102 – Life After Bankruptcy

Wayne Kay 00:04
Is there life after Bankruptcy? That’s our topic today on the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay.

And in today’s show, Life After Bankruptcy – what does that look like? How long does it take and how do you get established? That and a lot more. 

My guest today, Leigh Taylor from LCTaylor Licensed Insolvency Trustee in Winnipeg. Hi there, Leigh. Welcome back.

Leigh Taylor 00:35
Hi Wayne. Nice to be here.

Wayne Kay 00:36
Well, big discussion here, and I know this is something you hear all the time. I hear it as well. People are in a bad financial way, and then there’s this big fearful word called Bankruptcy. And I don’t know why it’s got such a negative connotation to it.

Leigh Taylor 00:55
Well, you know, many years ago it used to be that Bankruptcy did have negative connotations. When credit cards were either new or unheard of, banks would only lend money to people that could prove that they could pay it back. Consumer credit was very minimal and Bankruptcy. To go bankrupt, you had to really get involved in some nefarious action that resulted in losing it. So Bankruptcy was sort of a very negative thing.

Now, a lot of that changed, maybe it’s 40 or 50 years ago when they started bringing in credit cards. For example, back in 1966 or so and people started using credit, that wasn’t a bad thing because if you had to pay cash for a car, for example, you’d have trouble getting a car. Only I think the drug dealers would be the only ones driving automobiles. But incurring debt meant that you took a chance. 

And the chance is, well, what happens if you lose your job? What happens if you go through a divorce or you have a medical problem? You end up with financial difficulty. 

So that’s sort of the two edged sword of consumer credit. It increases the economy. A lot of people can afford things they would never be able to afford, but there’s a risk involved in it.

And that’s really when, for example, Bankruptcy started to be on the increase. If you go back to 1966, there were 24,000 insolvencies in Canada. 12,000 of them were business and 12,000 of them were personal. This year we’re expecting about 160,000, and there’s going to be about 12 to 14 thousand businesses and all the rest are consumers. So it really has changed quite a bit.

Problem is, the stigma of Bankruptcy hasn’t sort of kept up with modern reality. But nonetheless, Bankruptcy is still not a thing that people look forward to.

Wayne Kay 03:00
No. And a lot of people, they’re worried about what their life is going to be after the Bankruptcy. And that’s the topic we really want to dive into today.

I want you to tell us what happens after. So Bankruptcy lasts for how long?

Leigh Taylor 03:15
Well, it depends on a lot of variables. It can be as little as nine months. And it can go on longer if there are difficulties or problems.

But Bankruptcy is a process that you go through, and you go through it to get rid of a burdensome amount of debt that you can’t manage otherwise. So that’s the whole purpose of it. 

Bankruptcy, from that point of view, is a solution, not a problem. But the difficulty is you may have restrictions on the use of credit, hopefully during the course of the Bankruptcy, with the counselling provided and these sorts of things, you’ll learn some good things about it as well. How to live within your means, all about good budgeting, all those sorts of things, so that you can as well eliminate the causes of the Bankruptcy in the first place.

Right now, it might have been something beyond your control, but usually it’s a combination of factors. You ended up losing your job, but if you had put away a little bit of money for contingency expenses, et cetera, you may not have had the problem. If you had adjusted your lifestyle right away, it might not have been that serious. But most people just don’t do that. Adjusting a lifestyle seems to be one of the hardest things for people to do.

You lose your job, you lose your job, you figure, oh, I’ll be back to work within a couple of weeks. Well, it turns out it’d be three or four months. You’ve used your credit cards. You’re in a hole that even when you get back to work, it really doesn’t help. 

So those are the kinds of things that you learn, and that, once you’re through a Bankruptcy, can help you get back on your feet again and stay on your feet again, so you don’t fall into that same pitfall.

Wayne Kay 05:00
Right. It’s funny, but you mentioned that it’s the spending habits, and when money’s flowing, things are good. And I’m from an oil town, and in this oil town, I think just about everybody had a three car garage, a boat, and an RV. But when oil goes sideways, there were a lot of people that were not able to stay afloat for very long.

And I remember people saying, oh, I feel so sorry, so sorry for these young families. And I’m like, you know what? When I was 23, I didn’t have a three car garage, I didn’t have a boat, and I don’t have an RV. It comes down to where you’re spending the money and taking care of your finances and putting it away, but that’s the stuff they learn. Talk to me about what happens after Bankruptcy.

Leigh Taylor 05:55
Well, generally speaking, there’s a couple of counselling sessions during the Bankruptcy, so we want to make sure people have the skills, knowledge to put themselves back on track again. We also go through in that counselling process a review of what got them into financial difficulty to begin with.

Wayne Kay 06:12
That’s good.

Leigh Taylor 06:13
Yes. And people go bankrupt more than once. That’s not that unusual. There’s about an 11% recidivism rate. So it happens more than once. But what we try to prevent from our perspective is having it happen for the same reason. If you had a major medical problem that put you really behind eight ball financially and you went bankrupt because of it, that’s one thing.

But maybe it will be something that you can help prevent the second time. Get proper medical insurance and have a little contingency fund, et cetera. But that doesn’t mean that you wouldn’t go out and overspend your credit cards and start digging a hole for yourself and three years later go bankrupt again. That can happen too. 

But good counselling is something that we try to help people get through sort of after Bankruptcy, how do you get reestablished back on your feet?

Wayne Kay 07:09
I don’t know why somebody would want to fall back into that situation because it’s so stressful when they’re in it. So I’m glad it’s a low number. You said 11%.

Leigh Taylor 07:20
Yes. Well, nobody wants to go back to the first time. Let us go the second time. But I think part of the problem is human nature. We are imperfect beings. We sometimes succumb to temptation when we maybe know we shouldn’t.

How many times have the average person gone out and seen, I don’t know, a really nice pair of shoes that they really wanted, and thought, well, I’ll put it on my credit card, only to find out that by the end of the month when the credit card is due. You decided your friend’s talking about going out for dinner that night and you spent a couple of hundred and can’t pay it off. So you say, okay, well, that’s okay, I’ll just pay the minimum payment. And you’re encouraged. I mean, credit card companies encourage you not to pay it off and pay the interest rates because some of them are 21, 22%. But the problem with that is you can do that continually.

Yes, it might take you three or four years, but suddenly you find out that you can’t afford the minimum payment on the bill anymore. You’re back into financial difficulty. It’s not the right thing to do. We should know better. But there’s going to be probably 1% or 0.7 of 1% of the population that go bankrupt every year. And while there’s all sorts of reasons for it, I think if one was sort of to generalize, it’s that most people have sunk into financial situations a little at a time, month by month.

Wayne Kay 08:53
Sure. Yes, I can definitely see that. So what do you do to help people get reestablished, rebuilding? Because I would assume that there is a rebuilding process for their credit.

Leigh Taylor 09:07
Yes. First of all, you talk about credit ratings, for example, and credit ratings are important. By the time you go bankrupt, you’ve already trashed your credit rating. Invariably, nobody’s going to loan you money if you have what they call an R9. The worst lowest one. 

So you want to talk about reestablishing your credit rating. The best way to do that is not need credit. Therefore, creditors are more likely to lend you money if you don’t need it. And you can do that after Bankruptcy.

You can start with budgeting. You can start with small things. For example, one thing that not too many people know about it is that you can buy a prepaid Visa card. And a prepaid Visa card means you put, I don’t know, $800 into the Visa company in advance and they give you a card that has an $800 maximum limit on it so you can’t go over it. So you’re not really borrowing money, but you’re using credit.

And that will show up on the credit bureau as a positive. So that’ll increase your credit score or your credit rating. Because you’ve used that properly for a period of time, people start trusting you that you know how to handle money. If you go into let’s say you want a car loan. Your car is worn out, you want to trade it in and you want a couple of thousand to buy a good used car.

I don’t know if you can buy a good used car for a couple of $1,000, but let’s say it’s $5,000 or something plus a trade-in, right? Well, you go into your local bank branch or your credit union or whatever. Notwithstanding that you may have been bankrupt a couple of years ago, they’ll still look at your application and they’re going to look at things like, are you steadily employed? That’s really key because if you haven’t had two years with the same employer, you’re still not getting stable employment. They’ll look at things like, how much money have you saved up towards buying this car?

So if you have a couple of $1,000 saved up over the last couple of years to buy this car with and you only have to borrow $3,000, that’s a pretty good sign that you’re able to manage your finances. 

If you’ve kept track of your income and expenses as you learned to do during the course of Bankruptcy through all that counselling course, then they’re going to look at that and they can say, well, how are you going to pay the loan back? And you can show them, you can show them a financial breakdown of how much money you earn and what kind of expenses you’re incurred and how much money you have left over that you can afford to pay this off with. And they’re going to look at that and they’re going to say, well, this is a pretty good bet. They’re in the business of risk management and if you can lower the risk with the evidence that you can do that, then they’re likely to give you the loan.

Notwithstanding that you went bankrupt three or four years ago and that’s a good way of reestablishing yourself as well. Make sure that you don’t borrow money that you can’t repay, of course, and that you’re doing all the things that are going to give yourself the kind of credibility to a bank or a credit union that’s going to help it and that will, over time, reestablish your credit rating. 

Remember that the fact of Bankruptcy is going to be reported by Equifax, which is the largest credit reporting agency. They’re going to report that for six years after the Bankruptcy is over. So the Bankruptcy gets over in nine months or twelve months or whatever it happens to be.

You can wait for six years, but during those six years you can start rebuilding it. So at the end of the end of the six years, the Bankruptcy is not on your record anymore. You’ve got a good credit rating. And let’s remember that credit when properly used is a good thing and it’s worth rebuilding your credit rating. You end up with better loan rates if you’re going to buy a car because it’s pretty hard to pay cash for a car these days.

Wayne Kay 12:46
It’s everything. It’s insurance rates, it’s everything is now kind of connected to your credit rating, which I feel horrible for. If somebody’s struggling and they’re going through a tough time and then they have to go buy their insurance or whatever it is and they look at their credit score and all of a sudden they have to pay more money because they have a struggle. I feel bad. That doesn’t make any sense. 

The people who struggle the most have to pay the highest fees for different things, higher interest rates and those that make the most money get the big breaks and it’s a little upside down.

Leigh Taylor 13:23
It sort of is. Unless of course you’re the lender, right? And the lender doesn’t want to give money to someone that’s not likely to pay it back. So how do you gauge that?

Well, you gauge that by looking at their history, whether they’re steadily employed. If you go from job to job every three or four months, there’s a good chance you’re not going to be able to make your payments down the road. If you haven’t managed your money well or made life decisions that are appropriate, you can sort of bank that. You’re going to have trouble paying back debts too. If you’re desperate, in need of a loan, the lenders are not going to want to deal with you because remember that every time you ask to borrow money it gets reported to the credit bureau, right?

So the next guy that you go to after you got refused the first time is going to, you know, you went to ABC Credit a month ago and they refused you. So they’re going to start looking for reasons to refuse you as well.

Wayne Kay 14:21
You brought up something very interesting. You said the Bankruptcy will be on, I guess, your score for six years and then plus the Bankruptcy time itself, whether it’s nine months, twelve months or what have you. I think that is where a lot of people get confused. They feel that for six, seven years, they’re not able to do anything. But you were just explaining how you can be rebuilding your credit during that time.

Leigh Taylor 14:50
Yes. If you’re in tough financial straits and you go bankrupt and you don’t have a lot of money to pay back anything to the creditors proposal, Consumer Proposals, out of the question. Perhaps you could be discharged in a little to nine months. Once you’re discharged, those debts are gone.

Now, there’s some exceptions, but not very many exceptions, fraud, embezzlement and stuff like that. But those debts are gone. You’re back on your own again. There’s a restriction on the use of credit during the course of the Bankruptcy. That nine months or whatever. But once it’s over after the nine months and you’re discharged, well, you could win the lottery at that point in time and it’s all yours.

Wayne Kay 15:29
Terrific.

Leigh Taylor 15:30
There’s no claim on it, but getting lenders to trust you again is really what we’re talking about.

Wayne Kay 15:37
Right, but you’ve already shown us how to do that. That’s cool.

Leigh Taylor 15:40
Yes. So that can work. And it really is. If you’ve gone through three or four years before Bankruptcy, with all the trouble that goes along with that and then went through the Bankruptcy and everything, I think you’ll find that the solution to your financial difficulties takes a little time, a few years to get through, but it’s well worth it. And there is no better feeling than good budgeting saving up your money.

You decide you want to go on a nice vacation in January for a couple of weeks and you’ve saved up the money for it. Boy, that’s a stress free vacation. As opposed to figuring out halfway through the vacation that your Visa bill gets canceled and you don’t know how you’re going to get home.

Wayne Kay 16:23
Do you have some success stories you want to share with us?

Leigh Taylor 16:27
Well, we get success stories almost every day. A lot of people again, human nature is that nobody’s happy or proud that they went bankrupt or whatever. But just not too long ago, I had a chap come up to me, I think it was in Best Buy looking for a laptop or whatever, and he was one of the salesmen. He wasn’t the one dealing with me, but he recognized me and came over to me and struck up a conversation because he had gone bankrupt through us a few years earlier. And got through it. Got discharged, was back on his feet. 

He took great delight in showing me pictures of his son who had just graduated from engineering and almost brings tears to your eyes when you have a success story. He’s so proud of his son, and he knows darn well that he never would have been able to afford to put his kid through college if he hadn’t got back on track. So that’s the kind of success story that really makes working here worthwhile, tell you the truth.

But we deal with people who come back after the fact. And one of the ones is I had someone come in and tell me how I really saved their marriage. They’d been married for ten years and they’d been struggling with financial difficulty. Financial problems are one of the biggest causes of marriage breakdown. So if you can solve that problem in time, get back together with your wife or husband and work out all these problems, the causes of the stress yeah.

That can save your marriage. So we’ve seen several stories of that.

Wayne Kay 18:09
That’s amazing. And I think people would see, wow, that’s the kind of pressure that’s on you when you’re under these financial strains. And I think you’ve shared a lot of great information. Final words of advice?

Leigh Taylor 18:23
Well, I think the earlier you’re dealing with problems, the earlier you recognize them, then the earlier you’re going to get. Professional advice. Go see a Licensed Insolvency Trustee. Find out what the options are.

Sooner you do it, the more options are likely to be available to you. If you wait too long, then yeah, you may find that the medicine doesn’t taste as good, but you have to swallow it anyway, right?

Wayne Kay 18:48
Good way to end. Leigh, thanks very much for your time and being on the show.

Leigh Taylor 18:53
Always a pleasure, Wayne.

Wayne Kay 18:55
Well, my guest today, Leigh Taylor. You can learn more or schedule that free consultation with LCTaylor Licensed Insolvency Trustee, by going to their website, LCTaylor.com. 

And that is it for today’s Debt Matters podcast. Just 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.