88 – Insolvency From the Debtor’s Perspective

Wayne Kay 00:04
Welcome to 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’re going to be talking about insolvency from a debtors perspective. How do people generally deal with serious debt problems? If you are in debt, you are looking for solutions – this show is going to help you with it.

If you are in serious debt in this country, what do you do? How do you get out of it? What’s your first step? And to help us with this, Leigh Taylor from LCTaylor Licensed Insolvency Trustee with offices in Manitoba and Northwest Ontario. Leigh, welcome back.

Leigh Taylor 00:47
It’s nice to be here, Wayne.

Wayne Kay 00:49
We got a great one because debts, there’s debt and then there’s serious debt. And I imagine in your career you’ve seen all kinds of debt. Anything surprise you?

Leigh Taylor 00:59
Well, you think you’ve seen it all and then something will come up that surprises you. So there’s always something new.

Wayne Kay 01:06
Oh, good. Well, you always have to be learning. But this is what this show is all about, is really looking at what we do when we’re in a serious debt problem. And how do people generally try to tackle these big debts?

Leigh Taylor 01:20
The reality is that every situation is unique. Everyone’s a little bit different. But you could describe them in very general terms because there are a lot of things that they do have in common. I think one of the basic things is that most people don’t realize that they’re in debt and financial difficulty until they’re in too deep.

Wayne Kay 01:37
So what does that mean when they’re at the point? When they start getting phone calls? Or I mean, imagine you would be looking at all the credit cards and everything else that’s coming here and then all of a sudden you start getting these phone calls. So I guess that’s when they would know.

Leigh Taylor 01:54
Well, there’s lots of signs that you’re in financial difficulty. The problem is most people don’t recognize the signs or there’s a denial that they exist. But things like you’re running out of money before the end of the month, that happens a lot with people. But they start using things like payday loans. Payday loans are very serious because they are extremely difficult to repay. Interest rates are high. It’s almost like a bottomless pit.

The other thing they do is they max out their credit cards. You run out of a credit card to apply for a new one and then you get it and max it out. What telltale sign there is that you’re starting to use credit cards to pay off other credit cards. So you’re pretending that you’re keeping up to it, but you’re really sinking deeper and deeper in debt. 

If you let monthly bills go unpaid, you get too many bills this month, they say, well, I wouldn’t pay the hydro bill. I’ll pay this other bill and I’ll catch up next month, and then next month the same thing happens. 

It gets a little more serious after a while, and you start getting threatening phone calls and letters from people that you’ve missed. Your Visa card suddenly is two or three months in arrears, and it gets canceled. These are pretty good signs that you’re in financial difficulty. I think one of the main ones is you start arguing with your spouse about spending.

Financial difficulties are really hard on interpersonal relationships. And while it may not be your fault necessarily, or your spouse’s fault, or one or both, but that starts interfering with your quality of life as well. And it’s not all like a downward spiral. All of these things are indicative of the problem getting worse and worse and worse without any indication that there’s a solution at the end of it.

Wayne Kay 03:43
And we did a show on relationships and Bankruptcy and divorce, and we talked a lot about that as well, the emotional toll it takes. And as you were talking about this, I’m starting to see that spiral of how it does go down. And when you do start having that emotional disconnect with your significant other, then it becomes even worse, doesn’t it?

Leigh Taylor 04:07
Yes. Talk about stress. It’s bad enough to have your creditors yelling at you, but your wife’s yelling at you too?

Wayne Kay 04:15
Not good. So these are kind of the signs that people are really over their head in debt, right? These are things to be watching for.

Leigh Taylor 04:24
Yes. And there’s all sorts of other signs depending upon your particular situation.

But I think it’s human nature to ignore them, think they’ll go away, or that, oh, that’s just a little problem. I’ll catch up next month, or whatever. But when you start seeing several of these signs, you have to do something about it, because it means that you’re in a situation where you may not be able to solve it on your own.

Wayne Kay 04:48
So how do we start taking that step? Like when you talk about solving the problem, how do we do that?

Leigh Taylor 04:55
The question is, what do people do when this happens? In our experience, unfortunately, people will struggle for a year and a half to two years after some sort of traumatic event happens – a traumatic financial event, before they really seek help, real help. Whether it’s a divorce or you lost your job or you got injured and you’re off work and you had to rely on half your wages or some such thing. Unemployment, for example. If you lose your job, you turn around and say, well, I’ll get another job right away.

So it takes you maybe a couple of months, three months to find another job. And you’ve been living on credit cards and borrowed money, et cetera, for a few months. But that’s easy. Once you get the job, you get back to work and you’ll make it up. So three months later, you get another job, and it turns out that instead of $28 an hour now you have to work for $21 an hour until you build it back up.

So now you’re living on less than what you had before and you’ve got in trouble before. So that’s sort of typical of the kind of thing that represents this delay of a year and a half to two years. Other things people will do, they’ll try cutting back. They may say, okay, well, we’ll watch our dollars and cents at the grocery store, we’ll try and cut down on gas consumption, et cetera. They might even go out and get a part time second job to help things out a little bit or create a budget, maybe even selling off assets.

If you got a second car, if you sold off the second car, even if you had a debt to pay off to the mortgage holder, you can reduce some of the cash flow, et cetera. Those are some things that people try. They even go and buy lottery tickets and say, well, only fair if we want a lottery.

Wayne Kay 06:42
But there’s a lot of people who do that.

Leigh Taylor 06:45
That really doesn’t work.

Wayne Kay 06:47
Yes. So none of these things are really solving the problem.

Leigh Taylor 06:52
Well, in some cases it can. If you get down at the beginning of it and start seriously budgeting and reduce your expenses and increase your cash flow, a lot of times you can get out of it. But it’s really difficult to reduce your standard of living.

You look at the kinds of normal things that you’ve gotten used to, whether it’s whether it’s a latte at Starbucks every morning. It’s really hard to sort of do without that. You feel like you’re depriving yourself harder, yet you start to get into difficulties. 

And your kid is a star of their hockey team and you’re telling them they can’t afford hockey anymore because it’s too expensive, or your virtue on the piano is going to have to give up their piano lessons because you can’t afford the piano lessons. Those sorts of things are really hard to cut out and that’s sort of a standard of living kind of issue.

So it sounds really easy to do a budget and cut back. But it really is difficult for most people to do it. And oftentimes the debt has just grown too heavy for those solutions to work. That’s why if you start them right away, that helps. But if you’re already three months behind after losing your job, it’s a little more difficult.

Wayne Kay 08:10
Right. So what do you do then?

Leigh Taylor 08:13
I think the major factor in people not doing anything right away is the embarrassment of it all. That seems to be the biggest problem. Whether it’s your fault or your employment terminated at no fault of your own or whatever, people get embarrassed by the fact that they are in financial difficulty and I think that’s sort of a natural response for people.

That leads to a reluctance to discuss the problem with friends, relatives or professionals, et cetera. However, it is very important to get over it and to take the first step.

Wayne Kay 08:49
And what is that first step?

Leigh Taylor 08:51
I think invariably it’s going to be to contact a License Insolvency Trustee like LCTaylor.

Wayne Kay 08:57
Right.

Leigh Taylor 08:58
They’re the experts in the field. It’s a lot easier than you think. Most offices, including ours, are very approachable. Give us a call, set up an appointment, come in and talk to us.

We’re not going to be judgmental and we’re not going to be accusatory. We’re not going to imply, you stupid fool, you shouldn’t have spent the money. I mean, it doesn’t apply to many cases. And for most people it’s a combination of problems, some of which are beyond their control, so they have to sort of get over that. But once they come in to see us, we can do a detailed analysis of their situation and provide the alternatives that are in their best interest.

And you don’t know what all the alternatives are until you get into it. But earlier on in the situation, sometimes they’re simple budgeting and that sort of stuff is the right step in the right direction. Other times it may turn out to be a Bankruptcy or a Consumer Proposal or some sort of a serious budgeting situation.

Wayne Kay 09:58
One thing we always talk about is that it’s a free consultation. The first one is a free consultation which can often just give people some solutions, give them some ideas and when they leave you’ve seen this, the embarrassment is gone because there’s now hope.

Leigh Taylor 10:18
That’s true, but half the people we talk to don’t go bankrupt. They come in, they talk to us, we can find solutions for them that may work. Give them a try. 

The solution oftentimes is let’s try plan A. Can you cut back? Can you do a budget? Can you live within that? Because if you can and you put x number of dollars a month towards this debt, you’re going to be debt free in the next four or five years. That’s a practical solution for a lot of people. 

Plan B might be, well, if you can’t give up your latte, then maybe you should try something a little more drastic.

Maybe we’ll put together a Consumer Proposal where there’s a formality involved. You get the creditors off your back and you have a longer period of time to deal with this. And if that doesn’t work, we can go to plan C. I mean, there’s always a solution. It’s like taking medicine. You may not like the taste of the medicine, but it’ll do the job.

Wayne Kay 11:15
And once you get through it, you’re back on track, which is great. And I would imagine once you learn a lot of these strategies that you actually will be further ahead in the long run if you implement them well.

Leigh Taylor 11:29
That’s very true, Wayne. Part of the process is there’s a couple of mandatory counseling sessions during the course of the Bankruptcy or the Consumer Proposal. We’ll sit down and go through a two part workbook that we’ve got that talks about all sorts of aspects of financial management, whether it’s budgeting, whether it’s tips on how to reduce some of your spending, whether it’s a little bit of information about things like life insurance.

Do you need life insurance? How do you go about it? What does it require? Putting money away for unexpected expenses, trying to save up a little bit money because someday you might want to retire, and having a little money in an RRSP or a tax free savings account will make life a whole lot easier than trying to live on CPP when you’re 72. So all those sorts of things go into it.

And we like to think that almost invariably people are better off through the process. They get back on their feet. And it really is gratifying to those of us in the business that get the commentaries and the notes and letters from people thanking us everywhere, from thanking us because it was a difficult situation emotionally and we made it easier for them. 

I even get the odd person following me up and saying, well, you saved my life. It sounds a little over the top, but when you’re in the depths of depression or financial difficulty, you really do need help. And it really is saving somebody’s life if you can get them back on their feet again.

Wayne Kay 13:03
Absolutely. Yeah, we see this and we hear this quite regularly, that people don’t know where to turn. So when things are really bad, this is a great place for people to start with – a Licensed Insolvency Trustee.

I’m just going to give out your website right now just in case somebody’s listening and they’re like, I want to connect with them. I’m going to do it again at the end. LCTaylor.com. You can learn more about Leigh and the team there. 

Now, as you were talking about, and I was thinking about financial situations that happen a lot of times, I’m sure this happens where I want to say it’s no fault of somebody’s own, because we are at a point in Canada where everything is costing so much money. And if you’re in a new mortgage, if you were on a variable before, there’s been big jumps there.

You got to have a vehicle, you got to have a car. And then all of a sudden you have this pandemic that comes along. I mean, that was before that, but still people are still recovering from that. It’s like a perfect storm of bad things happening.

Leigh Taylor 14:03
And a lot of people are affected by COVID in many different ways. A lot of them got laid off and, yes, you got unemployment insurance, but eventually it runs out and you have to get back and you don’t have the same job. 

If you work for a restaurant, good chance the restaurant’s not there anymore. If they gave you these CERB payments, etc, while you’re away. It was very generous of the government to send you thousands of dollars, except I’m not sure they made it very clear that it’s taxable. 

So all these people got it. They continued on their appropriate standard of living and now they’re getting to tax time and they’re realizing that there’s several thousands of dollars worth of income tax due on the money that they were given. And that’s a bit of a shock to people too. We’re talking to people every day with that problem.

Wayne Kay 14:48
Yes, they failed to kind of mention that unless that was in the fine print. And I’ve also heard of people that are having to pay some of that back. And once again, if you don’t have that savings, that’s a big kick in the financial pocketbook.

Leigh Taylor 15:01
Yes. There are a lot of people who they found out from their friends and neighbors, hey, all you have to do is apply for this. But they didn’t read the fine print that said under certain circumstances you’re not entitled to it. So they got it anyway and the government didn’t check.

There was no auditing program until later. Now, Revenue Canada is hot on the trail of these people and saying, yes, you got that money, but now it’s not taxable, it’s repayable.

Wayne Kay 15:24
Right.

Leigh Taylor 15:25
And that’s a bit of a shock to people too. So I think you’re going to find that if you’re in that situation, you’re not alone.

There’s probably a few million Canadians out there that have gotten into that particular trap and not all of them have the resources after the fact to pay it back or to work on it. 

There’s a lot of problems out there. So yeah, it’s embarrassing to be the subject of those problems, but maybe it alleviates the embarrassment a little bit by knowing that you’re not alone.

Wayne Kay 15:55
Yes, that’s a big one. I think you hear that though, because they do kind of feel like, oh, it’s my fault and I should have known better and I should have had savings and I should have and we know the should haves don’t work very well.

Leigh Taylor 16:08
Yes, I mean, the theory is great. The implementation is a little more difficult when it comes to saving your money.

Wayne Kay 16:14
Yes, exactly. What’s your final words of advice here for us regarding insolvency from that debtor’s perspective?

Leigh Taylor 16:21
Well, I think the first thing is to seek out the proper professionals. Go to an LIT, a Licensed Insolvency Trustee. There’s a lot of people out there that start little businesses with credit counseling or credit consultants. They don’t have the training or the tools necessary to provide the proper solutions. They can’t give you all the answers. They can’t administer Consumer Proposals, they can’t do Bankruptcies.

There’s an old adage if talking about it is the only tool you’ve got, that’s all that you’re going to get out of it too. Most of them will charge you a lot of money and then refer you to an LIT in any event because they can’t do it themselves. 

And I might add that if you’re looking for an LIT, I think you’re wise to look for one that operates locally. During COVID a lot of Licenses Insolvency Trustees – not a lot – a few from out of province would set up what they call virtual offices because that was allowed.

You couldn’t get into anybody’s real office so they pretended they had an office. And that works in some cases. But I think if there’s any questions or problems or whatever, you’re going to find that your LIT that you didn’t know much about is about 2,000 miles away. And so I like the idea. If you’re going to do it, do it with a local professional.

Wayne Kay 17:42
Absolutely. You can learn more on the website LCTaylor.com. Leigh, a pleasure. Thank you very much for all this great information.

Leigh Taylor 17:49
Well, thank you Wayne. Always a pleasure.

Wayne Kay 17:52
That’s Leigh Taylor from LCTaylor, Licensed Insolvency Trustee. Once again LCTaylor.com.

And that’s 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. And please, if you know somebody going through a tough time financially, please share this show with them. Thanks for listening.