139 – Facing Bankruptcy: What to Do Before, During and After You File

Wayne Kay 00:04
If you’re facing Bankruptcy, what do you do before, during and after you file 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, we are going to talk about – what can you do? If you want to maybe change your bank account, can you do that? If you want to buy a new vehicle, can you do that? What are things that you’re required to do while in Bankruptcy? And then once it’s all done, how do you start to rebuild your credit?

Well, to help us answer these questions and a lot more, I’ve got Julie Drane with me from Allan Marshall & Associates Licensed Insolvency Trustee from Victoria, British Columbia. Hi there, Julie.

Wayne Kay 00:55
All right. I’ve got Julie joining me on the phone from Julie joining me from the office in Victoria. Hi there, Julie.

Julie Drane 01:02
Hi, Wayne.

Wayne Kay 01:03
Thanks so much for being on the show.

Julie Drane 01:06
Well, thanks for having me.

Wayne Kay 01:07
It’s always good to know what’s going on when it comes to debts. And we’ve got a lot of Canadians that are having a very tough time. It’s really weird, actually. We have Canadians that are spending more money than they’ve ever spent before. But then we also have Canadians who have got higher debts than they’ve ever seen before, and they kind of feel like they’re sinking. Have you noticed that?

Julie Drane 01:32
Yes, I have. Unfortunately, we’re seeing a lot as the interest rates have risen, the people who are already struggling, it’s really putting them in a very bad spot at this time.

Wayne Kay 01:43
How do you know when the time is to reach out to somebody for some guidance? A Licensed Insolvency Trustee, if you’re not sure.

Julie Drane 01:52
Reach out anyway. There’s never a bad time. Sometimes it’s us being able to send someone to someone else. But a lot of times people wait too long and dispose of assets and things they don’t need to dispose of that could have been protected if they came to talk to a Trustee prior to doing so.

Wayne Kay 02:08
Because everybody has pride and they want to take care of this themselves.

Julie Drane 02:13
Absolutely. We always think tomorrow is going to be a better day, and we all tend to get into debt with the intention of paying it off. And we believe that, yes, next week, next month, next year, I’m going to be able to do it. And sometimes people struggle for a very long time before they come and ask for help, which is, like you said, a very hard thing for a lot of people to do.

Wayne Kay 02:32
So we’re going to kind of dive into a deep dive on Bankruptcy. What that looks like, what things we need to do before, during and then after in this podcast for today.

So what do we need to know when it comes to pre Bankruptcy? Is there anything that we can do or should do?

Julie Drane 02:55
The first thing I always say is come and talk to us first because we can give you a to-do list to go out with. And a lot of time people have to change their bank account because they’re banking with an institution where they owe money. And that bank has something called the right of offset, which means that they don’t care if you pay your rent or buy food.

They can go in if they’re owed money, even at the date of insolvency. If there’s money in that account and take that money out, and a lot of time, then the bank will shut the account down. Also, a lot of more people that we’re seeing have cash store loans where they’ve allowed these lenders access to that account, and those people will continue to try and take it out.

So we say, look, get somewhere, a bank account, somewhere you don’t owe money, and then we can work with you to file an insolvency so you don’t have any post filing problems.

Wayne Kay 03:45
I didn’t realize this, that you do want to actually go about changing your bank account with an institution that you don’t bank with. It can’t be hard to do.

Julie Drane 03:54
No. And a lot of time the banks will help people, especially senior citizens, go into what I would call a bricks and mortar bank. So someone that you can go to your local branch and they can help people. But most people today are pretty savvy.

The government’s gotten a lot better for changing things like pensions and child tax. Employers are used to that because a lot of people will change their accounts when they get a mortgage somewhere or something like that anyway.

So it’s a pain. But at the end of the day, that little bit of pain can save a lot of headache in a couple of months when the Trustee is trying to help you get that money back. But it could be up to six months before we can get it back, even though it shouldn’t have been taken in the first place.

Wayne Kay 04:34
So do I then go take the money out of the bank account that I’m dealing with, if there’s any left, and then transfer it all over or leave a little bit in there.

Julie Drane 04:43
I always tell people, don’t put the bank in a worse position. So if you weren’t in overdraft – don’t put yourself in overdraft. But, yes, if you got a paycheque that went in for $1,200, go take that out and yes, move it to the new institution because you’re going to need to pay your rent, put food on the table, put gas in your vehicle, pay your insurance and that sort of thing.

Wayne Kay 05:02
Yes. Okay. So that’s an important thing – if they have access where they can be taking the money out of your account, they will. And they’re not going to worry too much about your needs, I guess.

Julie Drane 05:12
Absolutely.

Wayne Kay 05:14
Now vehicles. What about this? Do you ever find people maybe in a situation where they need to get something, they’re trying to get to work and their vehicle ends up dying? What about that process before getting into Bankruptcy?

Julie Drane 05:31
We don’t discourage that. If somebody needs to finance, the only thing we do caution people about is making sure that if you’ve got a finance vehicle already, that the lender doesn’t try to pull in that shortfall on the other vehicle.

But if it’s somebody who, say, has an older vehicle that’s broken down and they want to trade that in, get into financing for a lot of people, I shouldn’t say a lot. For some people, it’s better to try and get that financing while their credit is still not too bad versus once they’re in a Bankruptcy or at once in a proposal and they need to finance it in 30 or 60 days and they haven’t started to rebuild their credit, that can become extremely expensive.

Wayne Kay 06:14
Okay, so when they’re looking at financing you, are they looking at every bill? I mean, how does that work? Or do they just go to the credit bureau and find out what your score is?

Julie Drane 06:26
That, not being a person who sells cars. I don’t know the answer to that question, Wayne, however, yes, they will look at your credit report. I don’t believe that they look at your income. But do they like a bank when they’re lending you for something else? I don’t think they look at anything else, but that would be something that you do, some online research, you’d talk to your bank or talk to the person at the car dealership and say, hey, what do I need to worry about?

Or if they say, I can’t finance you now, but up the road, what do I need to run into? Unfortunately, that’s something I can’t really comment on because it’s not my area of expertise.

Wayne Kay 07:02
So there’s a lot of times, though, because when I’m thinking, when you’re at the point where you’re in need to be doing this Bankruptcy that you’re already so far in debt that the thought of adding in any kind of extra payment might be a little bit more difficult. Probably the credit cards are maxed. Do you then go apply for other credit cards to try to help out, or is this the point where you’re like, okay, I need to just stop everything and I need to contact Julie?

Julie Drane 07:28
Yes, I think once you’re at the point where you’re going, basically you’re taking money off one card to pay off another, or you’re applying for one of those 0% cards to pay off a high interest card. It’s just a game – it’s a spiraling game.

Wayne Kay 07:43
Right.

Julie Drane 07:43
And essentially, for most people, not all, some people, it’s just a budgeting issue. They go and they speak with a credit counselor, they get their budget in order, and that’s great.

But for the majority of people, once they go into that spiral, whether it be credit cards or cash floor loans, is a very difficult cycle to get out of just because of the interest rates and the fees that are associated with doing that sort of thing.

Wayne Kay 08:12
Okay. Anything else we need to know? Pre going into Bankruptcy?

Julie Drane 08:19
Bankruptcy is going to affect one’s credit report. Of course, a lot of other things are very individual. So when you go to speak to an LIT, they will walk you through something that’s specific to your situation, that’s recommended that you do prior to filing. And those are very individual, Wayne, depending on the person’s situation.

Wayne Kay 08:37
Okay, good to know. Well, then we’re done. Let’s move past the pre. Let’s now go into the Bankruptcy, and let’s talk about things that people are required to do during Bankruptcy. Because it’s one of the most terrifying words that you hear is Bankruptcy. So what does it look like when you’re in it?

Julie Drane 08:54
So the first requirement is you have to sign the documentation. We have the ability in Canada to sign people by video or in person. And then once those documents are signed, then there are a few things that the bankrupt has to do.

The first thing typically is your first credit counseling session. And that is typically done depending on the trustee office. It’s required within six months, but a lot of Trustees will do that within the first two to three months.

The other thing that kind of comes into play within a month is income reporting. Every month you fill out a lovely little sheet, attach your pay stubs or your bank statement showing your pension and send that into the Trustee for review.

The other thing that is required in a Bankruptcy is, well, there’s the second counseling session, as well as there are taxes that are required to be filed by the Trustee. If you, at this time of year, have not filed your 2023 taxes, which a lot of people haven’t, the Trustee would be required to file the year prior, as well as the tax returns for the year of Bankruptcy. So there are two returns in the year, the pre Bankruptcy return, January 1 to the day before the Bankruptcy, so that if there’s any debt that’s included in the Bankruptcy, and then there’s a post Bankruptcy return that the Trustee does from the date of Bankruptcy to December 31 in the year of Bankruptcy.

There can also be a creditors meeting required. In most bankruptcies, they are not required. A lot of the Bankruptcies now are something called a summary administration, which means that the assets that are realizable by the debtor, by the trustee, sorry, are less than $15,000. And so there’s no automatic creditor meeting. Very rare.

A lot of times if the creditor wants to say something, they will either request an examination under oath by the Superintendent of Bankruptcy, which is a requirement if it’s requested. I always tell people that if you aren’t hiding anything, there’s nothing to be afraid of from one of those examinations.

And then the other way that the creditors will sometimes ask for something additional is at the end of the Bankruptcy. We have to go to court to have a discharge hearing, and then the registrar, which is essentially a Bankruptcy judge, can issue an order for additional required payments. And that’s usually what it is. It’s a monetary condition at the end of the Bankruptcy.

Wayne Kay 11:24
So basically, as soon as we do all the paperwork, the trustees then take over and I get to breathe a sigh of relief and you will walk me through the entire process until we get the discharge, which says, now I can start rebuilding my credit. Is that how it works? And rebuilding my life?

Julie Drane 11:44
Yes. Basically what happens is when the Bankruptcy is filed, there is something called a Stay of Proceedings that comes into place with regard to the unsecured creditors. So basically, your credit cards, lines of credit Canada, revenue for income tax, EI, overpayments, all of those, and even student loans, the collection activity is supposed to stop immediately.

Unfortunately, the creditors don’t read minds too well. So a lot of times there will be some contact for a few weeks. If that persists, you contact your Trustee’s office. Trustee will then contact the creditor and get that collection activity to stop throughout the process. Every Trustee’s office is a little bit different.

With Alan Marshall and Associates – right away you get something from us that says, thank you for signing. Here’s the things you have to do. Then there are various reviews throughout the file and times when we reach out.

Now, we can’t make that person do things that they don’t want to do. So basically, you have to help us to help you. Like, we can help you with legal protection. However, in order to get you across the finish line, you have to do some things to help me to help you along the way.

Wayne Kay 12:54
Okay, perfect. That makes perfect sense. I like that. Now let’s dive into the end. So we’ve talked about before, the Bankruptcy, during the Bankruptcy. Now Bankruptcy has come to an end. What does it look like to start rebuilding after Bankruptcy?

Julie Drane 13:11
Okay, so first thing, of course, you got to get your discharge, whether it be what we call an automatic discharge. So you’ve gotten through it. There’s no requirement for court or it’s a court ordered discharge. We get to the end of that, that gets lodged with the credit reporting agencies by both the Superintendent of Bankruptcy and the individual creditors.

And then most people, the way that they start to rebuild is to get something called a secured credit card. The most common ones in Canada are Capital One and Home Trust, Capital One being the most prevalent one. And even if they have been included in a Bankruptcy proceeding, they will issue another card. Sometimes they want to wait a little bit longer, but that’s the most common way. Some people will go out, and depending on the province they live in and what sort of furniture people are around, there are some provinces where you can buy a piece of furniture on financing, it reports to the bureau.

Some people will get a car, some people get an RSP loan. So there are various ways to do that. And when the second credit counseling is done as one of the duties, the counselor will talk to you about the various ways to do that, as well as give you some tools for you to do your own research, to find other ways to rebuild your credit and kind of play what they call the credit game.

Wayne Kay 14:30
Right. Okay. And when you talk about that credit card, that’s the one where you put $500 down and then you get to spend.

Julie Drane 14:36
That’s correct.

Wayne Kay 14:37
$500, right?

Julie Drane 14:39
Yes. Unsecured cards. I don’t know what the current bank policies are. It used to be that they wanted the person to be discharged for two years, but that changes all the time. Yes, the secured one is you give the creditor a deposit, they give you a card for the same or possibly a slightly higher limit. The idea being you always pay the balance off in full when it comes to, or if not before, because the interest rate on those cards is extremely high and we don’t want you to get yourself back into the mess that you just got out of.

Wayne Kay 15:12
Absolutely. We want to learn from this whole thing and change our lives. And you do see that people do see a difference in their lives after they go through this. You have seen people that have found joy again in living and do live a great life.

Julie Drane 15:29
Absolutely. And a lot of people, once they file, you can see that immediate sigh of relief. And sometimes it’s even with people after we’ve talked to them the first time, just knowing that there is a plan and then there is help for them and that we’re not looking for a pile of money from them up front. Just knowing that there’s a plan and that we’ll walk them toward that and help them through it if that’s what they want. Makes a lot of people feel very relaxed.

Wayne Kay 15:57
Yes. And people need to realize, too, after the first call, the only person that’s going to help you with this is a Licensed Insolvency Trustee. Nobody else can do a Bankruptcy in the country.

So don’t go bothering to spend money on somebody who says, hey, I can help you out. I need this much money. And then they’re just going to connect you with an LIT anyway.

Julie Drane 16:16
That’s correct.

Wayne Kay 16:17
Right. Terrific. Any final words of advice you want to share with us?

Julie Drane 16:21
No. I think the biggest thing is how you started this conversation, which is, if you’re struggling or you think you might be, call an LIT. There is no cost, there’s no obligation to speak with one of us, and we’d be happy to walk through all of your options to help you to get onto a better financial path.

Wayne Kay 16:41
Absolutely. Julie, always a pleasure. Thanks so much for being on the show today.

Julie Drane 16:45
Thank you, Wayne.

Wayne Kay 16:47
Well, that’s Julie Drane, and if you want to schedule a free consultation with Allan Marshall & Associates Licensed Insolvency Trustee, you can simply go to their website at wecanhelp.ca. As you heard Julie mention, it’s much better for you to get some advice sooner rather than later. And there is no charge for that consultation.

And that is it for today’s 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.