96 – What Happens If You Can’t Pay Your Mortgage or Car Loan

Wayne Kay 00:00
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debts with Licensed Insolvency Trustees from right across Canada. I’m Wayne Kay. 

Coming up in today’s show, we’re going to find out what happens when you can’t pay your mortgage or your car loan. A lot of Canadians have been struggling with this, especially as they’ve made changes to the interest rates and you resign, and it makes it very, very difficult. 

So is there a difference between a house foreclosure and a car repossession? Will a Consumer Proposal or a Bankruptcy protect you in this situation? And what gives the lender the authority to take your assets? And how long does it take for this all to happen? 

We’re going to learn more about this with Derek Chase. From Derek Chase & Associates Licensed Insolvency Trustees serving Vancouver Island Sunshine Coast to BC and the BC North Coast. Welcome back, Derek.

Derek L. Chase 01:00
Hi, Wayne. It’s great to be here today.

Wayne Kay 01:01
Thanks very much for joining me. This is such a perfect topic for right now. The amount of people that are probably struggling with mortgages and car loans and high interest rates has got to be astronomical.

Derek L. Chase 01:20
It’s certainly a growing problem as interest rates go up and mortgages are renewing. And just generally the inflated costs of life are pushing people to question whether they can continue on with their car loan or their mortgage. Yes, we are seeing that for sure.

Wayne Kay 01:38
So you are seeing more now. I was watching something and they were talking about the amount of consumer debt and where we thought we would be, and we’re doing a little bit better than we expected, but still the numbers are extremely high. It was like $8 billion or something in debt, as opposed to $12 billion. $8 billion is much better than twelve.

Derek L. Chase 02:02
Yes,, I think we’re going to be a bit delayed on this. There are mortgages that are still locked in at old rates, but they’ll be renewing. And as inflation continues to bite, it gets harder to make a car loan payment, for example. 

But I think I should probably also start off by saying that we’re located in BC and there are different rules across Canada in regards to how foreclosures work and how car repossessions work and the consequences or fallout from that. So if someone’s listening from outside of BC, just keep that in mind.

Wayne Kay 02:41
Okay, good to know. And let’s talk about the difference between a house foreclosure and a car repossession. Are they pretty much the same type of thing?

Derek L. Chase 02:51
Well, they’re the same in the sense that a secured creditor is coming to take their collateral because payments were not being made on the loan. So that’s similar. It is different as to how those processes unfold and what the long term fallout can be from the two different situations. 

For a house foreclosure, for example, if there’s a shortfall meaning that the house was sold for less than what was owing on the mortgage, then that mortgage holder is going to come and try and collect the difference from you. And that might not even happen immediately. That can happen a little ways down the track because foreclosures can take a fair while to unfold.

And then if the mortgage is insured by, like, Canada Mortgage and Housing or another insurer, another party that’s insured it, then they will try and collect the shortfall. 

In contrast, a car repossession, it’s still the same thing. You’re losing your asset. But if it’s a personal use vehicle again in BC, then that’s the end of the day. And that they can’t collect the shortfall.

And that’s referred to in our province, the legislation is referred to as seize or sue. You can’t seize and sue. It’s one or the other. So if they repossess the car, then that’s the end of the day, even.

Wayne Kay 04:25
If it’s not worth as much as you owe. So you owe $30,000, and now the car is worth $20,000. They’re out the extra ten grand.

Derek L. Chase 04:35
Good to know, right? Yes. They wouldn’t be able to continue to collect on that shortfall of $10,000.

And that’s for a personal use vehicle. It’s not the same for a business setting, but for the vast majority of situations we see, it would be your own private car or truck.

Wayne Kay 04:57
Right. So when you get into that horrible situation where you can’t pay the mortgage or your car loan, is that where you have to make the decision? You have to let one of them go. Walk us through what that looks like.

Derek L. Chase 05:09
I guess it depends on what’s most important to you. One of the questions that I like to ask people when I’m talking with them about their finances is, what’s the best case for you? What’s most important to you? And some people will say, whatever happens, I want to keep our house.

And so then we can focus around what decisions need to be made to make that happen. And oftentimes, whether it’s a car or some sort of travel trailer or recreational asset, it’s not such a hard decision to let that be repossessed because it does free up significant cash flow that would allow you to service the mortgage, perhaps, and thereby meeting your goals. 

So you need to look at what’s important to you, what the cash flow is associated with each of these decisions and perhaps rearrange accordingly. I like to look at vehicles, and just in terms of transportation, what is your cost of transportation? And if someone’s got an $800 truck payment with big insurance and big gas bills, they’re paying – what, $1,300 a month for transportation.

And I think there’s other choices for far less cost per month that are out there. So it’s a good discussion to have, I think, as to what’s important and what’s your goal, what do you want to see coming through financial reorganization?

Wayne Kay 06:46
And so when you get to this point you’re stressed out, can’t afford either we contact you. Is a Consumer Proposal or a Bankruptcy going to protect them from having this taken away?

Derek L. Chase 07:00
You know it won’t. A secured creditor has the right to realize on their collateral.

So ultimately, if that mortgage isn’t being serviced, then a foreclosure can take place. What a Consumer Proposal or a Bankruptcy would protect a person from is the shortfall on that mortgage foreclosure as far as getting protection from a car or truck repossession. A Consumer Proposal or a Bankruptcy is not going to stop that repossession. 

Again, it’s a question of the secured creditor having the right to get their collateral. What the filings could do is protect you from some of your unsecured debts such that you’re able to continue on with your car payment. So there’s some moving pieces here as to what you get protected from, how much cash flow that sort of frees up within your monthly budget. So it is good to have that discussion and really look at the numbers, I think.

Wayne Kay 08:05
And this is where it’s important to reach out to you, the team. It’s free consultation for them to find out what some options are and you can throw these ideas at them and then they can make a decision from there on how they want to move forward.

Derek L. Chase 08:20
Yes, and oftentimes it just does take that independent voice, giving some perspective and voicing out the options and helping people see that, hey, maybe we don’t need to have two big vehicle loans or whatever the case may be. You can go forward just by rearranging your budget and making some changes to your priorities. But in other instances where there’s just too much debt overall, then we get into the federal options that give you that immediate protection from the unsecured creditors. So, yes, I would agree. It’s well worth the meeting, I think, to do that.

Wayne Kay 08:57
Yes, for sure. And let’s talk a little bit about it because people are probably surprised when they find out their home is getting foreclosed on or their car has been repossessed. So what gives the lender the authority to do this and just take those assets?

Derek L. Chase 09:14
There are registries within British Columbia, there’s the land title registry, there’s the personal property registry. These are places where lenders have to register their loans in order for them to have the authority to come and take the assets. 

Ultimately, in a foreclosure situation, that does differ from a car repossession in the sense that a foreclosure proceeds through the court and it doesn’t happen fast. So there’s lots of notice as to what’s going on. There’s lots of notice that enables a person, the homeowner, to go to that particular court hearing and speak to it and challenge it and challenge the valuations and whatnot. A car repossession doesn’t go through the court. It’s more just a notice system.

In both cases, the lenders are going to be sending letters or phoning or trying to at least ahead of that process. A creditor doesn’t want to foreclose, they don’t want to repossess. That’s not how they make money. They make money by getting that continual stream of payments and interest income. So they try not to do that. They try to have that communication and work things out, but sometimes it just can’t happen and they’re forced to go to their last option, which is either a foreclosure or repossession.

Wayne Kay 10:49
Are these common in BC?

Derek L. Chase 10:52
Probably more common than you think. Again, it would ebb and flow with the economy. With the huge run up in real estate prices, foreclosures haven’t been that common, but I’ve seen situations where they’re fairly regular, so who knows what the future holds.

But car repossessions are probably more so. There’s a lot of new cars on the road and they can happen and life can go on, but probably more common than you think. And yes, I wouldn’t say a good system, but it’s a good legal system in Canada and BC as to how these things work. It’s not just Wild West, it’s more of a process.

Wayne Kay 11:40
Do you remember when the price of gas went up to whatever it was – $2.10 or $2.20?

I remember I saw a lady at the gas pumps and she bought this beautiful big truck and she was almost in tears. And I mentioned something about her truck and she said, yeah, I bought it when the gas price was down to like $1.07. And it’d been there for a long time and I didn’t realize that our gas prices would go as high as they’ve gone. And it’s just killing me financially, these little things.

We don’t think about the price of gas, of filling up, and then if you’re already stretched with the payments, that’s quite something. So I can see how that would happen for sure.

Derek L. Chase 12:30
Again, there’s just this cost of transportation. You’re either making a vehicle payment and the insurance and the gas.

If you’ve got a newer car or if you’ve got an older car, there might not be a vehicle payment, loan payment, but there’s going to be repairs. I look at it as budgeting $400 a month, really, to take care of a vehicle sort of minimum.

Wayne Kay 12:54
Right. So what’s your advice here for avoiding losing the house or the car if you’re struggling financially?

Derek L. Chase 13:03
Well, again, I think circles back around to looking closely at the numbers and seeing what potentially needs to change or be cut to be able to make those loan payments. I think it’s good to reach out to the lender and let them know what’s happening and let them know that you really want to keep that asset. And they sometimes have some solutions that can extend the length of the loan or some mortgages have the ability to miss a payment a year, that sort of thing. 

If there’s too much pressure coming at you from other debts, whether that’s income tax, debt or credit card or some other unsecured type of debt or payday loan, then you need to get some advice from a Licensed Insolvency Trustee. Virtually all of my colleagues across the country would be happy to sit down and just go through the different options and see what makes sense in order for you to keep that goal forefront of either keeping your house or your car. 

And usually I would say that there’s going to be a workable solution that’ll help you do that. So, always best to do that sooner rather than later. And yes, don’t be afraid, make the call.

Wayne Kay 14:20
Don’t put your head in the sand. We know a lot of people that have done this over the years. They know it’s bad and they stop opening the mail, they stop looking at the emails with the bills and finding out where they are and they just continue living and it obviously makes everything horrible.

Derek L. Chase 14:40
Yes, there’s nothing good that comes out of that option. There’s just pressure building until the volcano eventually bursts.

Wayne Kay 14:50
Exactly. Well, that’s what this show is about, hopefully stopping that volcano from ever bursting in our listeners’ lives. And we’re here to help and I sure appreciate you sharing such great information. As always, Derek, thanks very much for being on the show.

Derek L. Chase 15:03
Oh, it’s my pleasure, Wayne. You have a great day.

Wayne Kay 15:05
Well, my guest today, Derek Chase, and if you want to learn more or schedule that free consultation with Derek and his team, you can check out Bankruptcytrustybc.ca.

And that’s it for another edition of the Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out Debtmatters.ca. Thanks for listening.