From Fear to Freedom: Getting Real About Debt, Credit & Starting Over in Canada

 Wayne Kelly: Welcome to the Debt Matters podcast. I’m Wayne Kelly, and this show is all about helping Canadians find solutions to their debt. I’ve got Brenda Wood helping me today from Alan Marshall and Associates in Dartmouth, Nova Scotia.

Thanks for being on the show. Thank you for having me, Wayne. I love this topic. It’s all about fear about their debt and how people are living these days and all the different solutions that are there. So I wanted to talk about that. How do you go from fear to freedom when it comes to debt?

Brenda Woods: I think the fear to freedom is allaying those fears by coming in and having a free initial consultation with a license insolvency trustee. We are federally regulated and we’re, our role is to make sure that Canadians understand what their options are for dealing with the debt. There’s no obligation, there’s no money upfront.

It’s usually just a chat. What are the things, what are the options that are available for you? And we would discuss all of your options with you, and then you just go away thinking about what’s best for you and where you wanna go and what you wanna do. And then come back and reach out to us if you had any questions.

And we would just go from there. 

Wayne Kelly: And it’s not these days we’re so used to the, Hey, come on in, just give this a free trial. Let’s just do a quick conversation. And then you guys are just super salespeople and you try to, really do what you can to get them to sign on the dotted line.

That is not what this is about. This is about where they can say, I am having some issues regarding payments. I’ve made some bad financial decisions, and now I’m not able to make all my payments. This is where a licensed insolvency trustee comes in. 

Brenda Woods: That’s right. So there’s no pressure tactics on our end.

We are simply letting people know, here are the options that you have available to you. And they get to think about what they’d like to do. Most of the time when I have people come in it’s an hour long, typically conversation where we gather some information about what kind of assets they have, what kind of income they have, what their expenses are, and then we brainstorm what.

Might be available for them in terms of options, and then it’s up to them to decide what they want to do. And we certainly would put no pressure on anybody to do anything that they’re not interested in go in doing. 

Wayne Kelly: There’s all these different terms of, in Canada that we have, like there’s a credit counseling services or there’s a bankruptcy or consumer proposals and bankruptcies.

What is the difference between a trustee and a credit counselor and some of the other advertisements that I hear? 

Brenda Woods: So the main difference between license insolvency trustees and debt management programs or credit counseling, is that we are federally regulated professionals in Canada. We are regulated by the Bankruptcy and Insolvency Act, and we are supervised by the office of the superintendent of bankruptcy. We have very high ethics standards that are set by legislation and set by our professional associations, and we’re the only professionals in Canada who are licensed to deal with bankruptcies and consumer proposals.

And so the difference between US and debt management programs or consolidating, or credit counseling is basically that we’re federally regulated. And that’s an important thing to understand, I think, because if there is no federal or provincial regulation around the debt management programs, then it, you’re just stuck with whatever rules and regulations they have in place with their business.

Because we’re federally regulated and very highly regulated by the superintendent of bankruptcy it’s all set by legislation. So everybody gets treated the same and everybody has the same availability in terms of what they could do with it through bankruptcy or through a proposal.

Wayne Kelly: And your name is on the Canadian government website. 

Brenda Woods: That’s correct. So the Office of the Superintendent of Bankruptcy and our association, the Canadian Association of Insolvency and Restructuring Professionals, C-A-I-R-P for short. Both have websites and those websites allow you to search up. For an LIT in your area that you could reach out to and uhits are required to have a personal .

Presence so that you could come in and speak with an LIT in person and have someone in your area who knows the area, knows you, and knows your, what things are, how, what the situation is like in your area. 

Wayne Kelly: What are some of the common misconceptions you think people have about trustees? And Lit and bankruptcies. 

Brenda Woods: I think some of the misconceptions are, number one, I’m going to lose all my assets, and that is the biggest fear that people have. I’m going to lose all my assets, and I think what they would find and be surprised by is that federal and provincial legislation. Quite a few assets so that they wouldn’t have to be involved in a bankruptcy or in a proposal necessarily.

Other assets like houses and vehicles, lots of people worried that they’re gonna lose their house or lose their vehicle as a result of a bankruptcy or a proposal, and that’s not necessarily. So there are ways that we can deal with that and help people maintain those assets and keep those assets.

Wayne Kelly: But if they have a lot of cars, then of course they may lose one 

Brenda Woods: It. Yeah, it’s going to depend on the situation. So certainly in Nova Scotia anyway, and all provinces across Canada, we have an exemption level of. For how much of a vehicle can you keep? If you have multiple vehicles, it doesn’t necessarily mean you’re gonna lose the other vehicles or lots of people worried about, will I lose my a TV or will I lose my camper, or something like that.

Certainly you may want to give up some of those assets if you’re making payments on them that you can’t afford. But it doesn’t necessarily mean you have to give them up if it’s manageable in your budget. Sometimes we can find ways for you to be able to keep that asset and still pay the value of that asset to your creditor as part of a bankruptcy or a proposal.

Creditors just wanna make sure they’re getting a fair amount based on the value of the assets. 

Wayne Kelly: You talk about proposals, but as Canadians that are just going about their day-to-day life, I think they’re familiar with bankruptcies and they’re familiar with consolidation. Right now, consumer proposal is not necessarily new, but it may be a new term.

Can you explain the differences between a bankruptcy and a consumer proposal? 

Brenda Woods: Certainly. So in a bankruptcy, it’s forced on the creditors. They don’t get to decide whether they’re gonna be part of this process or not. There are more duties, more things that people need to do in a bankruptcy. And payments in a bankruptcy are based on what we call the superintendent standards.

It’s just a table, it’s a formula that we use to determine what the payment is. And so the biggest difference between consumer proposal and bankruptcy is in terms of payments is that you have a little bit more control in a consumer proposal over what your payments are gonna be. ’cause they’re not legislated by a table amount.

It’s something that trustees can help you determine how much of a payment is affordable for you. And it’s a longer term. So oftentimes you can still give the creditors as much or more than what they would get if you were in a bankruptcy. You can pull it out over a longer period of time, which makes your payment more manageable.

The other difference is in the voting and the process itself. In a bankruptcy, there is no vote. Creditors are forced into the bankruptcy. In a proposal, creditors get to vote on whether they like your proposal or not. So there’s a process there, and it’s really more of a creditor driven process than the bankruptcy.

Wayne Kelly: So let’s dive just a little deeper into that. So with the consumer proposal, let’s say, I don’t know if we can even do this, but let’s say there’s a hundred thousand dollars of debt that you just cannot deal with anymore. It’s just and next month it’s gonna be $101,000. With the consumer proposal, you do not have to pay the full a hundred thousand dollars back, right?

Brenda Woods: That’s correct. So typically a proposal is a percentage of what you owe. There is no given percentage, there’s no minimum percentage that has to be paid. It’s a balance of what are your assets worth, what kind of an income do you have? And what could you afford? What could you manage? And then what the trustee knows because of doing, thousands and thousands of these proposals across the country, what we know about what creditors would be willing to accept in terms of a percentage.

So there’s a process there that we would go through with a debtor to find out what are those assets, what is that income? What could you manage and what would be reasonable for you and the creditor? And typically, yes, it is a percentage. It’s not normally a hundred percent unless you have a lot of assets available.

Wayne Kelly: And then with a bankruptcy, do you lose the entire debt? Just boom, it’s gone. And then you spend seven or nine months doing some kind of counseling before you can come out with zero debt. How does that look? 

Brenda Woods: So it’ll depend on whether there’s been previous bankruptcies or not. If it’s a first bankruptcy, then it’s typically nine or 21 months, depending on the income level.

And if it’s a second bankruptcy, it’s typically 24 or 36 months. Depending on the income level, and then a third or more bankruptcies, it’s up to the court to decide how long you would be in bankruptcy. So in terms of length of time, when you’re done, the bankruptcy, that’ll depend on first, second or third or more bankruptcies.

And the reason there’s a difference between the nine and the 21 months or the 24 and the 36 months has to do with your income level if you’re below a certain level. You’d be at the lower end of the scale in terms of how long the bankruptcy would last at the higher end of the scale, if you have a higher income coming in. All depends on what that income looks like. 

Wayne Kelly: And then is it different for each province and territory? 

No, it’s federal legislation. So each province is the same in terms of length of bankruptcy and how much they have to pay. The superintendent of bankruptcy has put together a standard, we call it the superintendent standards, and it’s a table, and the table just says, if you family size is this and you make this much.

Brenda Woods: Here’s how much you have to pay into your bankruptcy, and that will help us determine if you have what we call surplus or not. And that surplus determines how long your bankruptcy is going to be if you don’t have surplus. If your income is not over the table amount, then you’ll just simply be at the lower end of the scale in terms of how long your bankruptcy is and your payments will be based on what we need to recover for fees, and typically that can be different from trustee to trustee.

Wayne Kelly: So as somebody comes through and they work through either consumer proposal or maybe they do the bankruptcy, what is their emotional state when they come to the end, where they get to start over? What, can you maybe take us through what that looks like? 

Brenda Woods: Sure. I guess I’ll start at the beginning.

When people come in, they’re very distraught. A lot of times they’re very emotional. They’re stressed out and I often find that the day they sign the documents to file a proposal or file a bankruptcy. They immediately feel some sort of relief. A lot of people do, a lot of people.

It takes a few months to get there, but certainly once the bankruptcy is completed and they’ve done everything they need to do, and they get that discharge from bankruptcy, that means they’re all done. They’re very excited and very happy to be finished with the process, and they can take the information that we provide to them along the way in the counseling sessions on budgeting and reestablishing credit.

They can take that with them as they go in order to restart things. 

Wayne Kelly: So their lives can flourish after this. 

Brenda Woods: Absolutely. And I’ve had lots of people who have, I’ve dealt with over my 25 plus years of doing this, who have done exactly that. They’ve been able to get out from underneath the debt, move on reestablish credit down the road, have a healthier, relationship with money than maybe they had before.

And it, it makes a huge difference to their life.

Wayne Kelly: So we’ve talked about all the different types of solutions, but do we have maybe a few like little red flags or warning signs that we need to be aware of?

Brenda Woods: So yes, those are. Warning signs that are difficult, I think, to miss. So things like, you’re in your overdraft all the time. I think people realize if they’re in their overdraft all the time, that they’re, something is not right.

Their cashflow is compromised somehow. If you’re getting letters. From creditors or calls from creditors constantly, then that’s a big warning sign, especially if those letters or calls are threatening legal action. If you have a garnishing on your wages, obviously that’s a problem. If you’re filing your tax returns and you don’t have the money to pay revenue Canada because you owe them, that’s a re a really big sign that something isn’t right and you need to seek some professional help.

Wayne Kelly: Somebody’s probably watching you and listening to this at this moment, and they’re thing, they’re on the fence on whether or not they should make the phone call. What do you have to say to them? 

Brenda Woods: I say, make the phone call. Jump in with both feet. Don’t wait. Get some information. Again, we’re only fact finding, we’re just getting some information from you.

You are getting lots of information from us about what your options are, and we’re able to give you all of your options. We’ll talk to you about everything that we think you might be able to do to fix the situation and with no obligation and no money, and most importantly, no money upfront to get that information from us.

Wayne Kelly: I find for myself anytime, like the most stressful times are when I don’t know what the solutions are. I see a problem in front of me, but I don’t know what the solutions are, and this is the solution for so many Canadians that are going through a tough time because of all that we’ve seen over the last little while.

Our dad is just growing and a lot of people struggling just to. Buy groceries and fill up their cars. And as you were just mentioning, the difference in how they feel after they have the solution, they can, here we go, here’s a map on how we can get you out of this situation. There’s no price you can put on that.

Brenda Woods: That’s correct. And that’s the most important thing. If you are hurt. You go to the doctor if you have financial problems, come see the license insolvency trustee. You don’t have to do anything, but at least you’re armed with all the information you need to make an informed decision. And again, knowledge is power.

Wayne Kelly: Final words of advice from me, Brenda. 

Brenda Woods:  I think budgeting keep that budget going. Make sure you recognize the warning signs of financial difficulty. As soon as you have an inkling that something isn’t quite right, come on in and see us. Even if we don’t see something that we can do as a professional to help you, we will point you into the right direction of where you can get help and what you could do.

Wayne Kelly: Terrific. Brenda, thank you very much. It’s always a pleasure. 

Brenda Woods: Thank you very much, Wayne. 

Wayne Kelly: And if you want more information, you can always check out the website. We can help.ca. Lots of great resources there and that’s where you can schedule that free consultation. And of course you can always check out Debtmatters.ca. Thanks for listening.