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Mississauga Moves Towards Making Housing More Affordable

Source: Insauga.com – by Ashley Newport on October 17, 2017

It’s no secret that housing in Mississauga (and the overall 905 area) has become increasingly more expensive over time. With detached houses costing buyers $900,000 to $1 million and compact condos selling for over $400,000, residents are turning to the rental market and being equally as disappointed to see that prices are no more kind there (in some cases, two-bedroom suites can cost close to $2,000 a month).

The housing crisis is one that Mississauga has been, to its credit, taking seriously.

The City of Mississauga’s Planning and Development Committee recently adopted the city’s first housing strategy: Making Room for the Middle: A Housing Strategy for Mississauga.

According to the strategy, there’s a pressing and dire need to create affordable housing for middle income earners who are in danger of being priced out of the city.

Some of the draft’s findings are alarming, even though they’re not at all surprising.

Some key facts:

  • A home is considered affordable when its inhabitants spend 30 per cent or less of their earnings on housing costs
  • 1 in 3 households are spending more than 30 per cent of their income on housing and research suggests this number will rise
  • Middle income households typically net between $50,000 and $100,000 a year
  • Middle income earners include nurses, teachers and social workers
  • People who want to purchase homes can typically afford to pay between $270,000 and $400,000, meaning their only options are condos and a limited selection of townhouses
  • Housing prices are adversely affected by supply and demand imbalances (there’s much more demand than there is supply)
  • The average rental unit costs $1,200 a month
  • Rental inventory is 1.6 per cent (which is troublingly low)

The city is focusing on middle income earners because they typically make too much to qualify for government assistance, but still cannot afford to rent or purchase homes in the city. When people are priced out of their communities, the social and economic fabric of the area is compromised. If the middle class is forced to move further away, the city will only be suitable for very high and low-income earners–something leaders are hoping to prevent.

The city says the Strategy is Mississauga’s plan for fostering a supportive environment for the development of a range of housing that is affordable for all. While it targets middle-income households, it will also benefit lower-income households.

To be clear, the Region of Peel is responsible for subsidized housing (meaning housing associated with low-income earners who require special assistance to afford adequate shelter in Mississauga, Brampton and Caledon). While attention must still be paid to lower-income residents (Peel has a notoriously long subsidized housing waitlist and too few shelters for those in need), middle-income households have not been widely supported in terms of housing supply.

Generally speaking, middle-income earners—think social workers, journalists and clerical workers—do not qualify for financial assistance and cannot afford housing at current market prices.

Ideally, the strategy will help provide opportunities for lower-income households by freeing up supply.

The strategy offers 40 actions supported by the Mississauga Housing Advisory Panel, a group of over 20 housing professionals from the public, private and non-profit sectors that shared their knowledge, advice and solutions. It also includes a five-year action plan centred on municipal powers and funding partnerships to achieve its goals.

“Housing is an issue that touches every Mississauga resident and business,” said Mayor Bonnie Crombie. “Council has already endorsed in-principle, actions to protect existing rental housing and create a housing-first policy for surplus lands. Making Room for the Middle: A Housing Strategy for Mississauga is the City’s plan to provide, together with our partners, a supportive development environment for a range of affordable housing.”

So, what has the city proposed?

  • Petition senior levels of government for taxation policies and credits that incent affordable housing
  • Pilot tools such as pre-zoning and a Development Permit System to develop affordable housing in appropriate locations (close to transit systems, for example)
  • Encourage the Region of Peel to develop an inclusionary zoning incentive program for private and nonprofit developers
  • Continue to engage with housing development stakeholders
  • Encourage the Region of Peel to investigate the cost of deferring development charges on the portion of affordable units provided in newly constructed multiple dwellings

The city has also been working to legalize accessory units (better known as basement apartments). At this juncture, basement suites remain a very viable option for people looking for affordable units, as the suites tend to cost $1,000 or less. Right now, most units remain unregistered and the city is responsible for levying fines against landlords operating unregulated units.

“Making Room for the Middle: A Housing Strategy for Mississauga defines how the City of Mississauga will address the affordable housing crisis in our City,” said Crombie in a statement. “We’re ready to do our part to ensure that those who want to live in Mississauga can afford to do so. The strategy provides bold, innovative solutions to increasing affordability. Safe, affordable housing is a pillar of a complete city and we will achieve our goals if we work together with our partners to create a supportive development environment for a range of affordable housing for all.”

According to the staff report, the strategy has received wide support since its release on March 29 from residents, agency partners and the building and development industry.

Speaking of the development industry, it appears that one affordable housing project is already in the works.

A few weeks ago, we learned that a brand new building development has been planned for the City Centre area.

The Daniels Corporation, the development firm who has built multiple properties in the City Centre and Erin Mills Town Centre areas in the city, is slated to construct an affordable housing project at 360 City Centre Drive.

Since this building will help the city fulfill its mandate, council will a provide a sizeable $2.7 million to the Region of Peel to offset development charges for the project.

The Region approved funding of the much-needed project to the tune of $65 million ($65,966,522, to be exact) on June 22. After approving funding, the Region asked Mississauga to “consider granting relief from City Development Charges (the aforementioned $2.7 million) by waiving or providing a grand to offset such DCs.”

As for how the development will work, 40 per cent of the units (70 in total) will be Rent Geared to Income suites. These units will take residents off affordable housing waitlist. The city also says that 60 per cent (or 104 units) will be set aside for renters and owned by the Region. They will be available to middle-class residents.

A second tower on the same podium will boast market-value units, creating a mixed-income property on City Centre grounds.

The movement of the affordable housing strategy is encouraging, especially since the city has been working to build consensus for sometime now.

The Mississauga Housing Forum held last spring enabled stakeholders to hear from renowned housing experts, “road test’ the strategy and provide their input. City staff say they have since have fine-tuned the strategy based on the feedback received.

“We heard from our residents and stakeholders and are taking action,” said Ed Sajecki, commissioner of planning and building. “Our strategy reflects the input we received. We can now create, together with our partners, a housing affordability solution that could be a model for other Canadian cities.”

The city says the next steps include actions to help preserve purpose-built rental housing, support for the Region of Peel in implementing its programs, and ongoing work with senior levels of government to make their surplus land available for affordable housing and provide standardized local housing data to measure housing affordability.

The final strategy will go to Council for approval on October 25.

 
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Ten ways the new mortgage rules will shake up the lending market

THE CANADIAN PRESS

 

Source: The Globe and Mail – SPECIAL TO THE GLOBE AND MAIL

T-minus 76 days and counting until Canada’s banking regulator launches its controversial mortgage stress test. It’ll be squarely aimed at people with heavier debt loads and at least 20 per cent equity – and it will be a tide turner.

Given where Canada’s home prices and debt levels are at, this is easily the most potent mortgage rule change of all time. Here are 10 ways it’s going to shake up Canada’s mortgage market for years to come:

1. It’s like a two-point rate hike: Uninsured borrowers can qualify for a mortgage today at five-year fixed rates as low as 2.97 per cent. In a few months that hurdle will soar to almost 5 per cent. If you’re affected by this, you could need upward of 20 per cent more income to get the same old bank mortgage that you could get today.

2. Quantifying the impact: An OSFI spokesperson refused to say how many borrowers might be affected, calling that data “supervisory information” that is “confidential.” But at least one in six uninsured borrowers could feel the blow based on the Bank of Canada estimates of “riskier borrowers” and predictions from industry economists like Will Dunning. Scores of borrowers will be forced to defer buying, pay higher rates, find a co-borrower and/or put more money down to qualify for a mortgage.

3. Why OSFI did it: Forcing people to prove they can afford much higher rates will substantially increase the quality of borrowers at Canada’s banks. OSFI argues that this will insulate our banking system from economic shocks, and to the extent it’s correct – that’s good news.

4. A leap in non-prime borrowing costs: Many home buyers with above-average debt, relative to income, will resort to much higher-cost lenders who allow more flexible debt ratio limits. At the very least, more will choose longer amortizations (i.e., 30 years instead of 25 years) and take longer to pay down their mortgage. Non-prime lenders will also become pickier. Why? Because they’ll see a flood of formerly “bankable” borrowers getting declined by the Big Six. That could force hundreds of thousands of borrowers into the arms of lenders with the highest rates. If you have a higher debt load, weak credit and/or less provable income, get ready to pay the piper.

5. A safer market or riskier market? The shift to expensive non-prime lenders could boost mortgage carrying costs and overburden many higher-risk borrowers, exacerbating debt and default risk in the non-prime space. “We’re very aware of the potential migration risk [from banks to less regulated lenders],” Banking superintendent Jeremy Rudin told BNN on Tuesday. “It’s not something that would be a positive development.” If rates keep rising, non-prime default rates could spike over time. Albeit, keep in mind, we’re talking a single-digit percentage of borrowers here. The question people will ask is: Does growing debt risk in the non-prime mortgage market, combined with home price risk and a potential drop in employment and consumer spending truly lower banks’ risk?

6. Provincially regulated lenders win: Unless provincial regulators follow OSFI’s lead (if history is a guide, they won’t), it’ll be a bonanza for some credit unions. Many credit unions will still let you get a mortgage based on your actual (contract) rate, instead of the much higher stress-test rate. That means you’ll qualify for a bigger loan – if you want one. We could also see a few non-prime lenders charge lower rates to help people qualify for bigger mortgages, while tacking on a fee to mortgage for that privilege.

7. Trapped renewers: Lenders are thrilled about one thing: customer retention. As many as one in six people renewing their mortgage could be trapped at their existing bank because they can’t pass the stress test at another lender. And if a bank knows you can’t leave, you can bet your boots they’ll use that as leverage to serve up subpar renewal rates.

8. A short-term spurt: Expect a rush of buying in the near term from people who fear they won’t qualify after Jan. 1. The question is, how much of that short-term demand will be offset by people selling, as a result of the rule change’s perceived negative impact. In the medium term – other things equal – this is bearish for Canadian home prices. Period. That said, borrowers will likely adapt within two to five years. And prices will ultimately resume higher.

9. The stress test could change…someday: While few credible sources expect OSFI’s announcement to trigger a housing crash, the higher rates go, the more this will slow housing. Financial markets expect another rate hike by January, with potentially two to four – or more – to come. Mr. Rudin says OSFI may “revisit” the restrictiveness of the stress test if rates surge, but will the regulator act in time to prevent diving home values? That’s the trillion-dollar question. The good news is that rates generally rise with a strengthening economy, which is bullish for housing – for at least a little while.

10. Questions abound: Tuesday’s news will undoubtedly spark contentious debate over whether this was all necessary, given already slowing home prices, provincial rule tightening, rising rates and the fact that uninsured default rates are considerably lower than for people with less than 20 per cent equity.

OSFI says its responsibility is to keep banks safe and sound. Overly concerning itself with the side effects of its mortgage stress test is not its mandate, it claims. Well, in a few years we might be either congratulating OSFI, or asking if that mandate needs to change.

THE CANADIAN PRESS

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What the new mortgage rules mean for homebuyers – There are two scenarios new buyers can anticipate

mortgage math

 

Source: MoneySense.ca – by  

 

 

Today, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on mortgage lending to take effect next year.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (mortgage consumers with down payments 20% or greater than their home price).

The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. “The main effect will be felt by first-time buyers,” says James Laird, co-founder of Ratehub.ca. “No matter how much money they put down as a down payment, they will have to pass the stress test.” The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house, explains Laird.

MoneySense asked Ratehub.ca to run the numbers on two likely scenarios and find out what it would mean for a family’s bottom line. Here’s what they found:

SCENARIO 1: Bank of Canada five-year benchmark qualifying rate

In this case, the family’s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.

Under new rules, they need to qualify at 4.89%
They can now afford $570,970
A difference of $155,969 (less 21.45%)

SCENARIO 2: 200 basis points above contractual rate

In this case, the family’s mortgage rate, plus 200 basis points, is greater than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.

Under new rules, they need to qualify at 5.09%
They can now afford $559,896
A difference of $146,796 (less 20.77%)

If a first-time homebuyer doesn’t pass the new stress test, they have three options, says Laird. “They can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well,” says Laird. The stress test will be done at the time of refinancing as well, with one exception. “If on renewal you stay with your existing lender, then you don’t have to pass the stress test again,” says Laird. “However, if you change lenders at mortgage renewal time, you may have to pass the stress test but it’s not crystal clear now if this will be the case for those switching mortgage lenders.”

So if you’re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.

But whatever you do, if you’re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting. “This shouldn’t be something that shocks you partway through the home-buying process,” says Laird.

And finally, do your own research and run the numbers on your own family’s income numbers. You can use Ratehub.ca’s free online mortgage affordability calculator to calculate the impact of the mortgage stress test on your home affordability.

mortgage math

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In it for the right reasons: Rent-To-Own

Source: MortgageBrokerNews.ca – by Neil Sharma 16 Oct 2017
A Calgary-based social enterprise that helps families attain homeownership using the rent-to-own model has arrived in the GTA, where affordability has reached crisis level.

Homeowners Now purchases homes its clients choose, rents it to them, and then gives them exclusive rights to purchase it if they choose at the conclusion of the agreement’s terms. According to Dale Monette, Homeowners
Now’s managing director, the organization works on its clients’ behalf to help them save for eventual ownership and augment their credit scores.

“Our mission is to help as many Canadians get into homeownership as possible by using the rent-to-own transaction structure, which allows them to rent a property for a certain amount of time with the option to buy at the end, kind of like leasing a car,” he said, adding that the company did its due diligence before entering the Toronto market, where its services are badly needed.

Homeowners Now is partnered with the North American Private Assets Corporation (NAPAC), which provides financing. NAPAC is regularly approached by real estate investors who use similar rent-to-own structures, but regularly turns them down. However, it approached Homeowners Now because it believes that the nascent company – which was registered in 2015 but investing with this structure since 2011 – is in it for the right reasons.
Moreover, Homeowners Now has a 100% success rate in helping renters achieve homeownership.

“NAPAC got in touch with us,” said Monette. “They’ve been approached by two dozen rent-to-own companies over the years, but they noticed these companies weren’t in it for the right reasons. We mostly deal with people who don’t have major credit issues – although we deal with them too – and that have good incomes but need that extra boost. Most of the time they’re young families.”

Entrepreneurs are particularly maligned by the current mortgage rules, and Monette says they also comprise part of Homeowners Now’s clientele.

But families for whom money is precarious receive particular care and attention by Homeowners Now. Monette recounted a story in which a client’s gas bill was mixed up and unpaid for to no fault of their own. Homeowners Now stepped in and lent them around $2,500 interest-free to be repaid in 25 installments. Another client had a broken dishwasher, washer and dryer, and Homeowners Now granted them half of the money to replace the appliances.

“Because we’re a social enterprise, whenever a client gets into strife, we help,” continued Monette. “If this client misses a rent payment, they default, but we genuinely want to help.”

GTA residents, specifically, could benefit from this rent-to-own structure. Homeowners Now only entered the market a month ago, but it already has three clients and about 75 applicants. Its goal is to oversee 15 projects a month by the end of 2018.

“What we’re seeing in the Greater Golden Horseshoe is a lot of people are moving further out while a lot of newcomers are arriving,” said Monette. “A lot of people might only have $15-20,000 in savings and that usually falls short of a down payment. There’s a huge need for individuals to get into the market as quickly as possible before being priced out of the market.”

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Court orders developer to reveal condo-flipper info

THE CANADIAN PRESS

A Federal Court judge has approved at least one court order that will require a British Columbia developer to turn over information to tax officials about people who bought and flipped condo units before or during construction.

And several similar applications are under way, reflecting the federal government’s efforts to crack down on potential tax cheating in the presale market.

A July 25 Federal Court order requires the developers of the Residences at West, a Vancouver condo project at 1738 Manitoba St., to provide the Canada Revenue Agency (CRA) with documents related to presale flips, also known as assignments, in the building, including proof of payments and correspondence between the developers and people who buy the assignments.

That order followed a June 29 application from the federal government.

In September, the Minister of National Revenue applied for court orders related to One Pacific, a Concord Pacific project, and Telus Gardens, a downtown project developed by Westbank Corp.

Both developers said they would comply with the request for documents.

“Customer information is protected by privacy laws and is not at the developer’s liberty to disclose unless ordered by the Court,” Matt Meehan, senior vice-president of planning at Concord Pacific Developments Inc., said in an e-mail.

“To protect our customers’ information and ensure any release will be compliant with the law, we have asked CRA to obtain a court order, which we will adhere to.”

In an e-mailed statement, Westbank said it would comply with the minister’s application.

The CRA is investigating potential tax cheating in the presale market.

Developers presell units in projects to obtain bank financing. Those sales agreements can be “assigned,” or flipped, to somebody else before the building is finished.

A unit may be flipped several times before a project is completed. But only the transfer of legal title from the developer to the final purchaser is registered with the B.C. land title office.

That means the CRA does not know the identities of any buyer but the final one, and has no way to check whether the others have paid applicable taxes on those transactions.

The provincial government last May announced new regulations designed to limit assigning: Sellers have to consent to the transfer of the contracts, and any resulting profit must go to the original seller. But those new rules apply to single-family homes, not condo presales.

As the CRA heads to court to obtain data on presale buyers and sellers, some observers say the provincial government could cool speculation in the presale market – and support federal tax-enforcement efforts – by changing reporting requirements.

Presale purchasers may include people who are not Canadian residents and whose profit from flipping a presale contract would be subject to a federal withholding tax, said Richard Kurland, a Vancouver immigration lawyer.

He used the example of a person from Iran who buys a presale contract for $100,000 and sells it for $125,000 a month later. Under the Income Tax Act, that profit – because it went to someone who is not a tax resident of Canada – would likely be subject to a 25 per cent withholding tax, he said.

“If nobody knows that you’re from Iran and not a tax resident, and nobody withholds the money, you just walked off with $6,000 tax-free,” he said.

If information on buyers’ identities were routinely provided, the agency could more readily check to determine if, for example, anyone was claiming the principal-residence exemption on more than one property, Mr. Kurland said.

Asked if the CRA would like the province to make changes such as requiring routine disclosure of the identities of presale buyers, agency spokesman Bradley Alvarez said in an e-mail that, “any additional information, including that obtained from other governments and third parties, enhances the CRA’s ability to detect non-compliance.”

The CRA has found some flips are reported incorrectly or not at all and “the CRA welcomes any endeavours to obtain any information that can assist the Agency in detecting non-compliance.”

Developers support the CRA’s goals, but have to take privacy regulations into account, said Anne McMullin, president of the Urban Development Institute.

“It’s not the developers not wanting to hand over information, it’s, ‘Let’s do this safely,’ because of privacy laws,” Ms. McMullin said.

The NDP, which came to power after the May election, had said while in opposition that the Liberals were not doing enough to curb speculation in B.C. real estate.

In its election campaign platform, the NDP promised to set up a multi-agency task force to fight tax fraud and money laundering in the B.C. real estate marketplace.

Finance Minister Carole James was not available for an interview.

In a statement, her office said the province is monitoring the federal government’s court action, and tax fraud is “something that is taken very seriously.”

The B.C. government is working on a comprehensive housing strategy, and any policy or legislative changes will be made public once that strategy is developed, the statement added.

 

Source: The Globe and Mail –  AND 

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7 ways the tax man is watching you

tax man is watching you

CRA is scouring your social media & donning disguises

Whether it’s through a photo on social media or a casual conversation with a friend, the Canada Revenue Agency is always watching and listening. And their investigators will pursue you tirelessly if they think you’ve been lying on your tax return. Their subject of choice? These days, it’s anyone and everyone.  “We always think it’s only the rich who the tax man is interested in but it’s the little fish they like the best,” says Paul DioGuardi, a senior tax lawyer and author of The Taxman is Watching. “The Internet is becoming a favoured weapon for the CRA to find and analyze all kinds of data so they can watch people they think are cheating on their taxes.”

Here’s five ways the CRA may be watching you that you probably weren’t aware of.

1. Your social media

Any of your open social media accounts are publicly accessible and some posts could prompt a CRA investigation into your financial life. From the CRA’s point of view this is a legitimate practice on their part because posts on social media really aren’t private. How does this work? Say you just bought a new $85,000 sail boat and are boasting about it by posting a photo of it on Facebook. The CRA could see this and then check it against what you declared as income last year. “If you declared $40,000 in annual income, or a modest amount, they’re going to be suspicious and come calling,” says DioGuardi.

2. Your sales and purchases on Kijiji, Etsy and Ebay

Is your passion for vintage furniture really a hobby? Or are you running a small business from your living room and not declaring the profits on your tax return? “To compare this data would take years in the old days,” says DioGuardi. “Now the CRA can data-mine these non-traditional sources of info in a heartbeat pretty much whenever they like. They are a collection agency with police-like powers.”

3. Your small business’s sales data

Cheating on your company sales numbers by declaring lower revenue than is actually the case?  Don’t. The CRA is able to use data to plow through years’ worth of your credit card transactions with the aim of matching your stated sales with electronic data they’re able to access.

4. Bank accounts and investments

To spot undeclared, taxable interest, dividend and capital gains income, the CRA has access to info from all Canadian financial institutions. They can also determine if you’ve exceeded your TFSA and RRSP contributions and penalize you accordingly.

5. Capital gains from condo and real estate sales

“In the old days I had to go to the registry office to find out when a piece of real estate had been bought and sold,” says DioGuardi. “Not anymore. The Internet changes the game.” Now, the CRA can look at all real estate transactions and easily flag suspicious transactions. What are they looking for? Condo flippers and real estate sales where the owner hasn’t declared capital gains and paid the appropriate taxes. Multiple property ownership where the taxpayer isn’t also declaring rental income is another trigger for investigation.

6. Your income and pensions

The CRA is hunting for disparities in retirement income. It can access info on your bank account balances and income and match it with previous tax returns. If there’s a wide discrepancy, be prepared to answer more questions.

 7. Mystery shopping

Don’t be surprised if CRA agents show up at your restaurant or other small business, in disguise to eat a meal with the intention of rooting out suspicious financial behaviour. The agents could pose as a couple out for a meal to see how your business works and what the count is for people frequenting your business to ensure it is aligned with what you have reported in previous tax returns. “It’s a big job and I think they will sub-contract a lot of this out in future,” says DioGuardi.

What does all of this mean? That the shift of responsibility is really shifting to the taxpayer and not the tax collector. In the past, the tax man simply told you what you owed.  These days it’s completely up to you to declare what you should be paying, and they have the means to check that what you’re saying is absolutely accurate. “Remember, they can search anything, put liens on your property and slap you with penalties and late fees,” says DioGuardi. “My suggestion is to always give full and complete disclosure on your annual tax return. With data mining the way it is today, if you don’t, then believe me, they will find you.”

Source: MoneySense.ca – by  

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10 most common bankruptcy myths

 

“The Act permits an honest debtor, who has been unfortunate…” to “…make a fresh start…”.

So reads page two of the 1,841 page annotated Bankruptcy and Insolvency Act (BIA) regarding a person who files bankruptcy. The legal process of bankruptcy effectively assumes one’s ‘innocence’ and is intended to be financially rehabilitative rather than punitive in nature. The days of debtor’s prisons have been assigned to the scrapheap of history.

Yet bankruptcy—and legal insolvency generally—is one of the more mercurial and misunderstood areas of personal finance. Recently I wrote an article arguing that unsustainable debt loads have become the new normal in Canada, in which I drew on my first hand experience with people struggling with debt trouble. As such, I have personally met with thousands of clients and have fielded every type of question imaginable about debt, assets, income, investments, businesses, taxes and just about anything else you could conjure up.

Myths about bankruptcy abound. Licensed insolvency trustees and their staff, such as ours, spend a lot of time dispelling misinformation when we are asked about what is involved with bankruptcy.

From what I’ve seen there are three possible explanations for the myths that exist about bankruptcy. Firstly, the majority of people will simply never have any personal involvement with it; secondly, our proximity in Canada to our giant neighbour, the U.S., from which we get most of our TV, film and even news consumption, means we hear tales of “Chapter 7” or “Chapter 13,” yet Canadian bankruptcy law differs greatly from the U.S. Bankruptcy Code. And thirdly, we have that font of unending opinion masquerading as fact known as the Internet.

Faced with such formidable competition for legal knowledge, it’s worth taking some time to address the most common bankruptcy myths in Canada, ones we hear on a daily basis in our offices. Canadians should be aware of their rights and options in the event of financial trouble.

Here are the top 10 bankruptcy myths (in no particular order):

1. I will lose my home

Very few people who file bankruptcy in Canada actually lose their homes these days. The net equity in your home is what is of interest to the creditors, specifically. And there are even exemptions for this depending on the province you live in ($10,000 in Ontario).

If there is non-exempt equity in your house when you file for bankruptcy,  you make a settlement payable to the estate (via the Trustee). Upon discharge, the trustee would release its interest in the property. Or you could file a Consumer Proposal as an alternative to bankruptcy (in which case your assets are yours to keep, anyway). Either way, you would keep your home. Or you can choose to have the Trustee sell the home and use the proceeds to pay the creditors only the amounts they are owed by proven claims.

2. I will lose my possessions

Personal effects, furniture and household goods are exempt in bankruptcy. Exceptions would be made if you had items of extraordinary value such as fine art, which you would be asked to declare on your sworn Statement of Affairs to the creditors. You can exempt one car with a net value of $6,600 or less. So if you have a fully encumbered car (financed or leased), keep it if you wish, provided you continue to make the payments in the normal course of business. Keep your stuff.

3. I will lose my job

It is illegal for an employer to terminate employment simply for filing a bankruptcy. In fact, unless there is a wage garnishing order in place, your employer will not be informed of your filing. Some professions have rules in place precluding your filing a bankruptcy, such as having a broker’s license in which trust accounts are managed. In that case, a proposal could be filed instead as it does not include such restrictions.

4. I will go to jail

Laugh if you like but we get asked this a lot. I hesitate to even mention it, but it is possible to be imprisoned under s. 198 of the BIA for Bankruptcy Offenses, but it is rare and you’d have to work hard to get there. Example: fraudulent sworn statements or conveyances (transfers of property) without disclosure. In well over two decades of practice, we’ve never had a bankrupt person go to jail.

5. My spouse’s credit will be affected

An almost universal question for married people who file bankruptcy. You cannot affect another person’s credit by filing a bankruptcy, period. If you have joint debts with your spouse and he or she does not also file, they are 100 per cent liable for those debts and only those debts.

6. I will not be able to get future credit/buy a house

As stated earlier, bankruptcy is intended to be rehabilitative in nature, not punitive. It would not be fair to punish someone forever for filing a bankruptcy, so the record of it stays on your credit report for six years following discharge for first-time bankrupts. After that, it is gone. Your ability to buy a house will always be governed by your financial circumstances: your income, your assets, your spending and obligations. Many former bankrupts have been taught budgeting by their Trustee as part of the process and are now, of course, debt-free. So on paper, as long as they have the downpayment, many look pretty attractive as a lending risk. Even while the bankruptcy is still on your report when you apply for a mortgage, most still get approved in our experience. CMHC will guarantee a mortgage within three years of your discharge from bankruptcy depending on your financial situation.

7. I will not be able to renew my mortgage

Everybody who has an existing mortgage has asked this, and we’ve never had one client not get renewed, provided they remain with their existing lender and are current with the payments. Most are set up for auto-renewal.

8. I cannot include the taxes I owe in bankruptcy

Absolutely untrue. All taxes owing are unsecured debts fully dischargeable by bankruptcy (and proposals). This includes not just personal income tax but HST and, in the case of a business, payroll tax, which is a director liability and would trail you personally. The myth about taxes not being dischargeable in bankruptcy likely derives from the U.S. Bankruptcy Code, in which only certain tax debt for specific periods are dischargeable and only in certain situations. Canadian bankruptcy law discharges all tax debt universally, unless the Canada Revenue Agency has taken steps to secure it (a lien on a property) or in the case of fraud or tax evasion.

9. I will not be able to keep any lottery winnings

Despite how few people actually win the lottery, almost everyone asks about this. Any unexpected windfall of money during a bankruptcy is considered a non-exempt cash asset of the estate that vests in the Trustee for the general benefit of creditors. In normal parlance: the Trustee would pay out all proven claims by unsecured creditors in the bankruptcy in full, and the remaining lottery winnings would be returned at the time of discharge.

10. My trustee will restrict the income I can make

The bankruptcy act sets out surplus income standards, updated annually, which govern the portion of the bankrupt’s income which should be paid to creditors. The standards are based on the number of people in a given household. So a bankrupt is technically not restricted in what they can make, but they must pay more if they make more above these levels. The bankruptcy would also be longer (before discharge) if there is surplus income.

Bonus Myth (11): Mortgage shortfalls can’t be included in bankruptcy in Canada

Wrong. Mortgage shortfalls certainly can be included in a bankruptcy (or consumer proposal). But it only matters in the provinces with power of sale legislation: Ontario, Newfoundland, New Brunswick and PEI. Let me explain by way of some background.

In Canada, certain provinces have power of sale legislation in place. In that system, a lender will commence proceedings when the homeowner defaults on their mortgage. The borrower remains responsible for any losses the lender may incur from the sale, and the lender will then commence legal action to recover the shortfall.

By contrast, a foreclosure (also the prevailing law in the U.S.) is undertaken by a lender when the homeowner defaults on their mortgage, but in this case the borrower is not liable for any loss incurred by the lender. In the U.S., many homeowners walked away from their properties during the 2008 housing crisis and were not liable for the shortfalls.

A bankruptcy (or a consumer proposal) stops or prevents any legal action taken against a homeowner for the shortfall incurred by the lender. It becomes a debt fully dischargeable in bankruptcy or via a completed proposal. This includes any type of mortgage (first, second, HELOCs, privates). The secured debt gets paid out as much as possible from the property’s sale, and any shortfall is unsecured, and therefore eligible for discharge in any insolvency proceeding.

So if you are upside down on your mortgage (you owe more than the home’s value), you could file a bankruptcy or proposal and include that shortfall amount amongst your other unsecured debts in that insolvency. That is a sizeable advantage to a debtor versus being on the hook for any loss in a foreclosure.

Source: MoneySense.ca – Scott Terrio is an estate administrator at Cooper & Co. Ltd, a licensed insolvency trustee in Toronto. Follow him on Twitter at @CooperTrustee

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