There is a common perception that there’s really no difference between a consumer proposal and filing personal bankruptcy, and in some respects that’s true.  Both consumer proposals and bankruptcy:

• stop wage garnishments;
• stop collection calls;
• deal with your debts, and
• give you a fresh start.

On your credit report perfect credit is an “R1″, a consumer proposal is an “R7″, and a personal bankruptcy is an “R9″, so from a credit report point of view a consumer proposal is a bit better, but they aren’t significantly different.  So why would someone choose to file a consumer proposal instead of a bankruptcy?

The number one reason for filing a consumer proposal is certainty.  Once your proposal is accepted by your creditors, you know exactly what you are required to pay.  You keep your assets, including your tax refund, so you know exactly what deal you have made to deal with your debts.

With a bankruptcy the amount you pay can change with your income.  If your surplus income increases, you pay more, and your bankruptcy could be extended for a year.  What you thought would be a simple 9 month bankruptcy with small payments could become a 21 month bankruptcy with higher payments if your income increases.If you have relatively low income and you don’t expect it to increase, and if you don’t own any assets or expect a tax refund, bankruptcy may still be a viable option.  However, if there’s a chance your income may increase, or you may be getting a tax refund, a consumer proposal may be worth considering.

More importantly, if you want to know exactly what you will be required to pay each month a consumer proposal is often the best solution.For more information, here’s my video on what bankruptcy is, recorded live at 570News:

Here’s another live segment where Ted Michalos and I discuss the differences between a consumer proposal and bankruptcy:

So yes, there is a difference between a consumer proposal and a bankruptcy: certainty.  If you want to know what you will be paying each month, a consumer proposal may be the correct option for you.

Last week I met with three people in a row in my Cambridge bankruptcy and consumer proposal office, and they all asked me the same question: what will happen to my co-signer if I go bankrupt?  My answer?

It depends.

First, it depends on whether or not the loan they co-signed for continues to get paid.  For example, if your father co-signed your mortgage for you, and you are keeping your house and continuing to pay your mortgage, there generally won’t be any issues for your co-signer if you file a consumer proposal or bankruptcy.

However, if your friend or family member co-signed your line of credit, or if they had a joint credit card with you, then they have a problem.

When you go bankrupt the bank can’t pursue you for the debt, but because your co-signer didn’t go bankrupt, they can go after your co-signer.

When someone tells me they had someone co-sign on one of their loans, my advice is always the same: talk to them, now.

If you decide to go bankrupt they will find out anyway (when the bank calls asking why the loan wasn’t paid), so you are better off giving them a “heads up” now, so they can prepare.  If they have good credit, they may simply ask the bank to switch the loan to their name, and they will continue paying it (which won’t harm their credit report).  If they have bad credit, they may need to consider a proposal or bankruptcy as well.

Either way, be proactive so that you can have a plan in place before you decide to go bankrupt.

In my last post I discussed how Massive Debt Level Leads Joe Debtor to File Bankruptcy in Cambridge, and I made the point that high debt levels lead to bankruptcy.   But how many people in actually file bankruptcy in Cambridge?  The Office of the Superintendent of Bankruptcy has released the numbers, and here they are:

In 2010, 425 people went bankrupt in Cambridge, and 274 proposals were filed, for a total of 703.  That’s a decline from the 634 personal bankruptcies and 283 consumer proposals that were filed in Cambridge in 2009.  (You can see the numbers for previous years on our Cambridge Bankruptcy Statistics page).

This means that both bankruptcies and proposals decreased in 2010, and overall the personal insolvency rate decreased by 23% in Cambridge in 2010. Here’s the break-down by postal code for 2010:

The Cambridge economy improved in 2010, so fewer people declared bankruptcy.  However, there were still over 700 people just like you that had financial problems caused by job loss, marriage break-up, or other problems, and they filed bankruptcy or a consumer proposal to give them a fresh start.

I look forward to meeting with you to work out a plan to deal with your debts, so call me at (519) 622-3773 or e-mail me to arrange a free initial consultation. There is help available, so give me a call, and let’s get started.

What does the average person who files bankruptcy in Cambridge look like? We all know the stereotypes: A bankrupt person is unemployed and “down and out”, right?

Wrong.

Today we are releasing Joe Debtor, The Face of Bankruptcy, a major study exploring the profile of the typical person who files bankruptcy in Ontario. We call this person “Joe Debtor”, and what did we find he looks like?

Joe Debtor looks like you.

That’s right, Joe Debtor is very similar to the average Canadian. He has a job, and may also own a home. He is very similar to the average person. The only difference between Joe Debtor and the average Canadian is that Joe Debtor has a massive amount of debt.

The average Canadian has about $16,400 worth of consumer credit, which is all debt except for mortgages. “Joe Debtor” has almost $60,000 in consumer credit. With more than three and a half times as much debt, it’s no wonder Joe Debtor gets into financial trouble.

Since co- founding Hoyes, Michalos & Associates Inc. in 1999, I’ve met with hundreds of people in my Cambridge Ontario consumer proposal and bankruptcy office, so I understand what it’s like to live in Cambridge and have debt. How are residents of Cambridge different than the average person who files a consumer proposal or bankruptcy in Ontario?

Cambridge residents are very similar, but they have a slightly lower level of debt.

“Joe Debtor” owes just under $60,000 in consumer credit; the average Cambridge debtor owes $49,500 (not including mortgages).

“Joe Debtor” owes $24,390 in credit cards (as you can see in the infographic); the average Cambridge resident owes $19,368 on credit cards, slightly lower than the provincial average.

For debtors with a house mortgage, the Ontario average is $210,000; in Cambridge the average mortgage balance when filing is $205,200, which is very close to the Ontario average.

So what did we learn from our study? Debt is very dangerous. To find out if you may have a debt problem, ask yourself these questions:

1 Do I have debts, not including my mortgage, of more than $16,000? If yes, you have more debt than the average Canadian. If your debt is close to, or higher than $50,000, you owe more than the average resident of Cambridge that filed a consumer proposal or bankruptcy with me in the last two years. That’s a warning sign.

2 Do I have a pile of unopened mail sitting on my desk or kitchen table right now? Is it un-opened because I know it’s bills I can’t pay? If yes, you probably have a debt problem.

3 Do I take a cash advance from one credit card to make the minimum payment on another credit card? If yes, you are not reducing your debt, and you probably have a debt problem. The average insolvent resident of Cambridge owes almost $20,000 on credit cards. If you owe near that amount, and you are having trouble making your payments, you have a debt problem.

So what’s the solution to a debt problem?

For many people in Cambridge the answer is a consumer proposal. You make one affordable monthly payment, and your unsecured debts are eliminated.

To find out more, call my Cambridge office at (519) 622-3773, or e-mail me, and we can chat on the phone, or arrange a time to meet, and find a solution to your debt problems. The phone call is free, and the initial consultation is free, so call today, and let’s get started.

What does it cost to file bankruptcy in Cambridge?” That’s a very common question, so I’ve written a detailed explanation in my page on the cost of bankruptcy in Cambridge, Ontario.  Here’s a quick summary: There are three “costs” to file bankruptcy:

• a base contribution;
• surplus income
• asset repurchases.

1 In all bankruptcies a base contribution to cover the administrative costs of the bankruptcy is required. This will typically be $190 per month for a minimum of nine months, but it could be a higher number if your case is complex.

2 Next, you are required to make surplus income payments based on your income each month.  This calculation is somewhat complicated, so I suggest you call the office at 519-622-3773 and book a meeting with me or one of my team, and we can do the specific calculation that will apply in your case. If you want to try the calculation on your own, you can read this description of surplus income, and then you can use this surplus income worksheet to do the calculations. (You will find that it’s easier to let us do the calculations for you).

3 Finally, if you own any assets that are not exempt and you want to keep them in a bankruptcy, you will be required to make asset repurchase payments during your bankruptcy.  For a detailed list of what you get to keep if you go bankrupt you can refer to this list of bankruptcy exemptions in Ontario. Again, this is somewhat complicated, so a personal consultation with us is the simplest way to determine if any asset repurchases will be required.

In many cases when I explain the costs of a bankruptcy the decision is often made to avoid bankruptcy by filing a consumer proposal.

To find out the costs of a bankruptcy or a consumer proposal for you, please call my office in Cambridge at (519) 622-3773 to discuss your situation over the phone , or e-mail me your questions or to set up a no-charge initial consultation.

On Friday November 12, 2010 I interviewed Mark Silverthorn, a former collection agency lawyer. Here’s how it happened.

I first became aware of Mark Silverthorn about ten years ago, when he was a collection agency lawyer. Up until a few years ago people would bring me collection letters from Mark Silverthorn, lawyer. I saw so many of these letters that I wasn’t even sure if Mark Silverthorn actually existed. Then, about three years ago, I got a call from Mark Silverthorn, telling me he had left the collection agency business, and was now working exclusively for consumers with debt.

I previously reported on his visit to Cambridge in my post on Mark Silverthorn Talks About Collection Agents in Cambridge back in May of this year.

Last Wednesday I got a phone call from Mr. Silverthorn; he wanted my help exposing what he believes is an illegal collection action trick. As readers of this blog know, I am a bankruptcy trustee, not a television reporter; it’s not my job to try to generate publicity for lawyers. However, Mr. Silverthorn did make a compelling case, so here’s what I told him: meet me at my Cambridge bankruptcy office on Friday afternoon. I arranged to have our videographer bring his camera, so we stood in Queen’s Square, and I asked questions. (November 12 was I assume the last nice warm day of the year, so we filmed the short video outside).

I wanted answers to two questions: First, what’s the “illegal collection agency tactic?”

Mr. Silverthorn explained that collection agency lawyers in Ontario are apparently not permitted to send out Draft Statements of Claim, which are documents that make it look like you are being sued. I’ve seen many of these documents, and there’s no doubt they scare people, which is exactly why collection agencies use them.

My second question was more to the point; I wanted to know why a former collection agency lawyer was so upset about a tactic that he himself used when he was a collection agency lawyer. My question was this:

Isn’t this kind of the “pot calling the kettle black”? You just said that for 12 years you were a collection agency lawyer, and five to ten years ago weren’t you the guy sending out thousands of collection letters every week, and thousands of these very same draft statements of claim? In fact, weren’t you the guy who invented them? Why are you so upset now that someone else has stolen your trick?

Mr. Silverthorn disagreed with my contention that he “invented” draft statements of claim, but he did admit that he did send out thousands of these documents, and he isn’t proud of that period in his life.

You can watch the video and form your own opinions.

My take is this: yes, it’s not nice that collection agencies resort to somewhat deceiving tactics to get people to pay. However, in most cases, collection agents are only calling you because you owe money. Your best solution is to actually deal with the problem. Here’s how to deal with collection agency calls:

First, if you owe the money and you have the ability to pay it back, pay them. Once the debt is paid, and you receive confirmation from the collection agency that they have received full and final settlement, the collection agency calls should stop.

Second, if you can’t afford to pay them in full, a consumer proposal may be an option.

If that doesn’t work, personal bankruptcy may also be an option.

I concluded the video with this comment: collection agents don’t normally go away on their own, so if you have more debt than you can handle, call my office in Cambridge at (519) 622-3773, or e-mail me to arrange a no-charge initial consultation, and let’s get started.

The Office of the Superintendent of Bankruptcy has just released statistics indicating that the number of personal bankruptcy filings in Cambridge have dropped since last year. Here are the numbers:

In the first six months of 2010, 208 residents of Cambridge filed personal bankruptcy. An additional 144 Cambridge residents filed a consumer proposal, for total filings of 352 people between January and June of this year. If these rates remain consistent for the rest of the year, that projects to 704 Cambridge residents filing a bankruptcy or proposal this year. How does that compare to previous years?

In 2009, 634 people went bankrupt in Cambridge, and 283 proposals were filed, for a total of 917. (You can see more statistics for other years on our Cambridge bankruptcy statistics page).  That would indicate that we may see a drop of 23% in the number of insolvencies filed this year in Cambridge. Why the drop in filings? The Cambridge economy was slightly better in early 2010 than it was in early 2009. The stock market crashed in late 2008, and that eroded business confidence, leading to the decline in 2009. Today the economy is somewhat improved (as compared to 2009), with unemployment somewhat lower, and interest rates remaining stable.

Attached is a postal code map of Cambridge showing where bankruptcies occur. Not surprisingly, the largest number of personal bankruptcies are in the areas where most people live; the more industrial areas have fewer bankruptcies.

For the economy in general, a declining personal bankruptcy rate is good news. It generally means that more people are working, and therefore they are able to service their debts.

What’s ahead for the balance of 2010?

I believe we will continue to see a decline in the bankruptcy rate in Cambridge for at least the next few months. Interest rates and unemployment remain stable, so no big changes are expected. However, as we all know, that can change quickly. If interest rates begin to rise, or if the impact of the new HST begins to reduce consumer spending in Cambridge, the bankruptcy rate could edge higher towards the end of 2010.

One final comment: the good news is that a greater number of Cambridge residents are choosing to file a consumer proposal as an alternative to bankruptcy. In 2009 just under 31% of Cambridge residents filed a consumer proposal (the rest filed bankruptcy). This year that percentage has increased to 41%. That’s a big increase, and it’s good news because it means more people are choosing to negotiate a settlement with their creditors to avoid bankruptcy.

More than a third of all consumer proposals filed in Cambridge are filed by my firm, Hoyes, Michalos & Associates, so if you are interested in learning more about this increasingly popular alternative to bankruptcy, please call my Cambridge office at (519) 622-3773, or e-mail me today to arrange a no charge initial consultation.

Mark Silverthorn is a former collection agency lawyer. Over the years I had literally hundreds of people arrive at my Cambridge bankruptcy office with letters from Mark Silverthorn, demanding payment of outstanding debts. I saw so many of these letters that I didn’t think Mr. Silverthorn actually existed; I assumed it was just a trade name. Then about three years ago I got a call from Mark Silverthorn himself, telling me that he had stopped working for collection agencies, and was now devoting all of his time to helping debtors deal with collection agents. Mark had switched sides!

Mark Silverthorn

Last week I attended a presentation that Mark gave to the Cambridge Self-Help Food Bank and other social agencies at the Cambridge Centre For the Arts here in Cambridge. He discussed various strategies for dealing with collection agencies. He explained that in some cases, if your debts are old, you can simply refuse to pay, and there may be very little the collection agency can do to collect. In other cases, a settlement with a collection agency may be an option, or it may be necessary to file a consumer proposal or even file a bankruptcy in Cambridge. You can read a full report on his talk in the Cambridge Times article about The Coming Debt Storm.

I was familiar with many of these strategies, since I have read his new book, The Wolf at the Door: What to Do when Collection Agencies Come Calling.

In fact, he interviewed me for the chapters on Consumer Proposals and Personal Bankruptcy, so I have spoken to Mark on many occasions. He did however make one comment that surprised me: He said that borrowers in Canada are often victimized three times.

First, borrowers often get caught in predatory lending practices, paying excessive rates of interest, or signing contracts they don’t understand. Interest rates in Canada are at historic lows, but interest rates on credit cards and finance company loans are as high as ever.

Second, if a borrower can’t pay, they are often victimized by abusive collection agency practices. Collectors call at all hours of the day and night, and often make threats to collect the money. It’s hard to deal with a collection agent if you don’t know the rules that govern them; they can intimidate, which is often unsettling.

Mark Silverthorn and Doug Hoyes

Finally, borrowers are often victimized by "helpers"; people who earn their living by "helping" people, even though they really aren’t helping them at all. You have probably seen their advertisements: "We will reduce your debts by 70% without bankruptcy; call us today!" Unfortunately most of these ads are nothing more than Debt Management Scams. These unlicensed "helpers" take your money, but they have no legal ability to actually reduce your debt. They might be able to convince your creditors to accept a deal, but more often than not the only person who profits is the helper.

Mark’s advice: if you meet with a debt management professional, ask them to explain all of your options, not just the option they are selling.

I am proud to say that whether you meet with Howard Hayes or me in our Cambridge office, we will explain all of your options. If we think a debt consolidation loan will solve your problems, that’s what we will recommend. If you need credit counselling, or a lawyer, or a tax accountant, or if you can deal with the problems on your own, we will tell you that, too. If the solution is a consumer proposal or personal bankruptcy, we will explain the advantages and disadvantages of all options, so that you can make an informed decision.

To find out more about Mark Silverthorn, you can visit his debt help web site. To find out more about your options, feel free to call my office in Cambridge at (519) 622-3773, or e-mail me, and we can arrange a no charge initial consultation.

A report issued today by the Certified General Accountants Association of Canada called Where Is the Money Now: The State of Canadian Household Debt as Conditions for Economic Recovery Emerge finds that household debt in Canada reached $1.41 trillion in December 2009, or $41,740 on average per Canadian. That personal debt level means that Canadians, including residents of Cambridge, have the most per capita debt of all advanced countries.

I was interviewed today on 570 News, and I made the following comments:

To start, I agree with the findings in the study. I meet with Cambridge residents each week, and there is no doubt we are carrying more debt than ever, and certainly more debt than when I opened our Cambridge Ontario bankruptcy office back in 1999.

I also commented that it’s not just the level of debt that’s a problem. The real problem is the carrying cost of our debt. Here’s what I mean: You might have a $1 million mortgage, but if the interest rate is low, and you have a great job making lots of money, making your mortgage payment may not be a problem. However, if you have a $100,000 mortgage with a high interest rate, and you lose your job, you may have trouble making your mortgage payment. It’s not the size of the debt that matters; it’s whether or not you can carry the debt.

Most of the people I meet with here in Cambridge are worried about two potential risks:

First, they worry about interest rates increasing. Mortgage interest rates, which have been very low for the last few years, are now starting to increase. That can be a huge problem if you have a variable rate mortgage, because if rates go up, your monthly payment increases.

The second worry is income. Ask yourself this question: if I lose my job, or if my hours get cut back at work, could I still make the payments on my credit cards, bank loans, and my mortgage? For the last few months the people I’ve met in Cambridge have told me things are going reasonably well. Toyota employees are back to full shifts, and the construction industry has picked up. But will it last?

Construction workers tell me they are worried about interest rates increasing, which will reduce demand for homes. I’m also hearing that people are worried about the HST that comes into effect on July 1; higher taxes generally are not good for the economy.

I concluded the interview with the following advice:

If you are living paycheque to paycheque, and you worry about losing your job, and you have a lot of debt, the time to take action is now. Start cutting your expenses, and use the extra money to pay down your debt. If that’s not enough to solve your problems, get help. Talk to a credit counsellor (Mosaic Counselling in Cambridge and Kitchener is a not for profit agency that can help with budgeting and debt management plans), or consider filing a consumer proposal or even personal bankruptcy.

Want to find out more? Please call my office in Cambridge at (519) 622-3773, and Howard, Gaye, Danielle or I would be pleased to answer your questions over the phone, or book a time when you can meet with me personally to review your options. There are options for dealing with debt, so call or e-mail me today for a fresh start.

In statistics just released by the Office of the Superintendent of Bankruptcy, 917 residents of Cambridge filed a consumer proposal or personal bankruptcy in 2009. That’s an increase of 33% from 2008, and is the highest number of filings on record. (More information for prior years can be found on our Cambridge Bankruptcy Statistics page).

Why are bankruptcies are up to record levels in Cambridge? There are two reasons:

First, we are in a recession. Unemployment is high, and when you are out of work it’s harder to pay your debts. I meet with many people each week who are actively looking for a job, but jobs are not easy to find at the moment.

Second, residents of Cambridge, and in fact in all of Canada, are carrying record levels of debt. Canadians have household debt of 141% of their personal disposable income, the highest level in history. This means that for every dollar a Canadian earns, they have $1.41 in debt. Two years ago Canadians carried "only" $1.28 in debt for each dollar earned. When debts are high, bankruptcy rates rise.

Interestingly, of those 917 people who filed last year in Cambridge, 634 filed bankruptcy, and 283 filed proposals. In other words 31% of Cambridge residents filed a proposal last year, the highest percentage on record.

A consumer proposal is a deal made with creditors to avoid bankruptcy. Last year in Cambridge my firm, Hoyes, Michalos & Associates, filed more about a third of all consumer proposals filed in Cambridge, making us the largest filer of consumer proposals in the area. In a typical proposal you may pay back about a third of your debt, so if you owe $50,000 on credit cards and loans, you may pay $350 per month for four years, and once the proposal is completed your remaining debts are discharged. It’s a great way to avoid bankruptcy.

So why are more residents of Cambridge filing proposals? Most people don’t want to file bankruptcy, but it is also due to the fact that government of Canada changed the bankruptcy rules on September 18, 2009 when new bankruptcy rules came into force, increasing the cost and length of a bankruptcy for bankrupts with surplus income. The debt limit for eligibility to file a consumer proposal was increased, increasing the attractiveness of a consumer proposal as a debt management option.

In other words, a bankruptcy is now more expensive for some people, making a consumer proposal an even better alternative.

What will happen in 2010? If the economy recovers, the number of bankruptcies filed in Cambridge may fall. However, if the economy recovers, it is likely that interest rates will increase, and if the cost of carrying debt goes up, more bankruptcies may result.

So what’s my advice? Excessive personal debt is a very dangerous, and unless residents of Cambridge take steps to deal with their debt, an increase in interest rates, or having hours cut back at work, will lead to a continued trend of higher personal bankruptcies.

For many people this recession is the first time in their lives they have experienced debt problems, and they don’t know where to turn for advice. They are embarrassed to talk to friends or co-workers. Unfortunately many debtors are now turning to less than reputable debt consultants, who charge a fee and then simply refer the debtor to a bankruptcy trustee. We strongly urge everyone to investigate their advisors before paying anything. Confirm that they are licensed by the federal government, or a provincial agency. At Hoyes, Michalos & Associates we do NOT charge any up-front fees; no reputable trustee charges an up front fee. More information is available in this article on Debt Consultant Scams.

If you are treading water, trying to service your debts, please call my office in Cambridge at (519) 622-3773, or e-mail me, and I will review your situation and help you make a plan to deal with your debts; we will do our best to help you avoid becoming a Cambridge bankruptcy statistic.