when to declare bankruptcy

If you are heading deeper into debt, know you are not alone. Many Canadians are struggling to keep afloat in these precarious times. Filing for Bankruptcy may be your best option, depending on your individual circumstances. 

But is there a better time of the year to file? You may be surprised to find out that – yes there is. When you declare Bankruptcy will affect how many tax returns you will lose. 

In this podcast, Licensed Insolvency Trustee, Derek Chase talks about why Bankruptcy can be the most practical thing to do, often being the fastest, least expensive way to get relief from your debt. He also explains the benefits of filing before the end of the year. 

Other optics covered are:

  • Why professional advice is so very important
  • How long the Bankruptcy process takes and how much it costs
  • Consequences of waiting too long
  • Bankruptcy duties after filing and how to start the process 
  • Red flags to watch for when dealing with debt companies

Licensed Insolvency Trustees can help you take control of your unmanageable debt. They are considered some of the best debt advisors in the country and the only ones licensed by the federal government of Canada. 

Wayne Kay 00:04
Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay. 

Coming up in today’s show, we’re going to find out why you should file Bankruptcy before the end of the year. How do you start the process? Who do you talk to? And what do you need to know about fees and cost for Bankruptcy to help us out? 

My guest today, Derek Chase. From Derek Chase & Associates Licensed Insolvency Trustee serving Vancouver Island, Sunshine Coast and BC North Coast. 

Thanks for being here, Derek.

Derek Chase 00:42
It’s my pleasure, Wayne. I’m really looking forward to it.

Wayne Kay 00:45
I’m looking forward to this topic as well because well, we hate to even use the B word, but there are reasons for why it’s used.

Derek Chase 00:54
For sure. Sometimes it’s just the most practical thing to do. Bankruptcy filing can often be the fastest, least expensive way to get relief from your debt. So it’s good to know about it.

Wayne Kay 01:07
People have heard stories, but a lot of times I’m wondering, are those stories maybe not true? Because nobody ever really calls you up to find out unless they’re in the situation. But it’s always – I heard from a friend, who heard from a friend whose uncle declared Bankruptcy and they had to go through this. Right?

Derek Chase 01:28
Yes, you’re exactly right on that. I would agree. There’s lots of anecdotal stories out there that might be half correct and unfortunately it doesn’t make for good information for making decisions. 

I think that everyone’s situation is just a little bit different and as a result, you really want to get some professional feedback before you make any choice surrounding getting Bankruptcy protection. So we would encourage people not to rely on a friend of the friend of their uncle or some other person they met at a social gathering, but rather go to a Licensed Insolvency Trustee anywhere across the country really to get the straight goods.

Wayne Kay 02:12
Right. But each one, as I’ve learned, it’s different for each province. So deal with the one closest to you in your province.

Derek Chase 02:19
Absolutely. Even in this era of video and laptops, we really like meeting face to face. We think that’s the best way to trust and to really understand what’s going on. So we do meetings both in person or video. But yeah, it’s great to be able to deal with someone that’s close to you.

Wayne Kay 02:40
So when you are in a bad financial situation, they call up, and they make an appointment with you. You go through and you look at all the finances and then you give them the options and they realize the best option for them is Bankruptcy. Now how long does that process take?

Derek Chase 03:00
The start of the process varies a little bit. What we need is different pieces of information from a person in order to put the Bankruptcy documents together. Once we’ve gone through the initial meeting and the decisions made to go ahead with filing for Bankruptcy. We require a variety of bits and pieces of information about assets and debts and income and expenses.

Sometimes that can take a little while to put together. Other times people are very organized and it also depends what sort of pressure is on them. If there’s a Canada Revenue Agency garnish, that’s something that we would really rush and try and get the Bankruptcy up very quickly to stop the garnish. 

But in the general flow of things, a person brings in an application form, then with somewhere, I don’t know, a couple of days to five days we’re looking at before we have documents ready. And then the person pops in and signs the documents and away it goes.

So it kind of depends on what the pressure is, what the urgency is, how busy we are. There’s a combination of things there, but not very long. Once it starts, once the decision is made, it can get in place pretty quick.

Wayne Kay 04:21
So our topic today, we’re talking about why it is important that they should maybe file before the end of the year. Why is that?

Derek Chase 04:30
Yes, I think it’s good to have some insight as to the time of the year when Bankruptcy is filed. And in my opinion, it really revolves around whether or not you normally get an income tax refund. 

One of the consequences of getting Bankruptcy protection is that you typically will lose your income tax refund to your creditors. It gets paid into the Bankruptcy directly by the income tax department. So if you’re a person, for example, that has some credit card debt or some payday loans, and you don’t owe the income tax department anything, if you file for Bankruptcy in December, you are only going to lose the calendar year tax return for that year that December falls in.

If you waited until January, February, March, and then say, I’m going to do a Bankruptcy filing, well, not only would you lose, say, 2023 calendar year tax refund, but you would lose 2024 as well. So there is some advantage in that setting to filing in December rather than waiting until the first few months of the new year.

Wayne Kay 05:49
Do you find people do wait too long, or is this a decision that they make quickly once they find out what their options are?

Derek Chase 05:58
That varies from person to person. I can remember a number of instances where a comment was made along the lines of gosh, I wish I would have got this going a year ago, or I wish I would have got this going earlier.

And instead they just naturally try to hang on and liquidate assets. And unfortunately, sometimes people will liquidate assets that they could keep, then they just don’t know that. They might sell some RSP or sell some other asset that would be exempt in a Bankruptcy filing and just sort of limp along for six months or a year and then say, oh, I’m going to go ahead with a Bankruptcy filing. 

So unfortunately for them, they’ve lost some assets and they’ve also basically lost a year, financially speaking by delaying like that. So again, I think it’s just so important to get information surrounding what would happen if I did a Bankruptcy filing now? And then make your choices.

Wayne Kay 07:04
So why is it that the government then takes those two years? If you wait until January, February or March as opposed to maybe just doing one year at that point it’s just the law.

Derek Chase 07:17
If your tax return is not filed for the prior year and you’re doing a Bankruptcy filing in this current year, then the law says that those tax refunds come into the Bankruptcy.

Wayne Kay 07:29
Well, that’s not nice of them. Can’t argue with the law though. This is what it is.

Derek Chase 07:35
It’s an asset. It’s an asset that’s sitting there. That’s like cash if you’re typically getting a tax refund.

Wayne Kay 07:44
So how do you go about starting this process?

Derek Chase 07:47
The start of the process is really making a decision, and the decision would be to get some information from an LIT. And so that usually starts for us either through a phone call or an email, and then we start that information exchange so that people really understand the different pathways that they can take and also exactly what a Bankruptcy would look like.

We try and really communicate that well at the start. The worst part about what we do is if there’s any surprises and so we try and try and talk that through thoroughly. After that conversation, the process goes towards getting the information necessary to compile the documents. And yes, for a lot of people a Bankruptcy is nine months. So it’s pretty much over before it starts.

Like it’s so fast. Nine months and then other folks 21 months or a little bit longer. So it does tend to be the least cost and the quickest to get a reset with your finances and protection from your debts.

Wayne Kay 08:55
Can I ask why are some nine months and some 21 months? .

Derek Chase 09:01
Strictly around what a person’s income is. The federal government sets different standards or thresholds for your average take home pay during the first nine months. And if you’re above those thresholds or standards, you have to go an additional twelve months. And that would also require you to make more payment into the Bankruptcy towards your debts.

Wayne Kay 09:23
So how does it work? I want you to walk me through what that looks like. So a person comes in, you do all the paperwork, they are now in Bankruptcy, what do they lose immediately?

Derek Chase 09:37
Well, they lose the pressure of having all the collectors come out at you. You lose that, which is a good thing.

Wayne Kay 09:44
It’s a good thing.

Derek Chase 09:47
There’s not a huge change to your life really. You’ve got some duties that you have to comply with. You have to report your monthly income to the Trustee office. 

The assets are typically, most often, I say, a person’s household goods and whatnot are exempt from creditors, so they usually get to keep that. If a person has a car loan, a lot of times we see people continuing on with that car loan because that’s what’s called a secured creditor. 

So there’s not a dramatic loss of assets or income. It’s quite the opposite. I think it’s more of a sense of relief and of just all the pressure leaving. And now you’re going down this road towards building better financial momentum and gaining some traction with your finances. 

There’s two financial counseling sessions where we’re coaching and mentoring people to try and get better with their personal finances. So you really want to shed off all that pressure and kind of the treadmill that you’re on with your finances when you’re laden with debt and go in a positive direction.

Wayne Kay 11:06
And the only people that can deal with this are Licensed Insolvency Trustees, right?

Derek Chase 11:11
That’s correct. You have to do a Bankruptcy filing in Canada through a Licensed Insolvency Trustee.

Wayne Kay 11:17
Okay, well, that’s easy enough. They can make a phone call and learn more through your website.

But you know what? When you were talking about the education bit, I found something that I haven’t shared with you yet, but I thought this was very interesting. One in five adults say math makes them sick. They’re afraid of solving equations. They haven’t touched any math since they finished it in school, that was it. 

It turns out if you don’t have confidence with numbers, it’s very negative. In fact, you’re more vulnerable to debt, unemployment, and fraud by being scared of math and numbers.

Derek Chase 11:59
I believe that.

Wayne Kay 12:00
Isn’t that something?

Derek Chase 12:01
I would believe that.

Wayne Kay 12:02
Yes. That’s 20% of the population a little nervous. So when we talk about budgeting and taking care of finances, well, that’s a lot of working with numbers.

Derek Chase 12:14
Yes, there’s no doubt about it. Some people will naturally shy away from dealing with it or talking about it. And yes, we really try to encourage the opposite. Showing people that it’s not all that scary once you just give it a try. And we probably use more math during the day than we realize. 

It’s not complicated math to deal with debt or to look at monthly budgets. It’s just the willingness to try and the willingness to learn.

I think whether you’re trying to learn how to use a computer or trying to learn anything, you just have to have that willingness. Unfortunately, if people are stuck and just like you say, just afraid of it, then that’s really difficult to go through life with that.

Wayne Kay 13:09
What about fees? Is there something upfront that I’m going to have to pay? Or what does this cost? Can you tell us about that?

Derek Chase 13:20
Yes, that’s a good question. And I think if there’s anyone working in this area that’s asking for big upfront fees, that should really set off some alarm bells. And for most consumer insolvencies, I would say that it’s a very modest initial payment to get Bankruptcy protection. When situations get more complicated and there’s lots of things going on, then we do sometimes see in those sorts of settings that there’s a request for a retainer, but that’s by far the exception.

If it’s a consumer insolvency, we don’t ask for any upfront payment before we start going. We ask for an initial payment when a person signs their documents, and it’s very modest at that point as well. 

Overall, in Canada, the cost to do a personal Bankruptcy filing is regulated by the federal government through what’s called a tariff. And that’s really for the protection of the public. We can’t just arbitrarily charge people whatever we want. It rolls through a tariff or a schedule, which I think is a good thing.

Wayne Kay 14:35
Well, and we’ve been talking about that, how Licensed Insolvency Trustees are all regulated through the government. So that’s the thing. You know who you’re dealing with and they’re being watched by the government to walk people through these problems in their life. So it’s a great thing.

Derek Chase 14:51
Yes. I can’t stress enough how important it is that if someone’s saying, we’ll help you do a Bankruptcy filing, or we’ll help you along this, and they’re asking for a couple of $1,000 – that should really make you question what’s going on and are you dealing with a Trustee here?

Wayne Kay 15:11
Okay, so that would be the red flag right there. And they can contact you and ask you more questions, of course, through the website because the first consultation is absolutely free.

Derek Chase 15:22
Yes, that’s right. We advertise that. We’re happy to provide that information. It’s a scary place to be when your finances are in a tough spot and we just want to make that information available to people. 

And I can’t tell you how many times we’ve shared that initial information about how things work. And people are actually smiling when they’re leaving because they just feel they’ve come from such a dark place and now they’re going in a better way.

Wayne Kay 15:52
Right on, they got hope again. That’s great. Anything else we need to know about when to file Bankruptcy?

Derek Chase 16:00
I would address the topic sooner rather than later. At least get the information so that you’re well equipped to make a choice. And if you’re a person that regularly gets a tax refund, I would try and get it started before the end of the year rather than in the new year.

Wayne Kay 16:14
Okay, terrific. Derek, always a pleasure. Thanks very much for being on the show.

Derek Chase 16:18
Thanks very much, Wayne. You have a great day.

Wayne Kay 16:20
Well, my guest today, Derek Chase. You can learn more and schedule that free consultation with Derek Chase & Associates Licensed Insolvency Trustee by going to the website bankruptcytrusteeBC.ca. 

And that’s it for today’s Debt Matters podcast. Make sure you subscribe where you get your favorite podcast from and of course, for more information, you can always check out debtmatters.ca. Thanks for listening.

About Derek Chase

Derek Chase is a Licensed Insolvency Trustee in British Columbia. He has been helping individuals and corporations restructure their debt since 1997. His areas of practice include personal and corporate insolvency including Consumer Proposals and Bankruptcy. The best part of his work is to be able to witness lives change for the better when the heavy burden of unmanageable debt is lifted. 

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