when to declare bankruptcy

As the COVID-19 pandemic drags on, debt-ridden Canadians are seeing their quality of life diminish. Seventy percent of those surveyed say that new debt is making their quality of life worse. If you are struggling, you may be wondering just when you should be reaching out for help.

This podcast features Jillian Taylor-Mancusi, Licensed Insolvency Trustee with LCTaylor out of Winnipeg, Manitoba. She describes her experiences working with people who come in stressed and how they leave with a smile on their face, knowing they have options

Jillian also discusses:

  • What to expect when you first meet with a Licensed Insolvency Trustee
  • How much debt is too much and when you should seek help
  • Cashing in RRSPs to pay down debt
  • How a Stay of Proceeding stops collections and and when it takes effect  
  • The negative outcome of co-signing loans and lending money to family or friends

Licensed Insolvency Trustees are federally regulated and are knowledgeable in all aspects of debt management. Whether it’s budgeting or filing for Bankruptcy, you can be assured that they will give you honest advice to help you deal with your debt. 

Wayne Kay  0:04  

Well, welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m waiting, Kay. 

Today we have got a great discussion regarding when is the best time to declare Bankruptcy. You’re probably feeling a lot of stress, and we don’t want you to be stressed out. So helping us with this today, we’ve got Jillian Taylor-Mancusi with LCTaylor, Licensed Insolvency Trustee in Winnipeg. Jillian, thanks for being on the show today.

Jillian Taylor-Mancusi  0:36  

Hi, thanks for having me.

Wayne Kay  0:37  

We always get into some great discussions, because obviously, this is what you do. You talk about Bankruptcies and Consumer Proposals, but don’t just talk about them. You obviously help a lot of people live more stress free, because – just the stress, the stress that people go through, I don’t think we can really talk about that enough, can we.

Jillian Taylor-Mancusi  0:59  

You know it. Stress is a horrible thing. And when you have a lot of debt, and you don’t know how you’re going to pay it – that’s a lot of stress that’s weighing on people.

Wayne Kay  1:09  

Yes, that’s a lot of sleepless nights. You can see how the sleepless nights, the stress, then causes marriage issues – and people are angry, and they’re fearful, and they don’t know what to do. 

And if somebody is going through that, just know you’re not alone. Lots of people go through this. And we’re going to learn about some of the different options on how to get out of it. First off, let’s talk about when they walk into that office for the very first time. What is that first meeting like?

Jillian Taylor-Mancusi  1:39  

During that first meeting, what we really want to do is figure out what the individual circumstances are for that person’s situation. Everybody’s situation is a little bit different. Sure, they’re coming in because they have debt. But how much debt do they have? Who do they owe it to? Do they have any assets? What kind of income do they have coming in? When you take all of that information, then you can start to really look at their situation, and what options are available to them to get that fresh start.

Wayne Kay  2:07  

So you go through all that information. And then you say, here are a bunch of different options. People need to understand you don’t just walk in and all of a sudden, okay, we’re gonna file Bankruptcy. No, that’s not how it works, you get a bunch of different options. Now what about emotionally from when they walk in, because there’s probably nervousness.

Jillian Taylor-Mancusi  2:27  

Yes, when somebody walks in the door, you can see they’re nervous. They don’t know what to expect. In the past, there’s been a lot of negative connotations out there about Bankruptcies and Trustees. So you really can see a look of – they’re scared, really it’s what they are. You can see that. 

So then you sit down, you talk to them, and find out their situation. And you find out what caused their financial difficulty. A lot of times, a lot of people just assume, Oh, they can’t manage their money. But that’s not the case. 

You find out about people whose marriages have broken up, or they have severe health problems. They’re not able to work any longer, or they’ve lost their job or their small business has gone under. So you really get to sense what their personal situation is. 

Then you give them some options. The best part of my job is, because when I can find a solution for somebody, and see that weight lifted off their chest – they’ll start to laugh, or they’ll leave with a smile on their face. Then you know that you’ve done your job. 

Wayne Kay  3:30  

I think that was the most important thing said. They walk in with just severe stress. Nothing has changed, just that they know that there’s options and they realize that it’s okay. You’re there to help them. 

So let’s talk about that. We’ve talked about consumer debt, and how much money people owe. Actually, I think the average is $50,000 in debt, is that right?

Jillian Taylor-Mancusi  3:56  

Yes. $50,000 according to the latest stats, which came out for the 2019 year. It has actually gone down, because in 2016, the average amount of debt people had when they filed was over 80,000. So people are really starting to understand that there are options out there and they don’t have to let the debt continue to grow before they find options.

Wayne Kay  4:18  

So let’s talk about that. What point did they actually make a phone call to figure out about declaring Bankruptcy or maybe doing a Consumer Proposal.

Jillian Taylor-Mancusi  4:28  

A lot of people will wait until they get collection calls or threats of being garnished, having their wages garnished. But really, people should contact us at that time when they realize –  I don’t think I’m going to be able to make this payment. Or I’m making the payments, but it’s really tight.

Buying groceries is tight because I have to make all these debt payments. That’s when you should call the Trustee because at that point, you might have more options than if you wait until the time where your wages are being garnished. Or you don’t have any equity left in a property. And your options start to diminish.

Wayne Kay  5:06  

When that happens – when somebody comes in to see you, and they’re not having their wages garnished, they’re not getting the collection calls, but they’re stressed out about the debt that’s been growing. And they’re wondering about some options. Is there oftentimes that you send them away –  where they say, now I kind of have a little bit of a mini strategy that I can do, and they don’t have to do anything with you.

Jillian Taylor-Mancusi  5:32  

Yes, you know that happens a lot. Because what we can do is sometimes we can sit down with people and go through how much money they have coming in, what their expenses are, send them away to start keeping track of their income and expenses. Because you really need a good three months of expenses so that you can figure out a budget. 

And we’re able to sit down and actually come up with a budget so that they don’t have to file a Bankruptcy or Consumer Proposal because they’re able to restructure how they’re making payments, to be able to pay off the debts. Or sometimes there’s enough equity in a property where maybe they could remortgage their property, and pay off the debts. Things that people don’t necessarily think about, because they just have that worry, and they just don’t know what to do. 

Wayne Kay  6:15  

Should they be touching things like RRSPs?

Jillian Taylor-Mancusi  6:20  

Not before they talk to a Trustee. And the reason I say that, for example, in Manitoba, where I am, RRSPs are exempt from seizure. So what that means is, if you were to go bankrupt, the Trustee isn’t able to cash out your RRSPs. 

So you might have other options before you start cashing out your RRSPs. RRSPs are there for when you retire. And you’ll be really happy when you retire that you did not cash out those RRSPs. 

The other thing about cashing out RRSPs is there’s a good chance you’re going to owe on your income tax, because RRSPs, when you get them, they lower your taxable income. So there’s a good chance that you might get an income tax refund. But the opposite is true when you cash it out. Because when you cash it out, the amount you cash out gets put on top of your regular income, and you’re likely to owe income tax on that. So there’s other connotations that can happen if you cash out an RRSP.

Wayne Kay  7:15  

Okay, so that’s really important to know, because a lot of people will say, I need to make this payment. And so I guess I’ll just borrow from the RRSP. Is that the same with a TFSA? A Tax Free Savings Account? Or can they seize the TFSA?

Jillian Taylor-Mancusi  7:31  

Yes, so a Tax Free Savings Account is something that can be seized. There are different exemptions, depending on how it’s invested for things like exemptions for cash on hand. But you don’t run into that same problem with income tax that you would with an RRSP. So savings are a little bit different than an RRSP.

Wayne Kay  7:52  

All right. How about reaching out to family and friends and borrowing money? Is this a good idea?

Jillian Taylor-Mancusi  7:59  

Definitely not. You don’t want to borrow money from family and friends. Because if you’re having to borrow the money to pay back your debts, there’s a very good chance that you’re not going to be able to pay back your family or friends. And if you end up in a situation where you end up in a Bankruptcy, and you owe your family and friends, they are creditors in your Bankruptcy and you’re not able to pay them while you’re in Bankruptcy. 

Yes, so you don’t want to borrow from family and friends. If you’re the family or friend and people are asking you to cosign loans for them, you want to be careful of that. Because if somebody is having financial difficulty, and you cosign a loan for them, and say they end up going bankrupt – well, the reason that they got a cosigner is because the financial institution didn’t really know if they were able to pay that debt back. 

So if they go bankrupt, you’re now going to be on the hook for paying that loan back. So if you’re going to cosign for somebody, make sure that you’re able to make those monthly payments before you cosign because if they can’t pay, you’re going to have to.

Wayne Kay  9:01  

I think most people would understand that, but I’m sure a lot of people think oh, that’s fine – because it’s under your name. I’m just co signing that you can take care of it. But obviously, that’s wrong.

Jillian Taylor-Mancusi  9:14  

Right. And people don’t necessarily know what your financial situation is, right? They might just think Oh, heck, they just need a cosigner no big deal. But no, they need the cosigner because the financial institution doesn’t necessarily think they can make those payments.

Wayne Kay  9:29  

And so I think if you’re in financial trouble – you sound like you’re telling anybody this is something that you’re keeping to yourself.  I think that was a really good point – where you said if somebody is coming to you and asking you for money, let’s say it’s a family member – is that now an open point where you can discuss what their financial situation is. Is it okay for me to pry?

Jillian Taylor-Mancusi  9:51  

If they’re asking you for money or to cosign then I think it’s definitely fair game because like I said, it’s going to come back on you if they’re not in a position to pay it. It is a touchy subject, and most people won’t ask. And that’s how they end up in trouble. If they have to come up with the money for a cosigned loan if somebody files a Bankruptcy or a Proposal,

Wayne Kay  10:10  

So call me heartless, but I’m not a person when it comes to this question – if somebody was to come to me and say, unless it was my kids. I know where they’re at financially. If there was something like – can you help us buy a car or something. Maybe? 

But for the most part, no. And the reason I say this is because I know somebody who lent money and he didn’t have a lot. So he used his line of credit, to help another guy get $10,000 – who then couldn’t repay his debt back to this person. And he ended up having to declare, I think he did a Consumer Proposal, and the other guy kept the 10,000 bucks.

Jillian Taylor-Mancusi  10:53  

Exactly. It’s exactly the same situation. And you have got to be careful, because as you said –  maybe if your kids asked. Well, maybe if your kids asked you to co-sign it. But what if they defaulted, and they came to you? Could you afford those payments? 

Yes, you’ll do a lot of things – rhetorically, you’ll do a lot of things, a lot of things for your kids, because you always want to help out your kids. Right? Yes,, kind of the rule of thumb, you always do things for your kids. But I think that’s the hardest thing that I have to tell people is just because they’re your kids, doesn’t mean that you have to go into financial difficulty for them.

Wayne Kay  11:31  

And it’s hard. That’s hard to do as a parent. I know a parent here locally that their child ended up with COVID and has a very severe case of it and now is not able to work and wanted to move home. He said, we can’t do it. We’ve got other kids, we’ve got other things going on. It’s just not possible. And that person had to go figure it out on their own. But yes, my friend was gutted that he had to do this.

Jillian Taylor-Mancusi  11:57  

Yes, if you can help them great, by all means, help your kids out. But don’t put yourself behind the ball because you want to help your kids.

Wayne Kay  12:05  

Do you see that happen a lot? 

Jillian Taylor-Mancusi  12:07  

Actually, we do see that a lot. People will get loans, to pay for things for their kids or help their kids out when they can’t afford it themselves. They’re having a hard time buying their medication or buying their groceries. But yet they’re sending money to their children to help them out. They are spending money to help their kids with school, which is great. Everybody wants their children to have a great education. But it shouldn’t be to your detriment.

Wayne Kay  12:33  

Right. Okay. So that’s an important thing for us all to learn. As you said, to our detriment. It’s okay, if you have extra cash after I put away my money for my retirement and everything else is taken care of. Then if I need to help out a little bit, I can.

Jillian Taylor-Mancusi  12:51  

Right, exactly. Okay, that’s good. Don’t be a nice person. But do it if you can afford it.

Wayne Kay  12:58  

Right. Gotcha. Okay. And I’m sure that would be a miserable discussion for a lot of family members to say no.

Jillian Taylor-Mancusi  13:10  

Yes, it’s really hard for parents and grandparents to say no. Because if they feel like they’re saying, oh, I don’t love you. I don’t care. But that’s not really it. They’re saying, I do love you and I do care. But I can’t help you.

Wayne Kay  13:27  

Okay, so that’s a deep one. I think emotionally, it would be hard on a lot of people. As we just talked about, what else do we need to know regarding when’s the best time to declare Bankruptcy? Let’s say you start getting these collection calls, your debts are now in collections. Are there still options at that point?

Jillian Taylor-Mancusi  13:46  

Yes, definitely. As soon as you file something like a Bankruptcy or Consumer Proposal, there’s something called a Stay of Proceedings that goes into place. What that means is that nobody can sue you or garnish your wages or take any other collection practices against you. 

And that’s immediate as of the filing of the Bankruptcy or the Proposal. So if you’re getting collection calls, or you got a Statement of Claim that your creditors are taking you to court, what they’re trying to do is get a judgment against you. Once they get that judgment against you, then they can go back to court and apply for a garnishment order. 

Once they start to garnish you, they can take 30% of your gross wages. So that’s a big chunk of money that comes right off the top. If you file a Bankruptcy or Proposal that Stay of Proceedings goes into place automatically. So definitely, if you have a collection call coming in, then you might want to talk to a Trustee because it just starts to escalate from there.

Wayne Kay  14:41  

So as soon as you start getting those kinds of high pressure phone calls, they’re not always polite.

Jillian Taylor-Mancusi  14:47  

No. collection agents tend to work on commission. So if they can get you to pay, that’s how they get paid. So sometimes they’re a little ruthless to try and force you to pay so that they can get paid.

Wayne Kay  15:00  

But there are rules about how they can contact you, I believe.

Jillian Taylor-Mancusi  15:05  

There are rules. But it doesn’t take the stress off when you’re getting numerous phone calls a day or they’re starting to call you at work. Even though there are rules, it doesn’t mean that sometimes they just don’t push the line a little bit.

Wayne Kay  15:17  

So if all of a sudden, the person is getting garnished wages at 30% – Ouch, because now what are you going to do? You couldn’t afford to make the payments beforehand. Now all of a sudden, you’re losing 30%? Is that when I reach out and we start that Consumer Proposal? Will that stop that 30% from being garnished as well?

Jillian Taylor-Mancusi  15:38  

Yes, that stops automatically. So even though in a proposal, what you’re doing is you’re proposing a debt settlement to your creditors. They get 45 days to vote on that. That Stay of Proceedings goes into place, right up day one when you file –  so that stay takes place the whole 45 days until you know what’s happening with your proposal.

Wayne Kay  15:57  

Oh, okay. That’s great to know. And then what happens after 45 days?

Jillian Taylor-Mancusi  16:01  

45 days is when the votes are up. So basically, the reason it’s called a proposal is you’re proposing it to your creditors, and they get the opportunity to vote on whether or not they accept it. If they accept, it’s legally binding on them. If they vote against it, what we’ll do is call creditors meeting and try to negotiate something else. And at that 45 day mark, that’s when we count all the votes.

Wayne Kay  16:21  

Gotcha. Okay, that makes perfect sense. I love how you just make people feel better about debt. Debt is such a scary topic, but yet, you sound so good with all the different options that are there.

Jillian Taylor-Mancusi  16:33  

That’s the thing, there are options. So people shouldn’t be scared or worried because we can most often find a solution that’s going to put them back on a fresh start.

Wayne Kay  16:41  

So real quick, and of course, we keep telling people that you can always reach out for the very first meeting and that one is often complimentary.

Jillian Taylor-Mancusi  16:50  

Always. And if it takes a couple of meetings even. We want to make sure that you understand your options and that you pick the best option for you –  because you don’t want to pick an option that’s going to keep your cash flow tight and keep you stressed out. You want an option that’s going to get you back on your feet. So if it takes more than one, it takes more than one.

Wayne Kay  17:09  

I love it. Jillian, thank you very much for all the information on the show today. Jillian Taylor-Mancusi from LCTaylor Licensed Insolvency Trustee in Winnipeg. If you want to learn more or schedule a free consultation with LCTaylor, you can head over to lctaylor.com. 

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

About Jillian Taylor-Mancusi

Jillian is a Licensed Insolvency Trustee in Manitoba and Northern Ontario. She has been working in the insolvency field since 1992. A member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), Jillian also serves as chair for Dressage Winnipeg. 

Additional Resources