involved in. But what is important about a Trustee in Bankruptcy is not the word bankruptcy, but the fact that a Trustee is licensed by the Federal Government and in order to be licensed they must have completed detailed an involved training process and are investigated by RCMP before they are licensed. Once licensed they have a legal obligation to provide consumers with a full explanation of all the options available to deal with their financial woes, and they are held accountable to that end (see the Office of the Superintendent of Bankruptcy’s Professional Conduct Decisions). All this is done to ensure that consumers have a highly trained professional they can be relied on to provide the informed advice to those in need. A

This isn’t to say that there aren’t good credit counselors out there, and that credit counselling doesn’t have value, but given the problems that exist and the lack of clarity of who is reputable and who isn’t, I would recommend you start with a Trustee (and for reference I am a local trustee who serves the Edmonton area and a big component of reputable credit counselling, should you need to contact a credit counselor in Alberta give me a call at 780-435-5110 and I would be happy to point you in the right direction).

However, I do think that regardless where you turn for advice you need to ensure you are meeting with a reputable person or organization and at a minimum you should ask the ask the following questions:

 1. Are they Qualified
This is two-fold, you want to ensure that whoever you are dealing with is both educated and accredited. So ask the question. If they tell you they have a designation, ask which one. Remember, you are more likely to be able to trust the advice given by someone who has invested in their education and training.

2. Are they reputable?
This is something that is often more difficult to determine. So do a search in google, see if there is any bad press about the organization your looking at. Contact your local Better Business Bureau to see if there are any registered complaints. Or potentially call a local trustee, most trustee’s keep a list of those in the credit counselling industry who they would trust.

3. Are they local?
In Alberta this is a big one. If the company you are looking at doesn’t have an office in Alberta there is likely a reason for that. One of the biggest benefits of living in Alberta is that there is legislation that limits the way a credit counselling firm can operate and as a result we have a small portion of the problems that are being experienced in other parts of the country. In fact, many provinces are considering implementing similar legislation (see Ontario Liberals to crack down on debt settlement companies.

4. Are they upfront about their fees?
It is essential that you understand what services you will be provided and what you will be paid and as a consumer you deserve to be given a full explanation of any fees that will be charged. This includes how much will be charged in total, when it will be paid and when those fees will be incurred. If you can’t get a satisfactory explanation about the fees you are likely dealing with an organization with a questionable business model and I would recommend you go elsewhere.

If your struggling with debt, don’t be turned off by the recent headlines about unscrupulous counsellors. There are many qualified, well trained professionals out there, but as a consumer we simply have to make sure we exercise caution. So make sure you ask the right questions, do your homework and in doing so you will find one of the many people out there who are qualified, reputable and capable.

Question: Does declaring bankrupcy affect receiving the child tax credit from the Federal Government?

The simple answer is no, you will continue to receive your Child Tax Benefit during bankruptcy.  But unfortunately things aren’t always that simple.

So now for my Caveat, your Child Tax Benefit potentially could be indirectly affected, or maybe it is better to say could that your Child Tax Benefit could indirectly impact the cost of your bankruptcy.  The reason for this is that the cost of bankruptcy is based on your level of income (The federal governement sends a guidleline to every trustee in Canada that is used to determine your cost).  Essentially this guideline sets a threshold (and in 2012 for one person in the household that threshold is $1980.00 after tax).  If your income exceeds this threshold then you would have to pay 50% of the difference into your trustee.   hope this is of some assistance to you. If you have a more specific question you may want to contact your trustee or e-mail me directly.  The Child Tax Benefit is considered part of your income and if all your income is above the threshold that is set then there will be a corresponding increase to the cost of your bankruptcy.

I know this sounds confusing, and I would be happy to go through this with you in more detail.  The best way to do this is to contact me at 780-435-5110, I will get you to summarize your total net income in a typical month and then I will be able to calculate the anticipated payment each month.

So no you don’t directly lose your Child Tax Benefit, but it may impact the total cost of your bankruptcy.