THERE IS LIFE AFTER DEBT. Frank S. Kisluk Trustee in Bankruptcy Senior Vice President msi SPERGEL inc

Transcription

1 THERE IS LIFE AFTER DEBT Frank S. Kisluk Trustee in Bankruptcy Senior Vice President msi SPERGEL inc

2 Oshawa Scarborough (2) Lawrence Ave. W. Ajax Hamilton (2) Jane & Bloor W. Peterborough Burlington Finch Ave. W. msi SPERGEL inc Our Offices Lindsay Brantford Consumers Rd. Newmarket Mississauga Danforth Ave Richmond Hill Brampton (2) Downsview Barrie

3 Oshawa Scarborough (2) Lawrence Ave. W. Ajax Hamilton (2) Jane & Bloor W. Peterborough Burlington Finch Ave. W. msi SPERGEL inc Our Offices Lindsay Brantford Consumers Rd. Newmarket Mississauga Danforth Ave Richmond Hill Brampton (2) Downsview Barrie

4 WHAT DO WE DO? CORPORATE SERVICES Receiverships Proposals to Creditors Bankruptcy Proceedings

5 WHAT DO WE DO? PERSONAL SERVICES Free Consultation and Assessment Proposals to Creditors Bankruptcy Proceedings

6 BUT FIRST THANK YOU TO THE FOLKS WHO GENERATE OUR CLIENTS

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10 THERE IS LIFE AFTER DEBT Coming soon BLACK & WHITE

11 DOCTOR BLACK - A CONSUMER PROPOSAL THE FACTS Dr. Black had invested in several tax shelters that were subsequently reassessed by CRA. He appealed the reassessment and, after 4 years, lost the appeal. With compounded interest, he then owed about $800,000 and had no ability to pay the tax debt. He was referred to me by his accountant We began with an assessment of his personal financial situation

12 DOCTOR BLACK A CONSUMER PROPOSAL Financial Position ASSETS LIABILITIES OHIP Receivables 50,000 CRA 804,000 RRSP 253,000 RBC Visa 8,700 Auto 13,000 Household Furniture Personal Effects 10,000 5,000 Total 331,000 Total 812,700

13 DOCTOR BLACK A CONSUMER PROPOSAL PRINCIPLE: A Proposal must give a better return to creditors than a bankruptcy. SCENARIO 1 BANKRUPTCY 1. Family after-tax monthly income is $16,000 (includes $4,000 from spouse) 2. Doctor Black is married, with 4 children.

14 DOCTOR BLACK A CONSUMER PROPOSAL 3. In bankruptcy, Dr. Black will be required to pay $89, 943 while in bankruptcy. This is calculated as follows, using the Superintendent of Bankruptcy s Guidelines for Monthly Payments: Monthly after tax income Dr 12,000 Spouse 4,000 16,000 Deduct exemption for 6 dependents 4,578 Monthly payment = 50% pro-rated = 11,422/2 = 5,711 x 12,000/16,000 = $4,283 11,422 Total payments during bankruptcy = $4,283 x 21 months = $89,943

15 DOCTOR BLACK A CONSUMER PROPOSAL SCENARIO 1 BANKRUPTCY (cont d) ASSET REALIZEABLE AMOUNT OHIP Receivables $50,000 RRSP exempt from seizure Furniture/personal effects (exempt from seizure ) Excess of car value over exempt amount (13,000 5,650) Monthly payments in Bankruptcy ($4,283 x 21 months) TOTAL REALIZEABLE IN BANKRUPTCY Nil Nil 7,350 89,943 $147,293

16 DOCTOR BLACK A CONSUMER PROPOSAL SCENARIO 2 PROPOSAL Proposal must be a better deal for creditors than Bankruptcy. A Proposal can be any structure that makes sense and that creditors agree to accept. The Doctor s Proposal negotiated with CRA over 8 meetings and 4 mo. Pay $3,000 a month for 65 months Total payments of $195,000, compared to the expected bankruptcy realization of $147,293

17 DOCTOR BLACK A CONSUMER PROPOSAL SUMMARY DR. BLACK Keeps assets No disruption to professional practice No publicity settlement really done with only communication with the two creditors CREDITORS (principally CRA) Obtained better return for taxpayers than likely in a bankruptcy scenario Allowed debtor to keep his business and to continue to pay his taxes going forward

18 MR. WHITE - A CONSUMER PROPOSAL THE FACTS Mr. White is a senior partner in a Bay St law firm He has accumulated $1,037,000 in income tax debt over the past 8 years and must resolve this. If bankrupt, he would lose his position in the firm and have difficulty earning at the same level of income. Since CRA issued RTP s, he has stopped working for several months. He was referred to me by his accountant We began with an assessment of his personal financial situation

19 Financial Position MR. WHITE A CONSUMER PROPOSAL ASSETS LIABILITIES Household Furniture 5,500 CRA 1,037,000 RRSP 100,000 TD Visa 12,000 50% equity in home Partnership interest Personal Effects 120,000 BMO M/C 11,000 Nil 5,000 Total 230,500 Total 1,060,000

20 MR. WHITE A CONSUMER PROPOSAL A Proposal must give a better return to creditors than a bankruptcy. SCENARIO 1 BANKRUPTCY 1. Family after-tax monthly income is curently $9,200 (includes $5,000 from spouse). 2. Mr. White is married. His children are no longer at home and are independent. 3. In bankruptcy, based on his current income, he will be required to pay $1,552 monthly for a minimum of 21 months, or $32,605. This is calculated using the Superintendent of Bankruptcy s Guidelines for Monthly Payments.

21 MR. WHITE A CONSUMER PROPOSAL SCENARIO 1 BANKRUPTCY (cont d) ASSET REALIZEABLE AMOUNT RRSP exempt from seizure Furniture/personal effects (exempt from seizure ) Nil Nil 50% of equity in home 120,000 Partnership interest Monthly payments in Bankruptcy ($1,552 x 21 months) TOTAL REALIZEABLE IN BANKRUPTCY Nil 32, ,605

22 MR. WHITE A CONSUMER PROPOSAL SCENARIO 2 PROPOSAL Proposal must be a better deal for creditors than Bankruptcy. A Proposal can be any structure that makes sense and that creditors agree to accept.

23 The Proposal MR. WHITE A CONSUMER PROPOSAL The Proposal originally offered was for $200,000, an amount greater than the expected bankruptcy realization of $152,000. After several meetings with CRA, the terms were negotiated to the following: 1. Lump sum of $260,000 in 3 mo. (from home mortgage and personal loans) 2. Monthly payments of $750 for 60 mo., totaling $45, For years 2, 3 and 4 of the proposal, 20% of the debtor s after-tax income greater than $9,000 average monthly income. 4. Total Final Proposal is a minimum of $305,000.

24 MR. WHITE A CONSUMER PROPOSAL SUMMARY MR. WHITE had to avoid bankruptcy at any cost would destroy his professional practice (previously earned over $200,000 after-tax) Keeps assets No disruption to professional practice No publicity settlement really done with only communication with the two creditors CREDITORS (principally CRA) Obtained better return for taxpayers than likely in a bankruptcy scenario Allowed debtor to keep his business and to continue to pay his taxes going forward Will participate in debtor s income once he returns to his full practice

25 THE WORLD IS NOT JUST BLACK OR WHITE Mr. Grey is a CA who filed a Proposal that was negotiated with CRA and finally agreed to. But since filing the Proposal, in the 6 months of negotiating, he fell behind in current tax instalments. Even with the Proposal approved, he will not be able to pay the current year s tax liability.

26 THE WORLD IS NOT JUST BLACK OR WHITE SOLUTION Present original proposal as filed and have CRA defeat it. Automatic bankruptcy. Liabilities include all taxes currently due. File new Proposal out of Bankruptcy, as previously agreed to by CRA. CRA then votes to support the new Proposal.

27 THERE IS LIFE AFTER DEBT Frank S. Kisluk Trustee in Bankruptcy Senior Vice President msi SPERGEL inc