Doug: Case History – CRA Bankruptcy
Over the years, Doug (not his real name) had worked hard to build his business, and had established himself as a leading tradesman in the Greater Toronto Area.
All four of his children went on to university and became successful professionals. While this was a great source of pride for Doug, it also meant that none of his children came into the business with him.
At 58, Doug had his first heart attack. He was able to be back at work within 7 weeks, but he was not able to keep up his old pace. Forced to use subcontractors who were not up to his standards, Doug’s clients began to complain. For the first time, Doug found that his business was not making money. The cost of subcontractors, disputes for payment with his customers, and his own inability to stay on top of everything – was driving him out of business.
For the next four years, Doug struggled to keep the business going – using up his savings, maxing out his credit cards, and taking out personal loans – till his heart gave out and he had his second major heart attack.
This time, it was several months before he was able to return to work. During which, his business slipped further into chaos, and when Doug returned to work – he found a situation that was unimaginable. Not only was he heavily in debt – his income tax and GST payments had not been made for years, and the Canada Revenue Agency (CRA) had levied high penalties and interest charges on him (his business was a sole proprietorship). Doug tried to deal with the CRA, get his receipts in order, and keep his business going – but he was not up to the physical demands. Finally, the CRA put a freeze “Lien” on his business bank accounts. Doug was now forced to file for a Proposal or for Bankruptcy to get the lien lifted.
Marva Brooks, CIRP – Trustee is a senior member of David Sklar and Associates who frequently handles complex Corporate and Consumer insolvencies. Despite the complexity of the cases she handles, Marva is always able to see the human element and Doug’s situation was no exception.
When Doug first met with Marva, the stress of the situation was clearly taking a toll on his already fragile health.
As Marva and Doug reviewed his situation, several factors became clear – Doug had amassed over $900,000 of unsecured debt in credit cards, personal unsecured loans, unpaid GST, fines, and income taxes.
He had some bankruptcy-exempt assets – life insurance, tools of trade, and a leased vehicle with minimal equity.
The only non-exempt asset he had was his modest home which was valued at $250,000, and which was jointly owned by his wife.
Marva explained that due to the size of his debt, he would most likely not be successful in a Division I Proposal to his creditors. If he decided to go into Bankruptcy, the value of his share in the home, $125,000 (50% of $250,000) would have to be paid into his Bankruptcy estate for disbursal to his creditors.
If Doug did not want to sell his home, he would have to consider getting a $125,000 mortgage on the home – which would most likely require a co-signer. After discussing it with his family, Doug’s wife agreed to the mortgage and his oldest son agreed to co-sign the loan.
Marva then obtained prior approval from the Canada Revenue Agency for this course of action. The CRA agreed, as there were no other assets.
It was very difficult for Doug to obtain the mortgage due to his bankruptcy, however we was finally able to secure financing which was placed into his Bankruptcy estate for disbursal.
Since there was no surplus income, his Bankruptcy was completed in nine months and he was discharged from his unsecured debts.
Although he was not able to have the retirement he had planned on, Doug was out from under the pressure of his unpaid debts to creditors and the CRA.
To protect our client’s privacy, aspects of this case study have been altered.