Meet David*, a 40-something-married-with-kids dentist who has owned and operated his own practice for the last decade or so. He was very successful in his career until a mistake left him without a license and the ability to practice. Without that, he was lost and drowning in a pile of corporate debt. This is his story.
After losing his ability to practice dentistry, he wasn’t the only one who lost his earning potential. His wife happened to work in his office as well. With huge debts hanging over your head and no way out, you simply just get farther and farther behind. So David thought that filing for bankruptcy would clear up his corporate debt.
However, the majority of his debt was owed to CRA (Canadian Revenue Agency) and it was nearly impossible for him to get out from under it. David was already owing before he hit his turnaround point, but by then, things had gotten even more complicated.
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With $400, 000 in corporate debt, getting out of it would be a monumental task for anyone. Not to mention the loss of both partner’s earning potential. Before they came to us, David and his wife and already filed for bankruptcy without hiring a consulting company, so the trustee put together a program that would require him to pay 25% of his future earnings. This posed a serious problem because not only did this amount exceed his past earnings, he had zero earning potential without a license. Already, this case was set up to fail.
He had already given the creditors over $100, 000, but at this point, it meant nothing. He was in no man’s land. No trustee would take his case. The one bright side was that he got his license back and began to work again. However, without a clear debt picture and an annulled proposal, David was looking at a whole lot of debt, a failed bankruptcy, a failed debt proposal, and still no foreseeable solution.
To only increase the financial tension, it happened that David and his wife had invested $75,000 in a rent-to-own home, but could not afford to purchase the home before the selling price was increased by the investor. They were running out of time and options, making it very likely they would lose the money they invested.
At this point, David was looking at a second bankruptcy to clear up all of his past and present debts. If they file a second bankruptcy, they will have to pay $60,000, then hire a lawyer and offer their creditors $100,000 over the next four years.
The unfortunate part of being in debt with the CRA is it nearly impossible to get out of it. He considered filing a second proposal to please the CRA, which would cost him $125,000 and a lawyer, which he can’t afford. While it may seem counterintuitive to file a second proposal alongside a second bankruptcy, but it would mean that he could get out of the bankruptcy and begin earning money again. In contrast, staying with the bankruptcy would cost keep costing him. If he does not hire a lawyer, the CRA will not agree to discharge the bankruptcy and will end up costing David an extra $100,00.
Sometimes a fork in the road makes it harder to keep moving forward. In this case, David is still in his second bankruptcy.
Corporate Debt versus Consumer Debt Solutions
Corporate restructuring has to do with debts that a company (either limited or incorporated) has and usually requires an inventory and appraisal of all assets, along with a performance history and report of income/expenses to find areas of fiscal bleeding before negotiations would begin. This can take significantly longer than a consumer restructure.
Negotiations are different as well because it’s not just about proving that there isn’t excess cash flow, it’s about determining which companies would want their asset back (secured loan) and which companies deem the asset invaluable and would want a pay out, and of course, what the return of that asset would look like for a company and their bottom line. We have to look at who and what they are paying for and determine if there is any savings or new ways to make money there. Then there is the ultimate question as to whether or not the business itself should go bankrupt and start again.
Consumer restructuring has very few assets to consider (house, car, boat, trailer) and most of those don’t affect the person’s ability to make money. We look at a more simple overview of their income and what they can spend. 90% of consumer negotiations are focused on unsecured assets, where as corporate restructuring is the opposite, so negotiations are easier on the consumer side and therefore take less time. Sometimes consumer restructuring will have a sole proprietor business involved. When that happens, we determine the assets (if any in the company) and disclose the sale of the assets from the sole proprietor to the limited or incorporated company that (if it make sense to the client’s situations) for them to be able to continue making a living.
Image courtesy of Pixomar at FreeDigitalPhotos.net
When should I use Corporate Debt Restructuring services?
Like the case above, corporate debt arises when a business can no longer meet its financial obligations. This can be caused by a loss of earning potential, like David, or simply overextending your business without income or revenue to help you bounce back.
If you are at risk of closing your business or going bankrupt, it can be useful to discuss your options with a corporate debt consultant. These restructuring services allow a business to protect themselves from their creditors, re-negotiate their terms on their corporate debt, and essentially keep afloat.
If you answer yes to any number of these symptoms, it could be time to consider corporate restructuring services:
- You consistently default on lending terms and conditions
- You rely on personal credit or investments to survive
- You don’t take a salary, or have trouble paying your employees
- Your net profit has been significantly reduced
- You have increased operational expenses
Don’t leave corporate debt to the last minute. Get help today. Call Parley Consulting to discuss your options with experts you can trust. 780.722.3000
*Names are changed to protect the privacy of our clients.