We’ve all been guilty of procrastinating at some point in our lives. But putting off getting help with problem debt can actually be hurting you more than you think. In this interview, Gareth Slocombe encourages anyone with financial difficulties to seek expert advice sooner rather than later.
Question: A lot of people put off seeking help with their financial problems. From the many years of your experience in the industry, what are some of the most common reasons that people delay getting help?
Gareth: Very often it comes down to a feeling of embarrassment or failure. They just don’t realize how many other people are in the same boat and have come out the other side of a bankruptcy or proposal. When it is disclosed, it’s amazing how many people say, “Oh, I’ve been through that process, too.” So, it’s really more common than people think.
Question: How common is it in Canada? Approximately, how many people in Canada go bankrupt?
Gareth: The statistics range between 2 per thousand to 4 per thousand of population per year. On Vancouver Island, there may be between 150 to 200 insolvency filings per month. People are usually amazed at that number.
Question: So, you see as many as 2,400 a year just on the Island?
Gareth: Yes. That’s right.
Question: Would that include consumer proposals?
Gareth: Yes, that figure is for consumer proposals and bankruptcies.
Question: What would be some of the issues?
Gareth: One of the other major issues is misinformation. A lot of people think things like tax debts survive a bankruptcy so they have no choice but to pay them. They think that they must suffer but they don’t have to. Tax debts are extinguished with bankruptcy.
Another misconception is that you can’t do more than one bankruptcy. People have been through one and they think they can’t do it again but you can. We meet with many people who have been given misinformation.
Some bankers have told people, “You can’t file for bankruptcy because you own a house.” A principal residence is an exempt asset that they can keep in a bankruptcy and they may not have to lose their house. So, what people do very often is delay and go through all their savings and get to a point where they are pushed to the wall and are getting calls from creditors.
Question: So, you’re saying that when they’re absolutely pushed to a wall, they could’ve done something earlier. Is their situation worse in any way?
Gareth: It certainly can be. Sometimes it involves family members loaning money that they’re never going to get back. So, it can hurt people around them. Or it can be taking an asset such as house equity that could be used in a proposal, but having it encumbered by Revenue Canada for unpaid taxes. Or getting a second mortgage just to try to beat back the creditors. When that happens they’ve got nothing to negotiate with in a consumer proposal.
You can really put yourself on poor footing for dealing with creditors and avoiding bankruptcy if you deplete all your resources and not see a professional when you’re experiencing those cash shortages.
Question: How would people know they actually need help with their debt? Might it be a sign that they are seriously contemplating a second mortgage to deal with debt? The bank is probably quite happy to give the second mortgage because it gives them a bit more business. Correct?
Gareth: Absolutely. They like to lend you money and give you just as much rope as you need to hang yourself, so to speak. So, you really can’t depend on lenders to suggest a workable plan that’s in your best interest.
Very often the first sign of trouble isn’t a sign that most people would recognize, unfortunately. It may be that you’re only making your minimum payment on cards and loans. It’s really the never, never plan. What you’re doing is essentially waiting until you have one financial hiccup and then you’re in trouble. Or a little further down the line would be using one credit card to pay another and then getting calls from creditors and so forth.
Question: That might be a sign in your lifestyle when you are paying for things with credit cards that you really shouldn’t be, like groceries?
Gareth: Yes. You know everybody wants to get the air miles and rewards, but it’s a dangerous game. Once it’s on the card, you can put off paying it but then something comes up and you think, oh well, I’ll get it next month. But you don’t and it creeps up. Some people feel they still have room on another card and it’s not too late. Well, in fact, that’s the process and you see that debt slowly build up – a warning sign you’re moving in the wrong direction. That is the real issue.
Question: Humans are a very hopeful species. So, sometimes we hope the cavalry will arrive, a better job, a pay raise or an inheritance. Is that another form of fantastical thinking?
Gareth: Well, I think we are generally optimistic and that’s nice, but unrealistic optimism is a problem. It’s the head in the sand approach, but it’s amazing how much people can endure in terms of internal stress before they come in and see a trustee. I’ve had people whose health has been severely impacted because of the stress they’re going through in trying to deal with their financial situation.
Inevitably, when they’ve come in and they’ve talked to me they say, “Why didn’t I do this earlier?” A month later they say they’re so much better. They’ve dealt with it and they’ve really put their life back on the right track.
Question: Practically everybody goes to the internet now searching for help. Are there ways that people can tell whether or not what they’ve bumped into online is just too good to be true? How would you advise them?
Gareth: The issue is who is more likely to put something out there that sounds too good to be true? It’s usually somebody that’s not under any restrictions, has no professional ethics, and is not licensed. If you see something that sounds great but you can’t see any actual credentials and licensing, I think you have to take it with a grain of salt, and be very careful.
Now, there are various people out there -we’ll call them debt consultants. They are unlicensed and many of them have been shown to have very questionable business practices. They may lead you to believe that they are licensed even though they don’t explicitly say it. Or they say that you must first hire them in order to be introduced to a licensed trustee. I’ve heard all sorts of stories. These folks will tell you that you can’t contact a licensed trustee directly and you must go through them.
Question: So, they try to wedge themselves in the middle as a broker and prey on someone who is very vulnerable and really can’t afford their extra fees.
Gareth: Absolutely. They will do a minimal amount of coaching in helping you fill out an application form and charge thousands of dollars. Most people don’t know that you can just contact a trustee directly and obtain much the same assistance at no charge. It is very easy to be taken advantage of by people posing as ‘debt consultants’.
In addition, they will steer you into solutions that don’t really make sense. For a lot of people, there’s really no question about it, they really should be filing for bankruptcy. They don’t have a hope of doing a proposal for various reasons – for the most part they lack any kind of cash flow or have massive income tax debts. The debt consultant will still try to steer you into the wrong solution so that they can justify their fees.
Question: So, what you’re saying is some of these companies will have representatives that actually give people the idea that bankruptcy is a very negative thing?
Gareth: That’s right. They justify their services by telling you that you have a chance. That they can make a proposal to pay 20 cents on the dollar to Revenue Canada for $100,000 debt. That’s next to impossible but they won’t tell you that because they want you to give them a few thousand dollars. You end up preparing and filing a proposal that goes nowhere.
Question: How often do you meet people that have gone that route? They have signed things with companies, the made payments and then ended up coming to you?
Gareth: We meet them quite often. Some people wise up part way through that process. They meet with a debt consultant and recognize that something is amiss. They come and see us and avoid that detour. Unfortunately, there are many other people who go through it without recognising the mistake they’re making and pay the debt consultant a lot of money. They then get introduced to a trustee who ‘plays ball’ with the consultant. That’s very sad to encounter, they could have come to us in the first place and saved themselves a lot of wasted time and money.
Question: In conclusion, if someone is online searching for help should they be looking for a government, licensed agent?
Gareth: Yes. A government, licensed trustee otherwise known as Licensed Insolvency Trustee (LIT). They are qualified and licensed to do bankruptcies and consumer proposals in Canada. No one else can do it. There is no other professional who can help them that is government approved.
Question: When they look for a trustee should they check out the reviews on Google to see what other people have said about doing business with them?
Gareth: Yes, by all means. Investigate. Do your own due diligence.