119 – How Fear of Bankruptcy Can Keep You Financially Stuck

Wayne Kay 00:04
Fear of Bankruptcy can keep you financially stuck. That’s our topic today with 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 discuss, step by step, how the fear of Bankruptcy – the word Bankruptcy can often keep people financially stuck.

What do they need to consider as options if they’re in a bad financial place? When is it time for you to consider filing for Bankruptcy? How does Bankruptcy affect people?

Amanda Sherwood, my guest today. She’s going to discuss the fears that she’s heard before people have made contact. And at what point is the right time to consider Bankruptcy?

To talk us through all this is Amanda Sherwood from Allan Marshall & Associates Licensed Insolvency Trustee in New Brunswick. Amanda, thanks for being on the show.

Amanda Sherwood 01:04
Thanks for having me, Wayne.

Wayne Kay 01:05
Oh, a pleasure. Anytime we can talk about trying to help. Seeing the stats, Canadians are having a tough time.

Amanda Sherwood 01:14
I think most definitely the file volume is certainly increasing. It’s a strange time right now for everybody not only dealing with debt, but just change in the economy overall in terms of what we’re paying for, for groceries and gas and heating. So definitely getting hit from lots of different angles.

Wayne Kay 01:33
And as we look at the numbers, the inflation, the numbers are still up 2 – 3% on top of the just amazing prices we saw in the last year. It’s just unbelievable. So Canadians are having a tough time. I think this is very fitting for us to talk about the Bankruptcy word. But people still have huge fear with that word Bankruptcy.

Amanda Sherwood 01:57
They do. And it’s unfortunate because it is such a helpful program in certain circumstances to help people reset.

Wayne Kay 02:04
But there’s other options. Let’s talk about families that are struggling with their finances. What options should they be considering if they’re having a tough time making minimum payments?

Amanda Sherwood 02:18
Well, you want to start off with just understanding where you’re at in your finances. By starting with your budget, figuring out your income coming in and what your expenses are going out. Then comparing that to what you own for assets and what you have for equity.

So options could range from just fixing up your budget, tightening your spending, or it could be speaking to your bank. Can you apply for a consolidation loan? Can you remortgage your home? Can you possibly focus on moving higher interest credit onto a lower interest credit product? If you have credit card debt onto a line of credit that could make those monthly payments more affordable and pay less interest or do you need to do something more formal?

So as a Trustee, we can discuss filing a proposal, looking at Bankruptcy, or possibly credit counseling. So there are lots of options. It’s just a matter of what you have to work with and what option makes sense for you personally.

Wayne Kay 03:20
Can you get a line of credit if you don’t own a house?

Amanda Sherwood 03:23
Yes, you can.

Wayne Kay 03:25
Okay. And so that’s always a better option than leaving any money sitting on that credit card, which is, I mean, I think it’s criminal. 22%. That just seems ludicrous to me that banks can charge that much money.

Amanda Sherwood 03:39
Agreed.

Wayne Kay 03:40
Okay, go ahead.

Amanda Sherwood 03:42
And with the economy too, not even just the banks charging that, I’ll say lower interest rate. You’re now finding not banks, but financial institutions lending in the range of 36% to 46% for those that can’t apply in the mainstream banks – which is what people are gravitating to, instead of possibly looking at filing Bankruptcy. Because that’s more fearful than borrowing at such a high interest rate that can actually be detrimental.

Wayne Kay 04:11
Financial places are charging that much money, like financial institutions? Are we talking about a payday loan kind of a deal? Is that what you’re talking about?

Amanda Sherwood 04:21
Yes.

Wayne Kay 04:21
Really?

Amanda Sherwood 04:22
And also some other financial institutions, not the banks, but similar credit institutions.

Wayne Kay 04:29
Wow. Yes. If you can’t make it at 22%, forget about trying to get out of it. Dig out of that when you got 30, 35%. So this is what people are dealing with as opposed to going, okay, maybe I need to do something much more drastic.

If you say, but that will really end the suffering because I can’t imagine the stress. If you’re going to that level, the stress that you would be dealing with would just be horrible within a family.

Amanda Sherwood 04:57
Exactly. Yes.

Wayne Kay 05:00
When is the time to start thinking about filing for a Bankruptcy?

Amanda Sherwood 05:07
I like that question because it’s not the last resort. I’ve tried all other options, now I’m going to go look at that. It’s if you have debt that is causing you stress, if you have trouble paying what’s due, then you need to go speak to a trustee because a Licensed Insolvency Trustee is qualified to go over all options. Even if you’re coming in to just figure out about the process, you’re not starting anything, you’re actually just getting options.

So when you have debt that’s outside of what you can manage, then you want to have that conversation to understand it. Because people only know the tip of the iceberg when it comes to Bankruptcy because it is really tailored to each individual situation.

Wayne Kay 05:53
Okay. As you’re talking about the loans and the issues that have been going on, are you finding that Canadians have had a tougher time? Maybe they built up a bit of debt over the last couple of years, and now that is just being snowballed month after month after month. And then now it’s at a point where it’s out of control. Is that typically what it looks like when you look into somebody who’s coming in here talking about Bankruptcy?

Amanda Sherwood 06:26
Well, my answer on that would have changed a little bit a couple of years ago, because normally, yes, you have some debt and you’re starting to fall behind. Then it becomes just not manageable with what you have to work with.

And most Canadians, we’re living paycheque to paycheque. It’s not that you’re using credit willy nilly. I’ll say people are using credit to pay for their basic necessities because we don’t have the income levels that we need to combat with what’s being charged for what we need in the month.

And we have had credit in our back pocket for a little bit that we’ve been managing. You’re making those monthly payments and things are going down a little bit. But after this pandemic that we went through, we’re still dealing with that debt. We’re dealing with companies closing, job loss, reduction of hours. People that used to be able to get a lot of overtime because business was booming, they’re on those fixed hours now.

So even just their normal paycheque that they’re used to working with is reduced. But you’re also having an increase in your household expenses.

Wayne Kay 07:33
Right.

Amanda Sherwood 07:34
So those that were just getting by and managing fine, still having that stress of the debt on your shoulders, still probably losing sleep at night because you’re not at a place you want to be now. You’re just using that credit to try to get by.

You’re not shopping, you’re not going on trips. You’re just trying to pay your heating, keep your bills paid, and the debt just keeps building.

Wayne Kay 07:54
And then all of a sudden, the car dies.

Amanda Sherwood 07:59
Right.

Wayne Kay 08:00
It’s just one more kick in the gut that so many people are going through. So it is the snowball that just keeps coming at us, unfortunately. So let’s talk about what it’s like for somebody going through Bankruptcy. How does that affect somebody?

Amanda Sherwood 08:18
It is a situation where you really are resetting things. You’re having a restart.
The whole idea behind Bankruptcy is to eliminate credit use. So what happens when you file is you no longer have access to your, I call it unsecured debt. So that’s what forms part of the Bankruptcy. You still have to maintain your mortgage payments and your vehicle payments to keep those things. Those are secured debt, but you lose your unsecured credit.

And it’s a very large focus on figuring out your budget, what you’re bringing in to pay for what’s going out, and then figuring out can you afford to keep what you want to keep or deem to liquidate some things.

So maybe a household has a couple of vehicles, but their interest rate is too high on a loan. You have the option to say, I’m going to keep this one vehicle we can afford, but we’re going to return this other vehicle, or you financed a recreational vehicle or something like that, that you were able to maintain payments, but something’s changed. You have the ability to return that so that you can make that deficiency amount included in the Bankruptcy process and really refresh and restart and focus on just setting up a budget that works with the income that you’re bringing in and maintaining your household expenses going out.

Then it does greatly affect your credit report. That’s what everyone is so fearful of, is losing that credit score. But at the same time, the Bankruptcy gives you that relief from that struggle of the debt that you’ve been managing and allows a restart.

Within the Bankruptcy process, there’s a couple of financial counseling sessions that you attend to have a good conversation on how credit works, how your credit score is calculated, and how to rebuild that score down the road so you can have the opportunity to apply for credit down the road if necessary. And that’s a good conversation throughout the program so people understand the interest rates and what’s good credit and bad credit and things of that nature.

Wayne Kay 10:22
So I look at car loans these days, and you just do some math on those. It’s unbelievable how much that interest ends up charging you. Because we’re hearing numbers like 15, 20, 30%, as we’ve already discussed, and then you see a car loan and that’s 9%, but you add that 9% on to $30,000 for whatever, six years. It’s crazy how much it ends up paying. I’m completely allergic to this whole high interest that’s going on.

When you get the reset, because as you were talking, I was thinking, well, what good is your credit rating when you can’t live? Because it’s not living when you’re in that kind of stress and you can just barely make the minimum payments and you’re missing a bunch of payments as well. That’s not better.

Amanda Sherwood 11:17
It’s not better. To a degree, yes, I understand where you’re coming from, but once you get rid of that debt and then you rebuild, you feel that relief.

Wayne Kay 11:26
That’s exactly it.

Amanda Sherwood 11:27
It comes down the road and in today’s world, you’re quick to say, I need this vehicle tomorrow. And the dealership is also going, I need to sell this vehicle tomorrow. So you have that. If I can afford the minimum payment, great.

But that’s not the only conversation you want to have. You want to have that full conversation to say, what are you charging? What is the total amount I’m going to pay you? What is that vehicle worth? Because it is a sales game. Some people feel that because my credit is not great or because I have this much debt, I’m only eligible for this. It’s a whole sales aspect.

So you need to be able to say, no, this doesn’t work for me, or find alternate means. Can you borrow a vehicle? Can you carpool? Are you on a transit system for the short term so that you can save up for a deposit to put down in that vehicle so that you’re more qualified for a better interest rate? Or can you shop around with other dealerships and try and find a better interest rate that’s going to work for you, rather than trying to rush in and getting into that locked in vehicle payment and then finding out later, oh, I actually signed on for this that I didn’t quite comprehend because I was so eager to get into that vehicle.

Wayne Kay 12:40
What are the fears when people come into your office and they talk to you? What are the fears that people have before they contact you?

Amanda Sherwood 12:50
They think if they look at Bankruptcy, they’re going to lose everything. They think Bankruptcy takes everything away from them. And to a degree, yes, you do lose items in a Bankruptcy, but you still are allowed to keep certain things.

Your home that has a mortgage on it, your vehicle that has a secured loan on it, furniture and personal belongings and medical aids and things like that, you’re allowed to keep those things. You don’t lose everything that you’ve built up, but there is a whole balancing act to it.

A Licensed Insolvency Trustee’s main goal is to be the mediator between you and your creditors to say, okay, what can I liquidate that you don’t need for your basic necessities to go towards your debt to allow that reset to happen.

So I do have a situation where I am picking up your ATV that you own. Sure, you use all the time, but unfortunately we’re going to use that to pay some of your debt. But you’re not getting kicked out of your home, you’re not losing your vehicle. As long as you maintain those payments, your pensions, life insurance, there are certain things that just stay as is. But if you have, I say, luxury items or things that you don’t need, those things are liquidated to go to paying some of your debt.

Wayne Kay 14:07
Right. Do you have success stories of what it’s like for people after they go through the process and maybe five years down the road?

Amanda Sherwood 14:16
Oh yes, just about anyone that we’ve ever helped reset has come back to say how thankful they are and how much their life has changed afterwards. It’s not a switch – that you sign the documents and then everything’s clear the next day. It is a process that you do have to get through, and there’s paperwork and steps and I call it homework that an individual has to do to get through the process.

And after the fact, it is. It’s a balancing act – you still need to use credit to build that credit score. But there’s certain elements of getting a secured credit card instead of an unsecured card with a small balance on it that you use to buy groceries every month and pay off to have a credit history established. But you don’t need five products and things like that. They reach out and just thank us for the knowledge we provided and the relief we provided and how much better their life is once they’re within their means and reset and that debt is off their shoulders.

Wayne Kay 15:18
I think that’s what people need to hear is it’s going to be okay. And if anything, during this podcast, what we wanted to do is make sure that people know, don’t be so fearful that you don’t reach out to learn what the options are. Right?

Amanda Sherwood 15:35
Right. Yes.

Wayne Kay 15:37
I guess I should ask you, what’s your final comments regarding this topic?

Amanda Sherwood 15:42
And that’s such a good point to make, is that our services start with a conversation. We’re obligated to inform you what your rights are and what options are available to you and then you decide how to proceed. So by speaking with a Licensed Insolvency Trustee, you get that full picture.

And I will caution, people do need to make sure they’re speaking with a Licensed Insolvency Trustee because of course, there’s people out there that want to, I guess, try to offer help by a profitable means. So you do need to make sure that you get a hold of a Licensed Insolvency Trustee and not a debt consultant, I guess.

Wayne Kay 16:23
Right. And what’s worth mentioning, even anybody else outside there who’s trying to help you out, if you were to go to the Bankruptcy, they have to go through an LIT as well. A licensed Insolvency Trustee.

Amanda Sherwood 16:35
Exactly.

Wayne Kay 16:36
It’s the law in Canada. So that’s why it’s so important to find the right people. And you guys, your website is simply Wecanhelp.ca, which you do. The first one is free. A free consultation.

Amanda Sherwood 16:51
Exactly.

Wayne Kay 16:52
All right, Amanda, thank you so much for all this wonderful information. I hope this helps a lot of people.

Amanda Sherwood 16:57
Thanks, Wayne.

Wayne Kay 16:59
Well, my guest today is Amanda Sherwood. You can learn more or schedule a free consultation with Allan Marshall & Associates Licensed Insolvency Trustee through the website wecanhelp.ca. A

nd that’s it for today’s Debt Matters podcast. Now, make sure you subscribe wherever you get your favorite podcast from. Or if you know somebody who’s in a tough financial situation, by all means, please share this podcast with them. And of course, if you want more information, you can always check out debtmatters.ca. Thanks for listening.