‘Mark’ Division 1 Case History: A Fact of Life
At 45, Mark (not his real name) was doing very well professionally. As a successful Information Technology (IT) Manager at a major Canadian firm, he was well known and respected in his industry. His innovative and creative approach to problem solving had significantly improved his company’s competitive edge, and his forward thinking was highly valued.
Mark had been with his current employer for two years. Prior to that, he had run his own consulting company for several years. While Mark’s consulting company had flourished in terms of income, his weakness in all things accounting, had led him into severe trouble. He did not file his personal income tax for several years, and he fell behind in his GST payments.
Prior to setting up his consulting company, Mark’s marriage had ended. Based on an informal agreement, Mark’s ex-wife continued to live in the matrimonial home and both their names remained on the title and on the mortgage.
After his divorce, Mark purchased a condo. When he started his consulting business, he took out a large second mortgage on his condo to finance start-up costs. With the closure of his consulting company, Mark decided to turn the condo over to the bank and to default on his mortgages. The net result of this transaction was that Mark now owed the bank $72,000 in unsecured debt to cover the difference between his mortgages and the actual sale price of the condo.
When Mark returned to the workforce and began working as an IT Manager – Revenue Canada put a garnishee of $1,200/month on his salary. While this caused him some embarrassment within the company, Mark did not try to fix the problem – as he did not want to deal with all the ‘accounting stuff’ left behind from his consulting company.
Two years after returning to the workforce (and 18 months after the garnishee was put in place), Mark was at a company golf tournament, where a casual conversation with the company comptroller helped him to realize he needed to address his debt issue quickly. Following the advice of his comptroller, Mark booked a meeting with David Sklar & Associates Inc (DSAI).
At his initial meeting, Mark met with Richard Sklar, Estate Administrator. Together they reviewed his existing situation. Before they could proceed further, it was necessary for Mark to bring his GST and his income tax filings up to date. While he was not able to make any payment on the GST and income tax, it was essential that the filings be done to determine exactly how much was owing.
Mark had his business GST and income tax fillings completed by an accountant. Using advice from DSAI’s Linda Fransky, he was able to successfully navigate his way through Revenue Canada to bring his fillings up to date and to get details on his penalties.
With all his financial records in place, Mark and Richard were then able to work out a doable budget and take a detailed look at his financial situation:
|Income Tax/GST and Penalties Owing||$93,000|
|Condo Mortgage Default Owing||$72,000|
|3 Credit Cards Owing||$26,800|
|Bank Overdraft Owing||$5,100|
|Total Unsecured Owing||$196,900|
Because the $300,000 mortgage on what had been his matrimonial home, did not represent a mortgage on his current prime residence, it was added to his total debt. Note: although his was not the only name on the mortgage – he (and anyone who co-signs a loan) is responsible for the full amount.
This brought his total debt for evaluation to $496,900, which meant that if Mark decided to file a Proposal it would have to be a Division I Proposal, rather than a Consumer Proposal. While the two Proposals are very similar, there are significant differences in their processes.
After a detailed review, it was determined that:
- If Mark chose to file for a Division I Proposal, it was recommended that he offer to pay $1,000 per month for a period of 60 months for a total of $60,000.
- If Mark chose to file for Bankruptcy, he would be looking at a 21 month Bankruptcy period with monthly surplus income payments of $1279 (21 months x 1279 = $26,869).
The Ontario Execution Act, which covers assets protected from Bankruptcy, would have viewed Mark’s equity in his former matrimonial home (a half-share, valued at $22,000), as a recoverable asset. Under the Act, Mark had no other recoverable assets. This meant that through a Bankruptcy, Mark’s creditors would only be recovering $48,869.
Mark discussed his choices in detail with Richard and DSAI Trustee, Gloria Breen. He decided to file a Division I Proposal. DSAI filed his Proposal and presented it to his creditors.
Exercising their right, the Canada Revenue Agency (CRA) asked to have a creditor’s meeting with Mark and DSAI.
At the creditor meeting, the CRA was the only creditor to attend. There were three CRA officials as well as Mark, Richard Sklar and Gloria Breen in attendance. During the meeting, Mark was able to reassure CRA that he was an honest, but unfortunate debtor, who would be taking steps to ensure that the situation with past due income tax and GST never reoccurred. CRA agreed to the Proposal, with the understanding that they would be keeping a very close watch on the process.
Once the Proposal was accepted by his creditors, Mark began his monthly payments to DSAI for disbursal to his creditors, the garnishee was removed and Mark began to work on getting his life back on track.
Several months into his Proposal, Mark remains diligent about making his payments, attending the mandatory credit counselling sessions, and keeping all his financial dealings accurate and current. While Mark will never be fond of ‘accounting stuff’, he has accepted it as a necessary ‘fact of life’.
To protect our client’s privacy, details of this case have been altered.