Bankruptcy and Self-Employment

As a geologist, I’ve been employed for almost all of my career as a contractor, sub-contractor, seasonal employee, or I owned my own company.  In most cases, I also employed people, either as employees or sub-contractors.  As a writer, I freelance.

The bankruptcy system is not set up for people like me.  I am required, each month on the 7th, to submit a generic form listing my income and expenses for the previous calendar month.  There are a few extra lines for things like prescriptions, child support and work expenses: these are deducted from your total income for the month.  Household expenses are straight-forward.

Self-employment is not straight-forward.

Often, I will have a contract that lasts anywhere from a day to several months.  The client sets the billing/payment schedule (usually).  In freelance writing, you are often paid upon publication.  This means you can work on something for months, send it away, and get paid months after that.  Work expenses range from payroll for employees to rentals to WCB costs to equipment purchases.  As well, you are responsible for your own taxes: income, GST, PST, etc.  My husband and I also retail a particular piece of equipment that is imported from another continent and has customs and duties to be paid.  The length of time between purchase and payment can exceed several months.

I have discussed all of this with our very helpful bankruptcy trustees.  Without the boring details, I have had to find myself an accountant, an uninvolved third-party who can make excellent projections based on our previous work histories and can help us set aside (and pay) all the government payments that will be due throughout the year.  We are planning to pay things monthly, from income taxes to GST, as that eases the future stress of coming up with lump sum payments as well as makes it much easier to fill out these generic forms.  Thank goodness I have an amazing accountant on speed-dial already, one who has aided us several times in various situations, from court trials to invoicing, thanks to her CGA training and expertise.  And her willingness to work with me, someone who is (still) afraid of money and making terrible mistakes with it.

Happily, she is considered a work expense.

I still find the system frustrating.  I know how we ended up bankrupt: our company failed.  I understand credit and debts and misuse of credit cards.  I get that working with a partner on the retail deal sort of entails credit except that we can’t just walk away because we went bankrupt.  We still have obligations and potential and dreams to fulfill.  I understand and agree that we have debts to be repaid.  What I find particularly difficult is the added stress from these generic forms, the worry that I will mess it up and our bankruptcy will continue indefinitely or some such silly notion.  It takes me days to deal with them and that is with my adoption of a fabulous tracking and budgeting program (more about that another day) that can spit out all the information I need.  I scan more paper now than I did when I ran my own company.  Yay for apps!

It doesn’t look good for me finding a ‘regular’ job any time soon so I am working hard to figure this out.  Hopefully, I can help someone else out at the same time.

Hard Days

Today is one of those hard days.  The ones where you aren’t sure you will be able to get through the day without crying.  The ones where you wonder how the hell you are going to pay the mortgage next week and what are you going to do with the kids come summer?  Where you can’t find the paperwork you need to file because you vertically filed it somewhere in the dining room last week, forgetting about the filing cabinet you set up to avoid this exact situation.

The days where you wait for the next bit of bad news because sometimes it seems that that is all there is.

Today started the same as yesterday: waking up from some pretty bad dreams after a restless night.  My brain went straight into worry mode: will the reports get finished?  Will the next (unknown) shoe get dropped?  Did I fill out the paperwork correctly?  How can I fax it now that our e-fax has been cancelled and I can’t afford the fax at the stationery store?  What new awful rumour will I hear about myself today and how do I make them stop?  Two more weeks of school then who will be home to take care of the kids?  Should I be looking for a full-time job or trust that all the bit-work contracts I’m pulling in will be enough?  And how the heck did he rack up an additional $50 in data phone charges?

That moved into a big fight with my husband: apparently neither of us are feeling appreciated for the vast amounts of work we think we are both doing.  No point in even getting into explaining that one, we can’t help how we feel.  I think the fight had been brewing for a while though.  However, I must admit, we argue and fight a lot less now than we did while trying to keep our company afloat.  We have found our senses of humour again.  We can talk without getting insulted at numerous perceived slights.  I don’t want to run away anymore.

I am never sure how to get through these days.  I make my tea, do some yoga, slog through some chores, fill out some more paperwork.  I know the time is passing and things will get easier.  We are already over two months through our 21 months.  But I’m scared on these days.  I take extra B vitamins and a homeopathic anti-anxiety pill and wonder what I will do when I run out of them (they are from pre-bankruptcy days).  I sit out in the sun.  I play with the chicks and the puppy.  I do more computer work.

And I wait for the next round of bad news.

Unexpected Loss: My Driver’s License

Sometime in the late winter/early spring, while everything was falling apart with the businesses and our finances, the Ministry of Justice decided it was time for me to do yet another medical exam in order to keep my Class 4 license.  I seem to be doing them more often than every five years although the only restriction I have is for vision.  Unfortunately, it’s $75.00 at my doctor’s office to have him fill out the form and I just didn’t have the money.  I set the form aside, intending (haha) to catch up with it at some point.

Then the businesses failed and we went bankrupt.  I forgot about the medical.

I had received (and not opened) a reminder sometime in April.  And of course, eventually the cancellation notice arrived.

I called the number and spoke to a very understanding woman who helped me out in several ways.  I explained what had been going on in my life and that I’d simply forgotten about it, once I realized I couldn’t pay it.  However, was there anything else I could do because my Class 4 has been very helpful in many jobs and I certainly needed it now while looking for a new job.  She offered to extend the deadline for cancellation so that I could get the medical done (I borrowed the money) and take care of it once I returned from a three-day work trip out of town (Wednesday through Friday).

I went ahead and booked the medical; the earliest I could get was for the Monday after my road trip.  I went on my road trip.  I went to my medical.  I went straight from there to the Access Centre to fax the medical form directly to ICBC.  The customer next to me was asking about a ticket they’d received for driving with a cancelled license.  Just in case, I asked the customer service representative to check my license status.  To both our surprise, it had been cancelled at midnight, the night before.

Now I was looking at an additional $37 to have it reissued and, honestly, I started to cry.  I’d already scraped together $75, where was I going to dig up another $37?  The rep took me over to a client phone and dialled the number for the Motor Vehicles Branch.  I sat there on hold for 45 minutes, which at least gave me enough time to get myself together.  When the agent finally answered, I explained the issue and she wondered why the representatives hadn’t just changed the cancellation date.  I told her that the rep had called customer service and been told that it would be $37.  I was calling to see if that could be waived.  The agent asked me to have the rep fax my medical directly to her (secret fax number!) and then wait while she retrieved it and put me on hold.  I waited again, the rep faxed the form again, and then…I was cut off.  I couldn’t believe it and actually had to laugh.  When the rep and the agent had spoken, the rep had mentioned the name of our town.  We waited, hoping the agent would call us back but no such luck.

When the rep checked my status again, the cancellation had been removed and the medical approved.  However, now they had to issue a duplicate license for $17.  I still don’t understand why, but she took my old license, took a new picture, took the $17 in change I’d scrounged up, and I’m back to the yellow piece of paper that is my interim license until the new one arrives in the mail.

Two hours in the Access Centre, one hour of that on the phone with a head office somewhere.  Thirty minutes on the original phone call to extend the cancellation date.  Thirty minutes at the doctor’s office.  $75 for the medical.  $17 for the duplicate license.  I saved $267 for not getting a ticket for driving with a cancelled license (what are the chances that the fellow next to me would have that problem????).  And I felt like total crap for not having that $37 and saving myself another several hours of both time and feeling really, really awful about this bankruptcy.

Worthless Wonders

One of the hardest things to swallow after declaring bankruptcy is how little you are actually worth.  All those beautiful things that need to be dusted, the clothes that were on-trend, the furniture you saved for and dreamt about: they are not worth much to anyone else.  Or if they are, you have to find that singular person who puts the same value that you do on your treasured possessions.

Our assets were listed and valued.  Things that may be sold have to be sold or, essentially, repurchased if we want to keep them.  I have discovered that although I bought something for $900.00 and I think it’s still worth $750.00, there are few people who agree with me.  In this case, a solid, steel-built hay bale feeder went for $375.00.  It’s pathetic.  It’s worth much more but I have to dispose of it so as to pay the Trustees and creditors.  I’ve had it listed since well before we went bankrupt but it seems that the people who are searching for bargains are not the type to appreciate quality.  They want cheap and disposable, two things I equate as being totally wrong with our society.  No wonder the world is heading to the dogs.

Our house is full of crap.  I mean, we have expanded to fill our space but it’s impossible to sell anything for more than garage sale prices.  It’s flat-out depressing.  We look around at the things we have and are, occasionally, horrified by how much money we spent and/or invested in something.  We will never recover the money we put into DVDs ($10,000?) or CDs.  Linens are worthless.  Books are turned away at the door of the used book store.  Forget about clothing, unless they are designer, which we don’t own.  I can’t sell my designer shoes, even on their own re-sale pages.  Furniture: practically valueless.  Kitchen appliances: nope.  Knick knacks, no way.  Even my horses, non-purebred lawn ornaments, are considered a liability.

It does make it easier to not purchase things now.  We don’t have the money, true, but we also see how much we can get second-hand and how little things are worth except to us.  I want to downsize in everything, clear it all out, because it takes up space and time and is of no value except to me.

How did this happen?  Even for us, who try to buy smart and avoid the disposable society in which we live.  I hate crap that is pumped out from China and costs us a dollar, then breaks and heads to a landfill.  We see the landfills here in the north: in a small town you haul your own garbage and recycling.  It’s frustrating to see how much gets tossed without a second thought.  However, when you try to value it as we have, it’s sickening to realize it’s not even worth the drive to the dump.

What Does Bankruptcy Cost, Exactly?

What you pay when you declare bankruptcy will vary from situation to situation, but in BC there are a few guidelines that are relatively straightforward.

I assume there will be some variance between Trustees: ours are charging $1800 CDN for our bankruptcies.  This includes all the paperwork, filings, time, counselling sessions, etc.  The $1800 will be taken from our monthly payments.

Often, for a single person who is declaring a bankruptcy due to over-extending themselves on credit or the inability to pay income taxes, the bankruptcy will be paid out in nine months.  However, if you are like us and expected to make more than a basic income, the bankruptcy continues on for 21 months.  These time periods may be extended at the discretion of the courts/judges, on the advice of the Trustees.

At this time, in BC, we as a three-person household are allowed to retain $3156.00 per month (this number varies depending on how many people live in the household).  On top of this, we may retain money for child support ($500/month), child care expenses (variable), work expenses (also variable), and medical condition expenses (i.e. prescriptions).  Anything earned over and above these amounts is then divided 50-50, with 50% going toward repayment of our outstanding debts (through the Trustees).  We may then use our remaining 50% to pay other bills, put into savings, pay more to the Trustee, or put toward our retention of assets.

As I mentioned in a previous post, our assets were given a declared value and we must either sell them and turn the money over to the Trustees or save up the money and pay to keep the items.  These amounts are somewhat flexible; for example, I have had a hay bale feeder listed on the classifieds for several months now.  We paid over $900 for it.  I was asking $750.  I sold it today for $375.  I declared it’s value at $750 but will only have to turn over the $375 as that’s all I could get for it.  It’s frustrating to let things go so cheaply but it’s part of the punishment for going bankrupt.  Someone benefits, hence the popularity of liquidation sales and the like.

Each month we fill out a detailed form for the household, noting any and all income, the non-discretionary expenses noted above (child support, etc), as well as listing all of our monthly expenses.

We must also attend two financial counselling sessions with our Trustees; gratefully, these may be done by phone as it costs us nine hours of driving time plus about $100 in gas to make a return trip to see the Trustee in person, assuming we don’t have to stay overnight.

Finally, for us personally, we are also responsible for over $300,000 of outstanding debt for our company, which does not go away with the bankruptcy.  This is called Directors’ Liability and relates to outstanding monies owed to the Canadian Revenue Agency.  Income taxes are usually written off but our previous management implemented a program of skipping payroll and GST payments.  It was much too late to recover once we found out; between that debt, long-term loans, lack of payment by three major clients, and large accounts payable, we were forced to close the company.  And while the company still exists, albeit dormant, it has escaped the crushing debt-load that we still carry even with the personal bankruptcy.

Issues With Pride

Pride has always confused me as to whether it’s good or bad. It’s a deadly sin but it’s respected in family and appearance. It can keep you from taking charity or it can keep you from failure.

Today was a tough day for pride. Our whole situation is weird: being newly bankrupt and out of work and yet setting sail on a cruise for ten days with the extended family, courtesy of my mom. We made our first port of call in a beautiful city and walked into town with the kids. After some sightseeing/meandering we met up with a potential employer of my husband’s. It was over lunch and he’d driven some distance to meet up with us. He also knows our situation and is quite wealthy himself.

The kids were crazy hungry and so I started looking around and asking everyone what they wanted to eat. My husband whispered that we should wait until the other man returned, as he would probably treat us to lunch. I had some spending money, courtesy (again) of my mom. I started ordering the small plates first, just in case. I did not want to stand there waiting for someone in the hopes that he would buy us lunch (pride) although I would have accepted if he had offered. When he did return, he ordered his own lunch and I realized we were on our own. No problem, I was not going to say or do anything to intimate we’d hoped for the treat (pride again) and I picked up the rest of the items.

Now, I hate buying drinks. They are incredibly overpriced and usually consist of sugar and water anyway, or at least the ones the kids want do. My son picked out a can of something, for $2.75, and as per usual, everyone else asked for a sip. Several things happened at this point. One, I didn’t have more money to justify buying more pops that may or may not get finished. Two, it was my son’s birthday. Three, recently my son has developed a major issue with sharing drinks, particularly germs on straws. This from a child who will eat dirt.

He lost it.

There we sat with a potential employer and a sobbing seven-year old boy. There was still pop left but he wouldn’t touch it because of the germs (of his family). I wasn’t going to give in to the sobbing but I did feel badly that it was his birthday and I couldn’t do that little special thing of getting him his own drink. Something so simple and yet fraught with more than just discipline: we have to share, when we are lucky enough to even get something.

The kids don’t really understand the bankruptcy thing. We’ve always been reasonably generous and able to do lots of little things. That has all stopped, not totally suddenly but it’s been winding down for a while. Budgeting has become the be-all-end-all.

My mom has been amazing in that she is helping us pay our bills while she takes us away on a vacation. It is hard, though, even when you have a bit of spending money, to spend anything. I feel like I should feel guilty for being on this cruise when so much has gone wrong. I feel like I’ve run away in the middle of so much and yet I know everything has pretty much been handled. It’s our first vacation since January of 2007 that we’ve had no jobs, no company, no projects, nothing falling apart the day we left, no massive stress throughout our time away.

It’s taking some getting used to.

Support and Tears

Today I was going to get into the nitty gritty of how our paycheques will be split up but instead I think I’ll discuss the personal aspects of the bankruptcy.

I’m teary today.  Nothing is particularly hard (today) but I was on a call with a group of other volunteers, a group very important to me, and today was the day I let them know about the business and bankruptcy.  The outpouring of support was so great, and the personal follow-up emails after the call are what have made me teary.  These are all colleagues, people I respect and with whom I am in the same Professional Association.  I’m so grateful that this wasn’t one of the volunteer groups for which I am a Director: after a bankruptcy, you are not allowed to be a Director for several years.  I volunteer a lot, it’s what makes my involvement in my industry worthwhile.  For this particular group I am on the Executive Committee and even our head office encouraged me to continue to work with them and recognize the value they put on my involvement.  I was, and am, touched.

I was on another committee for our local Credit Union but I went to them and said that I would understand if they wanted me off, even though I’m not exactly a Director.  I really liked the group and helping make decisions about grants but the perception in a small town of having a bankrupt person with a failed business on a grants committee…well, the bank appreciated it and agreed with me that it would be best if I stepped down.  Very kindly, I might add.

Our local industry networking group wants to keep me on the Board as ‘just’ a Board member, as opposed to an actual Director.  My husband is also a Director for them and one of our past employees is the current President.  While the President is fine, my husband and I enjoy being involved and are keen to continue volunteering; the group is good with spending the $40 to change the official paperwork, take our names off as Directors, but keep us on the Board.  And yes: this made me feel incredibly appreciated and grateful.  I don’t do these volunteer things for the acclaim, but it is pretty spectacular, when the so-called chips are down, to find out how much your time has meant to the other people involved.

The worst thing for me regarding the failure of our business is that not everyone will get paid out.  The CRA will get first dibs on everything.  The BDC might get something and will probably be the main creditor being paid by our garnished wages.  Then will come our other creditors: the personal lines of credit and credit cards.  Last on the list will be the company’s Accounts Payables, and for this I cried in front of our trustee.  I am sick over walking away from our company and letting these people down.  They are people, not companies, to us.  We are a small town, we know them personally.  I am still writing the apology letter to them all and my husband and I will deliver it in person to as many as we can.  A few of them know that we have closed, others know that we are in trouble financially.  Several of them have spoken to us and offered their kind words and regrets.  In the face of not getting paid themselves, they are still supporting us.  That is why we tried so hard to make Company A work.  Possibly why we held on longer than we should.  But to not try, to just walk away and ignore the fallout…

Impossible.

Stuff: What Do You Lose and What Do You Keep?

Fortunately for us (from the point of declaring bankruptcy), all of our personal equity had been poured into the company.  On a $400,000.00 house we have a $359,000.00 mortgage.  Unfortunately, the $41,000.00 in equity is $10,000.00 more than we are allowed to have so although we’d lose money if we sold the home (and not be eligible for another mortgage for several years), to keep it requires us to pay our creditors the extra $10,000.00.

Both of our vehicles still have money owing on them and the value of each falls below allowable, so we keep those.

Declaring assets’ value is a double-edged sword.  It’s nice to have things that are worth something, that perhaps you can sell to keep afloat, but by declaring them you are required to either sell them and give the money to your creditors or you have to pay your creditors the stated value so that you can keep the items yourself.  In the end, whatever you keep you will have paid for twice.

This is tough when you have items that have a value but are very difficult to sell.  For example, we have a player piano.  No electronics, you use foot (thigh!) power to pump the peddles to make the player turn.  It worked when we bought it with our house and we paid $1000.00.  The original owners said it was worth $10,000.00 but it is astonishingly heavy and they didn’t want to move it.  We noticed that the alignment for the music rolls was out and when our piano tuner tried to fix it, something broke internally and the player no longer worked.  Now we have a player piano that doesn’t work and that nobody wants but that we have to pay an additional $1000.00 just to keep in our house.

Art, jewelry, sports equipment, electronics, extra vehicles, camping gear, recreational vehicles: if you haven’t already sold them to pay your bills, you either sell them and hand over the money or keep them and hand over the money anyway.  While I do understand the point behind it: you owed money you couldn’t pay and so declared bankruptcy, it is tough to have to pay for things twice.  On top of that, you have to pay for them before your bankruptcy will be released which means that you have to earn TWICE the amount of money to pay for whatever you wish to keep.

Twice?  Yes.  I will explain that tomorrow.

How to Declare Bankruptcy in BC

We live in a small town and declaring bankruptcy wasn’t quite as easy as it seemed.  There are no bankruptcy trustees in our area so we had to drive four hours for our free consultation.  A month before we actually decided that bankruptcy was the route we had to take, we met with the trustee to discuss our options and exactly what going bankrupt in BC meant for us as a family and as a company.

Ours was slightly more complex than many bankruptcy stories in that we own two Limited Companies in BC and we are both Directors for each.  Our main company, Company A, was owned by us and Company B.  Company B and we were Guarantors on the majority of Company A’s debt, mainly to the Canada Revenue Agency (CRA) and a major bank.  We expected that both Company A and Company B would declare bankruptcy which would then trigger personal bankruptcies for ourselves.  The CRA debt would not be absolved with any bankruptcy (payroll and GST; I believe income taxes owed would go away with bankruptcy).

We gathered information from the trustee (a specialized accountant) and went back home to discuss our options.  The first thing we decided to do was to try and sell Company A, intact, in the hopes that it could be turned around by someone with more experience than we had, along with more cash flow and a longer time frame for recovery.  We were very aware that after the CRA and the major bank were paid out, our Accounts Payables (AP) were looking at receiving little if any money.  I mentioned we live in a small town: many of these APs are our colleagues and acquaintances, if not friends.  They were unwilling investors in Company A.

We garnered much interest but Company A’s outstanding liabilities were too much for anyone to take on.  In creating the financials necessary for the potential investors, it became clear that without a global economic miracle, Company A was done.  When the last dollar was sent out, we closed the doors and called the CRA.

By asking the CRA to step in and seize our assets, we effectively negated the necessity of Company A declaring bankruptcy.  If A did, the trustee would send in someone to seize everything, do a complete inventory, sell the assets, and turn the money over to the CRA.  As the CRA had already seized it all, we eliminated the middle man.

Personally, we were still responsible for whatever outstanding CRA debt remained after the sale as well as the major bank loan.  We had to go bankrupt ourselves.  Now Companies A and B still exist but have no assets and no Directors.  Back to yesterday’s sinking ship analogy.

Finally, with the decision made and the assets seized, we drove back to the trustee’s offices (courtesy of my mother’s gas card) and filled out paperwork and answered/asked questions for four hours.  The credit cards were cut up on the trustee’s desk.  We pulled the remaining cash out of our bank accounts.  We were told to be creative.

The next day I turned 45.

A True Day of Birth

The day before my 45th birthday my husband and I each declared personal bankruptcy.  This was not an easy decision although since then, I have spoken to many people who have also declared bankruptcy and the biggest regret from most of them was that they wish they’d done it sooner.

I’m not there yet.

Bankruptcy comes with such stigma: overspending, hoarders with too many shoes, money laundering, poor habits, ignorance, cheating.  In our case, our company could not survive the global downturn in the economy carrying such a heavy debt-load.  We stopped taking paycheques eight months ago and watched our personal debt climb steadily.  We cut corners, sold what we could, tried to hang on.  We started this business five years ago and had won awards for diversity in hiring and reclamation work.  We worked with local First Nations.  Our employees were stellar and we were a strong team.  We had weathered poor decisions, bad business advice and one really scary business development person.

At the very end, the thing that pushed us over the edge was that we simply ran out of cash.  Three major clients refused to pay us approximately $210,000.00 in accounts receivable.  Our overhead was high but we feared losing our best employees.  In the past, something always came up to help us hold on a little longer.  Not this time.  We tried to sell but there were too many liabilities.  We let the employees go with no notice and we closed the doors.

As Directors, we were on the hook for much of the corporation’s debt.  So, now we are bankrupt but the corporation still exists.  I was shipwrecked once, many years ago (and a story for a totally different blog), but I remember sitting in the life raft, watching our sinking boat moving away from us under full sail, and that is what I feel like now, with our company: I’m watching it sink slowly, no one at the helm, no one there to help.

So, on my 45th birthday, I woke up to no debt.  Also no job, no credit cards, no company, no employees, and no savings.  Each day is interesting and part of a learning curve.  The stress from before bankruptcy (BB) has been replaced by new, after bankruptcy (AB) stress.  They are different and I’m hoping AB stress is easier to take.  One of our bankruptcy trustees told me this would help us get creative.  Let’s find out.