Bankruptcy and Insolvency in a Changing      Economic Climate:           – Impact of the 2008 Global Financial Crisis on  ...
Surge in Consumer Debt Levels:     • Flow of Funds into North America           – Wealth was being created in emerging eco...
Surge in Consumer Debt Levels:     • Flow of Funds into North America           – Glut of funds in North America looking f...
Surge in Consumer Debt Levels:     • Changes in Consumer Lending Practices           – Lenders who had traditionally based...
Surge in Consumer Debt Levels:     • Changes in Consumer Lending Practices           – Lenders became willing to amortize ...
Consumer Credit Environment           – Over the past several years, consumer credit             in North America has been...
Consumer Credit Environment           – Easy mortgage accessibility has created high             demand for housing, follo...
Consumer Credit Environment           – High consumer spending has helped fuel the             robust economies in many pa...
Consumer Credit Environment           – In Canada, where we used to be net savers,             we have become net borrower...
Consumer Credit Environment     • Statistics Canada states that:           – By 2002, debt had surpassed disposable       ...
Consumer Credit Environment     • The National Post, citing CIBC World       Markets indicates that, at the end of the    ...
Current Global Economic Instability     • Sub prime mortgage crisis in the US     • Failure of financial institutions     ...
• In Canada, we are currently seeing a significant     surge in insolvencies.              Consumer Bankruptcies - 2008   ...
How Does Bankruptcy and Insolvency      Relate to Estate Planning?           – Ageing population seeking effective and    ...
How Does Bankruptcy and Insolvency      Relate to Estate Planning?           • Individuals may seek to restructure their  ...
How Does Bankruptcy and Insolvency      Relate to Estate Planning?           – Creditor ability to challenge asset transfe...
How Does Bankruptcy and Insolvency      Relate to Estate Planning?           • Vulnerability of beneficiaries to creditors...
How Does Bankruptcy and Insolvency      Relate to Estate Planning?           – Potential liability if you are privy to a  ...
Personal Insolvency Processes           – Select Process           – Sign Documents           – efiling           – Immedi...
Personal Insolvency Processes           – Assessment of the Debtor’s Financial             Situation                 •   A...
Personal Insolvency Processes           – Proposals                 •   Settlement Based on Ability to Pay                ...
Personal Insolvency Processes           – Proposals                 •   Voting                 •   Prohibitions on Termina...
Personal Insolvency Processes           – Bankruptcy                 •   Stakeholder Rights are Governed by Legislation   ...
Transactions Which Can be Challenged     • The comments in this section apply to       Bankruptcies and, unless the Propos...
Transactions Which Can be Challenged     • Settlements           – Transactions made gratuitously or for nominal          ...
Transactions Which Can be Challenged     • Fraudulent Conveyances           – If the court finds a transaction to be a fra...
Transactions Which Can be Challenged     • Fraudulent Preferences           – 3 month rule: Any payment or other benefit c...
Transactions Which Can be Challenged     CHANGES COMING TO THE BIA:     • Transactions at Undervalue – Arm’s Length       ...
Transactions Which Can be Challenged     CHANGES COMING TO THE BIA:      Transactions at Undervalue – Not at Arm’s Length ...
Transactions Which Can be Challenged     Reviewable Transactions:     • A transaction between parties who are not at arm’s...
Transactions Which Can be Challenged     • Preferential Transactions Immune from Attack:           – Transactions involvin...
Transactions Which Can be Challenged           Preferential Transactions Immune from Attack:                 • Transaction...
Transactions Which Can be Challenged           Preferential Transactions Immune from Attack:                 • Employee’s ...
Upcoming SlideShare
Loading in …5
×

Nov 2008 - Personal Bankruptcy

229 views
174 views

Published on

Nov 2008 - Personal Bankruptcy

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
229
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Nov 2008 - Personal Bankruptcy

  1. 1. Bankruptcy and Insolvency in a Changing Economic Climate: – Impact of the 2008 Global Financial Crisis on individuals’ assets, debts, and their financial planning. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  2. 2. Surge in Consumer Debt Levels: • Flow of Funds into North America – Wealth was being created in emerging economies – Investors were seeking opportunities to invest that wealth – The capital markets in those emerging economies did not provide the opportunities that investors were seeking – The wealth moved into the U.S. – one of the most liquid and highly developed investment and capital markets in the world. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  3. 3. Surge in Consumer Debt Levels: • Flow of Funds into North America – Glut of funds in North America looking for investment opportunities. – High competition in the consumer lending market: – Credit cards – Lines of credit – Vehicle financing – Retail purchase financing – Lenders were willing to increase their risk tolerance in order to place funds. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  4. 4. Surge in Consumer Debt Levels: • Changes in Consumer Lending Practices – Lenders who had traditionally based their lending decisions on income level, assets, existing debt levels and payment history moved to a much heavier reliance on credit score. – A Beacon or Fico credit core uses: – Payment history – Current debts vs credit limits – Length of credit history – New credit activities – Types of credit used Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  5. 5. Surge in Consumer Debt Levels: • Changes in Consumer Lending Practices – Lenders became willing to amortize debt over longer periods. – Governments relaxed regulations to allow longer mortgage amortizations and low/no down payments. – CMHC insured mortgages – zero down Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  6. 6. Consumer Credit Environment – Over the past several years, consumer credit in North America has been highly accessible by borrowers. – This has enabled the high spending rates by consumers in the US and Canada over the past several years. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  7. 7. Consumer Credit Environment – Easy mortgage accessibility has created high demand for housing, followed by increases in real estate values. – Increasing real estate values have allowed home owners to borrow against the newly created equity in their homes. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  8. 8. Consumer Credit Environment – High consumer spending has helped fuel the robust economies in many parts of Canada Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  9. 9. Consumer Credit Environment – In Canada, where we used to be net savers, we have become net borrowers – the amount of our debt is higher than our annual disposable income. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  10. 10. Consumer Credit Environment • Statistics Canada states that: – By 2002, debt had surpassed disposable income and that by 2005, Canadians owed $1.16 for each dollar of disposable income. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  11. 11. Consumer Credit Environment • The National Post, citing CIBC World Markets indicates that, at the end of the second quarter of 2008 Canadians had a debt to income ratio of 1.3 to 1: – Consumer credit represented 40% of personal disposable income; and – Mortgage debt represented 90.6% of personal disposable income. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  12. 12. Current Global Economic Instability • Sub prime mortgage crisis in the US • Failure of financial institutions • Global credit freeze • Plummeting stock and commodity values • Governments step in with $Trillions in aid to prevent financial collapse • Global recession feared Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  13. 13. • In Canada, we are currently seeing a significant surge in insolvencies. Consumer Bankruptcies - 2008 % Change Over Same Month, Previous Year Jun Jul Aug Sept Canada 6.20% 19.00% 2.40% 29.80% BC -1.30% 13.90% 10.50% 32.70% Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  14. 14. How Does Bankruptcy and Insolvency Relate to Estate Planning? – Ageing population seeking effective and sustainable financial planning. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  15. 15. How Does Bankruptcy and Insolvency Relate to Estate Planning? • Individuals may seek to restructure their financial holdings to prevent creditor attachment and thereby preserve the assets for family members. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  16. 16. How Does Bankruptcy and Insolvency Relate to Estate Planning? – Creditor ability to challenge asset transfers or other transactions. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  17. 17. How Does Bankruptcy and Insolvency Relate to Estate Planning? • Vulnerability of beneficiaries to creditors, and treatment of their future entitlements in the event that a beneficiary makes a proposal to creditors or goes into bankruptcy. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  18. 18. How Does Bankruptcy and Insolvency Relate to Estate Planning? – Potential liability if you are privy to a transaction that is later found to be impeachable under insolvency legislation. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  19. 19. Personal Insolvency Processes – Select Process – Sign Documents – efiling – Immediate Stay of Proceedings – Garnishments Cease – Legal Proceedings Cease – Collection Action Ceases Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  20. 20. Personal Insolvency Processes – Assessment of the Debtor’s Financial Situation • Ability to Pay • Exempt Assets • Secured Creditors • Debts that Survive • Preferred Creditors • Impact on Credit Rating Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  21. 21. Personal Insolvency Processes – Proposals • Settlement Based on Ability to Pay • Creditors Expect Higher Recovery than Bankruptcy • Creditors Have Minimum Recovery Thresholds • Flexibility – Retention of Certain Assets – Reviewable Transactions – Manageable Payment Plan – Can Alter Stakeholder rights Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  22. 22. Personal Insolvency Processes – Proposals • Voting • Prohibitions on Termination of Contracts • Financial Counselling • Consequences of Default • Completion of Obligations • Certificate of Full Performance – Debts Extinguished Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  23. 23. Personal Insolvency Processes – Bankruptcy • Stakeholder Rights are Governed by Legislation • Reporting of Income • Surplus Income Payments • Assets • Financial Counselling • Completion of Obligations • Discharge Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  24. 24. Transactions Which Can be Challenged • The comments in this section apply to Bankruptcies and, unless the Proposal provides otherwise, to BIA Proposals Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  25. 25. Transactions Which Can be Challenged • Settlements – Transactions made gratuitously or for nominal consideration. – Void as against trustee in bankruptcy if: • Made in the year preceding a bankruptcy • Made in the five years preceding a bankruptcy IF the trustee can prove: – Settlor was insolvent at time of transaction; – Settlor was rendered insolvent by the transaction; OR – Settlor’s interest did not pass Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  26. 26. Transactions Which Can be Challenged • Fraudulent Conveyances – If the court finds a transaction to be a fraudulent conveyance, the property transferred vests in the trustee. – If the party who received the fraudulent conveyance has sold the property, the trustee will be granted a judgment against the grantee and may be entitled to a charge against property purchased by the grantee with the proceeds from sale of the fraudulent conveyance. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  27. 27. Transactions Which Can be Challenged • Fraudulent Preferences – 3 month rule: Any payment or other benefit conferred on a creditor with a view to giving that creditor a preference is fraudulent and void as against a trustee in bankruptcy if made in the 3 months preceding date of bankruptcy. – Presumption: If a transaction has the effect of giving any creditor a preference, it is presumed to be a preference, whether or not it was made voluntarily or under pressure. – 1 year rule: If the benefitting creditor is a person related to the insolvent person, the presumption of fraud is for the one year period prior to a bankruptcy Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  28. 28. Transactions Which Can be Challenged CHANGES COMING TO THE BIA: • Transactions at Undervalue – Arm’s Length – The following applies if: • The transaction was with a person at arm’s length to the debtor; • The transaction was a transfer at undervalue; • The transaction occurred in the year prior to a bankruptcy; • The debtor was insolvent or was rendered insolvent by the transaction; and • The debtor intended to defeat the interests of creditors. – The court can give judgment to the trustee against: • The other party to the transaction: • Any other person being privy to the transaction with the debtor; OR • All of the aforementioned; For the difference between the actual consideration given and the fair market value. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  29. 29. Transactions Which Can be Challenged CHANGES COMING TO THE BIA: Transactions at Undervalue – Not at Arm’s Length • The following applies if: – The transaction was with a party who was not at arm’s length with the debtor; – The transaction was a transfer at undervalue; – The transaction: • Occurred in the year prior to a bankruptcy; or • The transaction occurred in the five years prior to a bankruptcy and: • The debtor was insolvent or was rendered insolvent by the transaction; and • The debtor intended to defeat the interests of creditors. • The court can give judgment to the trustee against: – The other party to the transaction: – Any other person being privy to the transaction with the debtor; OR – All of the aforementioned; – for the difference between the actual consideration given and the fair market value Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  30. 30. Transactions Which Can be Challenged Reviewable Transactions: • A transaction between parties who are not at arm’s length. • Related parties (as defined by the BIA) are deemed to be not at arm’s length. • It is a question of fact as to whether parties who are not related to each other are dealing at arm’s length. • Any non arm’s length transaction which occurs in the year preceding a bankruptcy can be reviewed to determine whether or not the bankrupt received fair market value. The court can give judgment to the trustee against – The other party to the transaction; OR – Any other person being privy to the transaction; OR – All of the above; • for the difference between the fair market value and the actual consideration. – The court is required to use the values determined by the trustee unless other values are proven. A trustee is not restricted to remedies set out in the BIA and can take advantage of other legislation such as the Fraudulent Conveyance Act, Fraudulent Preference Act, etc. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  31. 31. Transactions Which Can be Challenged • Preferential Transactions Immune from Attack: – Transactions involving exempt property or property that would not vest in the trustee. – Payments received by a secured creditor under a valid security document. – Payments made in the ordinary course of business. – Transactions entered into to permit the debtor to remain in business. – Other situations based on case law. Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  32. 32. Transactions Which Can be Challenged Preferential Transactions Immune from Attack: • Transactions in favour of preferred creditors: – Funeral or testamentary expenses for a deceased bankrupt; – Trustee’s fees and expenses; – Superintendent of Bankruptcy levy – Wages up to $2,000 services rendered in the 6 months immediately preceding the bankruptcy; – Child or spousal support; – Certain municipal taxes; – Rental arrears or accelerated rent (in specified circumstances) – Costs of attachment by the first garnishing creditor (limited to proceeds of garnishment); Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y
  33. 33. Transactions Which Can be Challenged Preferential Transactions Immune from Attack: • Employee’s claim for injuries which are not covered by Worksafe BC (in limited situations and for limited amounts). Fi nanc i al Advi s ors and Trus t ees i n mnpbankrupt c y. c aBankrupt c y

×