107 – Is There Life After Bankruptcy Discharge?

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. Once you go through it, are all your debts forgiven? Are there some steps and things you need to do once you’re discharged from a Bankruptcy? How do you go about rebuilding your credit rating? 

We’re going to learn about that and a lot more today with my guest Glenn Steiner with Allan Marshall and Associates Licensed Insolvency Trustee in Alberta. They have offices in Calgary, Edmonton and Red Deer. 

Hi there, Glenn.

Glenn Steiner 00:46
Hi, how are you doing today, Wayne?

Wayne Kay 00:47
I’m doing terrific. Thanks very much for joining me.

Glenn Steiner 00:50
My pleasure.

Wayne Kay 00:51
I always find this show fascinating because there’s so many questions that Canadians have. They don’t want to pick up the phone to find out exactly what it means because we’ve heard so many people say, well, I heard about a Bankruptcy from my brother’s, uncle’s, aunt’s, sister’s, mother, right?

Glenn Steiner 01:11
Yes.

Wayne Kay 01:11
They just don’t make the phone call to the LIT to find out more. So the topic today is life after Bankruptcy discharge. First off, what is a Bankruptcy discharge?

Glenn Steiner 01:24
A Bankruptcy discharge is a legal term that allows people to have all of their debts discharged and they now become debt free. So they basically go through a Bankruptcy process and provided they do 100% of their duties and nobody objects to their discharge, they can receive an automatic discharge. 

And once they receive that, all their debts are forgiven. It’s a legal process and no creditor has any legal right to take any further action against them after that discharge has taken place.

Wayne Kay 02:03
Okay, so once you set up the proceedings for this to happen, there’s a certain amount of time where they are in Bankruptcy. What does that mean?

Glenn Steiner 02:15
Well, so for a first time Bankruptcy, a person is in Bankruptcy for a minimum of 9 months and it potentially could be 21 months. It depends on their income. And we explain all that as we go through the process. Essentially in a Bankruptcy, the more you make, the more you have to pay back.

Unfortunately, there are some Canadians who are very limited in their income and therefore they would only be in Bankruptcy for a period of nine months. If they make more than what the Superintendent of Bankruptcy calls surplus income, they have their Bankruptcy extended twelve additional months and then they’re in Bankruptcy a total of 21 months.

Wayne Kay 03:02
And then after they’re done their Bankruptcy, well, that’s where this show is picking up. So once they get that discharge, now they get a clean slate, is that what happens?

Glenn Steiner 03:15
Yes, essentially once they receive their discharge from Bankruptcy, all of their debts are essentially forgiven except debts found under Section 178 of the Bankruptcy Insolvency Act. 

Those are things like alimony, child support that people have to pay, even if they do a Bankruptcy. If there’s fraud involved and a creditor alleges fraud, and the Bankruptcy court says that you cannot have this debt discharged by your Bankruptcy because there was fraud involved, then the bankrupt would have to continue to pay that debt. 

But generally things like credit card debt, lines of credit, all those kinds of things are extinguished when you get your discharge from Bankruptcy.

Wayne Kay 04:05
So what are some of the things a person needs to do once they’re discharged?

Glenn Steiner 04:10
Well, what they should do is ensure that both the credit bureaus have copies of their discharge. There’s Equifax and there’s TransUnion. They should apply some of the things that we would have discussed with them as they went through their mandatory two financial counseling sessions. And some of the things that I tell people in my counseling sessions, if you had a car loan, for example, and you’ve paid on that car loan for the last four years and you’ve just finished paying off that car and you were paying $600 every month well, I believe in the philosophy pay yourself first. 

So if you pay yourself that $600 1st in the first year, you’re going to have $7,200 saved up. In two years you’re going to have $14,400. And in three years you’re going to have $21,600. 

If you didn’t have a car payment but you are used to paying us a $400 Bankruptcy payment every month while you were going through Bankruptcy. Again, the same principle: pay yourself that $400 every month. Pretend that you still have that obligation and it’s a great way to force yourself to save some money.

Wayne Kay 05:25
And there’s nothing better than the feeling when you start growing that savings.

Glenn Steiner 05:30
Well, exactly. At the end of the day, whenever you get a car and you have to get a car loan, we all know that you’re going to have to pay interest. And if the cost of that borrowing is $3,000, you just saved yourself $3,000. If you saved that $600 that we talked about a moment ago and you pay cash for that next car by trading in your car and giving them the other $21,000 cash. That’s way better.

Wayne Kay 06:02
Absolutely. Unfortunately, people don’t do that anymore. But I love the concept of it. And are two counseling sessions often enough?

Glenn Steiner 06:10
Well, you know what, for some people it is they feel so bad that they’ve gone through this, it’s quite an experience to go through. And then there’s some that they don’t take it as seriously as we would often like to. But I always say in these counseling sessions, life is all about planning, life is all about consequences.

Just make sure that you’ve got all of your goals set. The other thing that I’d like to say about things that I talk about is to make sure you have things like a will. Make sure that if you’re an organ donor, make sure that you have your loved ones know that those are your wishes. 

I have a realtor friend. This is kind of a side story, but I have a realtor friend who wrote up an offer for this couple. It was a $500,000 house. They had $100,000 down payment and it was subject to financing, and they had sold their house. They were upgrading to this nicer house. 

Before the deal closed, though, the husband got killed in an accident. And can you imagine the mess, Wayne, when there was no will and nothing about whether or not he wanted to donate his organs? They didn’t know. It was quite a tragedy. 

So I always say to people, make sure you document and talk to your loved ones because we never know when we’re going to go.

Wayne Kay 07:41
Yeah, very true. And sadly, the rate of Canadians that actually have wills is pretty low. You’d be surprised.

Glenn Steiner 07:49
Yes, I am surprised. But I stress to all the listeners out there, you say, yes, I got to get around to that. I got to get around to that. Well, next thing you know, it’s too late. Yes, please go get a will and protect your loved ones.

Wayne Kay 08:04
I was kind of surprised when you mentioned that it’s your responsibility to contact the credit bureaus.

Glenn Steiner 08:13
Yes, we don’t have any authority to really talk to the credit bureaus because of privacy. That’s something that the discharged bankrupt would have to do.

Wayne Kay 08:24
Okay. But obviously, once you start, you make that phone call and you show them that you’re free of the debts. Rebuilding your credit, doing it the way you were mentioning, obviously is a good thing.

Glenn Steiner 08:37
Well, generally speaking, anytime you can rebuild your credit, it is good. But it really depends, Wayne, on your goals and your age. I’m seeing a lot of seniors filing Bankruptcy, sadly. 

I recently had a couple of seniors who didn’t own their home when they entered a Bankruptcy. They had a car that was worth about $5,000. Their combined income was around $2,800. And at their age, when I talked to them about goal setting, they said they had no desire to get a house. They really didn’t care if they had credit again because they felt bad about what happened. For them, it was more important about quality of life and just being debt free and enjoying the years that they had left. 

Conversely, though, you have another couple who are, say, in their thirties and they haven’t had a home, but they do want to get a home. Well, it’s very important for them to rebuild their credit rating because in order to get a mortgage, you’re going to have to have a good credit rating. And so we talked about those things in their second counseling sessions.

We do have some resources on our web page. Wecanhelp.ca. They can go in there and look at our web page and there’s some very good information that they can glean from it.

Wayne Kay 09:58
Okay, now, what about maybe things like RSPs? Do you tell them that that’s important to start doing or saving? Maybe it’s through tax free savings accounts?

Glenn Steiner 10:13
Well, that’s a good point. So one of the things that I tell people is RSPs are a good thing to contribute to. Obviously, TFSAs are also a good tool to use, but again, it really depends on your situation. 

If you have a person who has just gone through a Bankruptcy, who has a real solid pension plan, and in their pension years, they’re going to have a very good pension. Now, they don’t really need to contribute to an RSP because they’ve already got a pension plan through their employer. It would be wiser for them to build up their tax free savings account and max that out as best they can. 

If you have somebody who’s in their early 30s, they don’t have a pension plan, I strongly suggest that they definitely contribute to a TFSA and an RSP. Because it’s no fun in your golden years where you maybe want to travel, you want to have a good quality retirement, and if you haven’t saved, next thing you know, you’re living like the last couple that I just did in Bankruptcy. They had $2,800 in income, absolutely no savings. They can’t afford to go anywhere on a holiday because they just don’t have the savings.

So it’s a lot more fun to be able to travel and enjoy your life in retirement. And if you have those tools like RSPs and TFSAs, that will go a long way to having a good, healthy, long retirement.

Wayne Kay 11:52
When you mentioned that you’re seeing a lot of seniors, can you generalize and tell me what’s going wrong? For many of them, what’s happening? Is it health issues? What is it?

Glenn Steiner 12:07
A lot of it is health issues at the end of the day a lot of times. It’s one of those things where things come up in life we have no control over. Somebody gets sick and they didn’t have paid sick leave and they had to go on EI benefits. And unfortunately, EI benefits only go so long.

At the end of the day, a lot of times, Bankruptcy is one of those things I say to people, bad things happen to good people. And I haven’t met a person in the world that wants to do a Bankruptcy. It’s just circumstances beyond their control, sometimes within their control, they just got too nice and they got a little overextended on credit and next thing you know, it’s like quicksand. You can sink pretty quick.

Wayne Kay 13:02
So if you get discharged and you’re supposed to kind of keep tabs of stuff like the credit bureau and you go on and you see things are wrong, what do you do in that situation?

Glenn Steiner 13:13
Well, that’s an excellent question. And we see this often, unfortunately, where sometimes banks will report something and it’s an error and a lot of times, all the credit bureau needs to do is be told about it. 

So if you’re a bankrupt out there and you’ve got a bank who’s reporting negatively because you haven’t paid that old Visa bill off, contact the credit bureau. Point out to them that that debt was part of your Bankruptcy. You have been discharged from Bankruptcy, and that’s an error and it should be removed. And generally speaking, the credit bureaus are pretty good about removing it.

Wayne Kay 13:52
Okay, that’s good to know. Now, during the Bankruptcy, there’s probably a lot of families that go through this – they’re saying no to their kids for a lot of things. I mean, they just can’t afford it. And we’re just seeing that regular right now with so many families having a difficult time. 

What is your advice to parents about money and savings that they can pass on to their children so they don’t go through some of the same mistakes?

Glenn Steiner 14:21
Yes, that’s an excellent point, Wayne. So one of the things that unfortunately our schools in Canada don’t teach enough about money and money management. And so children often will learn it from home. And you as a parent, your attitude towards money and those types of things have a strong influence on your children. I always tell parents, have a good attitude about money management.

In our counseling sessions, we tell people, track your money, know where your money is going. And it’s the same thing with children. Pass those traits on to your children. If you give your child a $10 allowance, one of the things that I talk about is letting the child decide how they spend their money. And often what I’ll say to the parents is, give them three types of piggy banks.

One is, if you’re giving them $10 a month, have the child put $4 in piggy bank A and they can spend that right away if they want. Piggy bank B is the medium short term goal. So if they have a toy that they want to buy for, say, $25 or something, they put that $3 in that piggy bank. And then the last piggy bank, piggy bank C is longer term goals where they may have to save up $100 because they want to buy a video game, for example. And so they put $3 in that and then it allows the child to watch how their money will grow in that piggy bank B and C.

And in piggy bank A, they are allowed to spend their money. They can do whatever they want. But just remember, when you have cash in your pocket, you’re going to spend it. And so you just want to make sure that in our counseling session, we talk about people’s needs and wants. And that’s one thing that’s hugely different.

Always ask yourself, do you need this or do you just want it? And if you just want it, what are the consequences if you don’t get it? I mean, I always go to the store and I’m at the checkout bin and I see a chocolate bar there. Well, I always tend to say, oh, I think I can get a chocolate bar. And then I realize, no, I don’t need that. It’s just bad calories, so I don’t need it. So I don’t get it.

Wayne Kay 16:46
It’s a good way to look at it.

Glenn Steiner 16:48
Yes.

Wayne Kay 16:49
Any final advice you want to share with us about life after Bankruptcy?

Glenn Steiner 16:53
Well, all I have to say is just plan, plan, plan. Make sure that you have goals. Make sure that you’re talking to your partner. Try to make sure that you and your partner are on the same goals. And I hope that you can save for a long and healthy retirement and be debt free.

Wayne Kay 17:13
Great advice, Glenn. Thank you very much for being on the show.

Glenn Steiner 17:16
No problem. Thanks for having me.

Wayne Kay 17:18
My guest today, Glenn Steiner. You can learn more or schedule a free consultation with Allan Marshall and Associates Licensed Insolvency Trustee through the website wecanhelp.ca. 

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