Mark: Division 1 Proposal for a Small Business

Table of Contents

‘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).

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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.

Mark’s Options

After a detailed review, it was determined that:

    1. 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.
    1. 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.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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Very knowledgeable, helpful and fast service
Anthony Mcfeat
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I am so delighted to have found this company. They are the best. Everyone in the office is very nice never to busy to assist you. Thank you David Sklar and Shirley and associates for being you. 😊🌺😊
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Trina was amazing and quick. No judgement was made and they all made me feel I made the right decision. Would highly recommend them
Crystal Minaker
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Trina was very easy to work with. Any questions I had were answered promptly. What seemed like a complicated process was explained in a clear manner that wasn't at all intimidating. It made for a more comfortable experience during a turbulent time.
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Jackie is very professional...I would recommend David Sklar to anybody especially knowing how understanding they are.
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I had Shirley and Kim take care of my finances. From the very first moment I spoke with Shirley I could sense how caring, professional and patient she was. She was also very understanding with my lack of financial knowledge and never made me feel dumb as some other companies have.Her and Kim were always very quick to respond to emails, always available if I called and answered my abundance of questions in such detail that I now believe I have a thorough understanding of how finances work. I am hopeful about my fresh financial start and very grateful I had the privilege of meeting and working with these two beautiful women.I also spoke briefly with Richard over zoom and he to was extremely friendly, patient and made sure I was well taken care of.I could not recommend David Sklar and Associates more. Thank you again.
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Good professional team! Jennifer is the best, helped me through everything and answered all my questions. Made the process easy! Would recommend Jennifer and the team at David Skylar.
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Christine and her team are amazing and professionals. I called for help and she responded right away to help me.thank you and I really appreciated for everything you do.
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Thank you so much for the helpYou took away the most stressful things in our lives which was our dept you guys are amazing and would recommend you to everyone
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The staff here are fantastic (Cori handled my visit) and are willing to go above and beyond to help people who need help, I recommend them 100% for people who are looking to move on in good standing.
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