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John Adamason Licensed Insolvency Trustee Discusses Pandemic Finance With Derek Chase

What the Pandemic Has Taught One LIT About Debt Management

The pandemic has been a game-changer for all of us. Licensed Insolvency Trustees (LITs) have a unique perspective on just how much and in what ways it’s affected the average indebted Canadian. That’s because it’s our mission to help individuals with debt problems.

We reached out to Derek Chase, a Licensed Insolvency Trustee with nearly 25 years of experience working in British Columbia. Derek primarily consults with individuals overwhelmed with debt, helping them find solutions. We asked Derek to share his realizations as an LIT during the pandemic. 

JA: As an LIT meeting with individuals with debt problems, what has the pandemic taught you?

The number one lesson that the pandemic has made clear to me is that…

carrying high levels of debt – at any age – can be disastrous. 

After the pandemic hit, we noticed that more Canadians over the age of 50 were filing for insolvency. These people had been accumulating debt for decades.

Under normal circumstances, it can be very difficult at the pre-retirement stage to pay off all that debt. But when you throw an unforeseen emergency into the mix, like COVID-19, it just pushes you over the edge.

And unfortunately for these folks, the government’s efforts to curb the pandemic with CERB and other programs weren’t enough to stop them from going insolvent.

So while we have seen a reduction in overall filings, primarily due to COVID and creditors not being as aggressive in terms of collection activity – we’re seeing an increase in older Canadians filing for insolvency.

JA: Do you have any advice for people living with debt during the pandemic?

My key advice to people living with debt is to pay down your debt aggressively. 

First off, when you’re employed and have a regular income, make payments against your mortgage or any debt you’re living with. Put extra payments into the loans with the highest interest rates. This will help if and when you face job loss or decreased income.

Second, don’t get saddled with debt, and don’t add to it. The best way to do that is to budget, budget, budget.

I’ve had young to middle-aged adults come in who may have $10,000 in the bank saved up for emergencies but they pay a high monthly interest rate on a credit card balance of – you guessed it – $10,000.

My best advice is get rid of that debt. Pay off your credit cards before their due date. And if you can’t pay them off, do not put more debt on. Get rid of that high interest balance as soon as possible. Make it a priority. While you’re doing that, cut out non-essentials, like dining out. Find other ways to socialize.

JA: Some people have gotten into the habit of emotional spending during this financial crisis. What are your thoughts on this?

Sometimes we go over our spending limits and let our use of credit get out of control. I also see people purchasing items knowing they can’t afford them. Even though they can’t afford a $3,000 entertainment centre, they use a credit card to buy it.

It’s the habit of using credit out of necessity rather than convenience. So there’s no actual cash in the bank to pay those bills off. It is so important to develop a budget and keep track of monthly expenses.

JA: What are your tips for Canadians who have taken on contract or freelance positions since the pandemic started?

Even before the pandemic, we noticed that more and more people are working contract or freelance positions. They aren’t employees of companies so their taxes aren’t being deducted for them. Yet they don’t put any money aside to go toward their income taxes.

These are people from all walks of life, including writers, artists, accountants, lawyers, and doctors who use cash for expenses other than paying the government.

When you do your budget, be sure you account for taxes if you’re running a business.

JA: How can people, especially those living with debt, create an emergency fund in these precarious times?

It can be hard to save money when there is debt to pay down, more so during the pandemic. However, a well-planned budget will help you know how much, if anything, you can put toward emergency savings. That way you will be able to weather the storm when a crisis hits or you get let go from a job you thought was secure.

JA: If you’ve reached your financial breaking point, what should you do?

Get professional help from a Licensed Insolvency Trustee (LIT). Take advantage of their free no-obligation consultation.

An LIT is a federally-regulated debt professional who provides advice and services to individuals and businesses with debt problems. We’re licensed by the Superintendent of Bankruptcy, which is part of Industry Canada. We also belong to a professional association that has strict ethical standards and rules we must abide by.

LITs help debtors create a workable budget and a system they can put in place to eliminate their debt. The best part is, there is no judgment. Most of the people who see us are embarrassed or upset or anxious. We’re just looking matter-of-factly at how we can help, getting to the heart of their expenses, and figuring out where we can cut back.

This has never been more important than now, thanks to the global pandemic crisis. Sudden changes in employment status or the amount of income brought in are now much more prevalent because of it.

It may be that an LIT helping you create a workable budget is just what you need to get out of debt.

JA: If a workable budget isn’t enough to help get out of debt, what other options are available?

If you’re insolvent, there are two options when it comes to insolvency: a Consumer Proposal or a Bankruptcy.

A Consumer Proposal is a negotiated settlement between the debtor and their creditors. It is legally binding, and it’s paid to the LIT over five years, who then disburses it to the creditors.

I help people figure out what they can afford to repay, which is sometimes an 80% savings on their debt. The creditors have 45 days to vote in favor of the Proposal. About 90% of the time, creditors will agree because they’d rather see some money paid than none at all if the debtor files for Bankruptcy.

I stress that the Proposal payment has to be affordable for the debtor. We don’t want to switch one unmanageable debt out for another.

Another option is filing for Bankruptcy. Like a Consumer Proposal, Bankruptcy is also a legal process.

Certain types of the debtor’s assets pursuant to the Bankruptcy and Insolvency Act, the statute we work with, would be lost in a Bankruptcy. The debtor must assign their non-exempt assets to an LIT to be distributed to the creditors.

That’s partially why most debtors prefer a Consumer Proposal to Bankruptcy. That said, Bankruptcy is the way to a fresh start for a debtor.

And here’s one final piece of advice for those Canadians interested in getting professional debt help:

LITs are the only professionals that can legally stop a garnishment or legal action through Bankruptcy or a Consumer Proposal. Always do your research before reaching out to any debt professional. 

Thank you so much, Derek, for sharing your thoughts with us. 

For debt help in Ontario, reach out to Adamson & Associates Inc. Start planning your debt-free future with our Licensed Insolvency Trustee.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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