Trustee Talk #101 – Barton & Desmond Discussing Debt Issues Affecting Albertans
September 25th, 2015 by A Licensed Insolvency Trustee
Thank you for your time this afternoon gentleman, now let’s get started with the vital information. Your name, business name and your website address.
All right, my name is Barton Goth. The name of the firm is Goth and Company. We operate out of Edmonton. Our website address is www.gothandcompany.com that is all spelled out, small regional insolvency practice here in Edmonton and Northern Alberta.
And right next to me is Desmond, Desmond why don’t you introduce yourself.
Hi, Desmond West-Chow. All other information is the same as all Bart just said. I don’t think I have anything to add there. We are both licence trustees and actively involved in the market place.
Yeah, we are both a little bit unique because we are both second generation trustees, so my father Jim Goth started Goth and Company back in 1993 and I’ve worked there for quite a number of years since we began, although I was quite young when we started, I was doing most of the reception work and so we are both quite familiar with what happens on a regular basis around this parts.
Talk to me about the specific areas that you service, the general geographic area and any important cities that you work in as well. Well really we service all of Northern Alberta, some of the north, well all of the north west territories as well as some regions in the Saskatchewan. Important cities to us are obviously Edmonton where our main office is and where most of our work is done, however, we do have some offices also in Sherwood Park and St. Albert that we can arrange to meet individuals. Otherwise mainly all of northern Alberta.
We will semi-regularly travel up to Grand Prairie and Fort McMurray to Lloydminster. So, it really just depends on people’s needs and demands, so we like to be where we need to be when people need help. For this next question, maybe you can both each like to have an opportunity to answer, tell me about what you think the top three causes of debt problems are, that get clients to your door?
Sure, the three most common causes of debt that we see and the thing that puts people to the point where they really know they need to seek professional advice. I’d say the most common is probably marital breakdown and divorce. The second one is probably health related issue, so people get sick for longer than may anticipate or their treatments take longer or they are not able to continue working as they would have anticipated when they were first diagnosed with an ailment.
Let’s say the third one and the one that’s also is very closely related to the other two are people just simply kicking on more debt than they can really handle. So big vehicle payments, big line of credit payment, big mortgage payment and quite mostly, quite related to all three of these especially being in Alberta is the drop in income because our economy is very much related to the price of oil and the price of commodity across the country.
Do you find that there are more common types of debt, so not related to a specific life event per say, but rather the actual type of debts? So for example credit card, student loan etc.
We see a lot of credit card debt, but quite frankly I can’t say that we see any more credit card debt than we see a line of credit, most people that come through the door have a combination of all off the above. Unique situations for maybe student loans are higher than they should be, those happen in very specific demographic.
But overall, it’s just generally unsecured debt that people have used to amass a lifestyle that quite frankly they probably can’t afford. Well, we’re kind of in a unique position and that we’re a neutral party, so we don’t specifically work for debtors but we also don’t work for their creditors. Our job is really to make sure that all of the rules and regulations and the process of bankruptcy and consumer proposals are adhered to comply by all parties involved and more specifically we’re considered court appointed officers, that’s our role, so it’s not an easy answer if we work for party A or party B, really we just work at the process of administering bankruptcy proposals or other forms of debt resolution.
How I often look at it, is how often I explain it as a referee at a hockey game. We’ve got one set of rules in two different parties and our job is to try and make sure that both parties are following those rules as best as possible. So we have a responsibility to the debtor, to make sure they are properly informed and things are reviewed and discussed, and they have accurate information going in, but we also have a responsibility to creditors that we make sure that they are held accountable to the duties and responsibilities of the bankrupt would have during the process.
A hockey analogy is always going to work in Canada. It’s always going to help people understand. So, I would think that, for somebody that gets to a point where they have to see a Bankruptcy Trustee, it’s going to be a difficult decision for them, they are going to feel a little bit embarrassed. I think the best reason to not feel embarrassed is because sometimes the best way to know whether or not you can avoid bankruptcy is talk to the person that knows most about a bankruptcy, and quite often, we’ll see people that don’t need to file bankruptcy. We’ve eluded to and mentioned other options available that we can offer such as consumer proposals, which these days in terms of individuals and consumers that are going through a bankruptcy, it’s about 50-50 split especially here in Alberta.
Also, we even see people that do not need our services at all, as that neutral party and as that referee type role. The first thing we’re acquired to do is simply provide an individual information in order for them to make an informed decision. And I think that’s the best reason for an individual not to necessarily be embarrassed to see us, but to seek us out first so that they can have all of the information about all of the other parties in the debt resolution industry and really know what they are getting into.
Trustees are very regulated, were licensed by the federal government. And as such, there is always someone looking over our shoulder at what we’re doing and how we’re doing our jobs. Unfortunately not all professionals or individuals will make that resolution industry, have that same type of regulatory body or license in requirement, so starting with a trustee is usually a good place to see what your options are and if the trustee can you where you don’t are necessarily at a point where you need a Bankruptcy Trustee then we’ll send you in another direction, we’ll give you good recommendation of what you can do in your individual situation.
I often think of that much like a doctor. I’m not saying that I am a doctor because I’m not, but if you are not feeling well, you go to the doctor to find out how you can get better. I think it’s the same thing with your finance. If your finances aren’t working, if you seem to be falling further and further in the hole, quite frankly the consequences can be much more dire if you don’t come and see a professional about it than if you do.
Often times if you go to the doctor, they can prescribe some medication that can help you deal with whatever you’re challenged with, fairly quickly and you can get over it. Same thing happens with your finances.
Often they are scared that they are going to get garnishment, one of their creditors goes to court and starts feeding money directly off their paycheck. Often they simply looked at their credit card bill and they have realized that they have been making a minimum monthly payment for the last 12 months, but when they read on that statement that’s making the minimum monthly payment is going to result in not having any payments over the next 67 years or some ridiculously large number like that. Often that’s when they call us because they realize if they are not sinking, they are just treading water at the current moment and it’s just a matter of time before they will sink.
And all after that one, the thing that people are most concerned about when it comes to seeing a Bankruptcy Trustee is what the bankruptcy is going to look like, they are not many people out there that know as much as a trustee does and there are also many different types of bankruptcy because our neighbor down to the south in the State have a completely different bankruptcy system and that bankruptcy for a company which is much more publicized than an individual bankruptcy, are significantly different processes.
Right such when people sit down with me, they are quite often concerned that they are going to lose everything that they worked hard to do it, their homes, their vehicles and things of that nature and quite often people don’t necessarily lose those things or they are allowed to keep at least a reasonable portion of them.
We don’t take the clothes off people’s backs and we don’t take assets that are necessary for their living as there are certain provisions within the bankruptcy and insolvency legislation that allows people to keep things that are necessary for their everyday life.
If to add onto that, in most cases at least in Alberta, you find people often are able to keep vehicles during bankruptcy, they are even able to keep their house and it’s set out, so that there’s a mechanism to allow someone to have a reasonable lifestyle if you will. But still have a way to deal with this debt that’s obviously out of control.
So What is The Difference Between a Consumer Proposal and bankruptcy?
Alright, well a bankruptcy is probably the last or worst case scenario, right? It’s the option that you use if nothing else fits.
So essentially there’s a standard that has to be followed that comes from the legislation that requires you to make certain monthly payments to attend to other duties and once you’ve done those things, you’re simply discharged form the debt. The majority of the debt is written off by the creditors. A consumer proposal has been designed again through the legislation as an option or a way to try and avoid a bankruptcy.
And really, the best way to understand it, it’s a deal that’s made with the creditors, right? So the idea is for a court sanctioned and supervised process, you make an offer to your creditors to provide them a better recovery than they would receive in the bankers. The recovery typically isn’t paying the debts in full, in fact it’s usually paying a portion of the principal.
It also eliminates interest. So by doing those two things, a lot of someone can avoid bankruptcy, they can still provide more money to their creditors, but they can do it on a rate that’s a little bit more reasonable and fits better into their budget. That one’s a tough one to give you a general or a specific answer to because it’s so individually driven. What happens is there’s a minimum cost that’s set by every individual trustee’s office in Canada and so there are some fluctuation on that minimum cost although quite frankly most trustees are fairly similar. But what happens is that there is a guideline that is sent to every trustee kind of determine:
- Who qualify to that minimum cost
- If they don’t qualify, there is a formula that have to be followed to determine how much their payment is going to be.
So if someone is listening to this and has a question about what a bankruptcy would cost, I would strongly encourage you to contact your local trustee, so that trustee can ask about your income and ask about your family size and they can calculate what that anticipated rate would be. And then same question only for consumer proposal, how much would one of those cost?
So the consumer proposal like Bart mentioned, it’s designed to avoid a bankruptcy and part of a way that it does this is it compares a potential consumer proposal to a bankruptcy. So again the answer is how much does the consumer proposal cost is a very difficult one because it’s again based on the individual circumstances of everybody that comes in, so we would still have to go through that process of figuring out the specific amount, of what an individual would pay in a bankruptcy, and then we have to offer their creditors more than what they’ve received, while still keeping, there might be payments reasonable within their cash flow and that’s something that’s very important that we look at is, what their income is, what their expenses are and what they might be able to pay in a consumer proposal.
A big thing that we looked at is that it doesn’t benefit anybody if we come to unreasonable payment terms and proposals, we want to make sure that both for the creditors as well as the individual owing the money that this is going to be something that’s successful. So we want to make sure it’s a fair offer and an offer that fits, but also we have to ensure it’s more than what a bankruptcy would recover to the creditors to ensure that they in fact are better off.
Just to give you a couple of examples. I’ve had proposals for we had to pay 80 cents on the dollar to the creditors. But those are unique proposals for most of aren’t like that, those are typically proposal to people have very high income or else they have lots of assets that are covered under the providential laws, the exemption ones. I’ve got lots of proposal that’s probably more normal for me to see a proposal, for the creditors are receiving something close to the 30 cents on the dollar.
But again, it changes in every specific situation, so that’s why it’s important people contact a trustee so they can get a proper assessment then and determine what would it take to get these creditors on board. The typical bankruptcy will last anywhere between nine and 36 months. The unfortunate thing is that’s a very wide time horizon and there’s a significant difference between those two numbers, but what it’s dictated by, it’s dictated by your income, your family circumstances and whether or not you’ve had a previous bankruptcy. Any time you have had a previous bankruptcy then you are looking at much longer processes than the first time bankruptcy you are typically in the nine to 21 months range.
In terms of a consumer proposal, consumer proposal is completely different of course, but your average consumer proposal usually stretches your payments over a five year period time, and the whole idea behind that is really that’s a way to make the payment manageable but still get a sufficient recovery to creditors that the creditors will cooperate with that idea in the proposal.
What are Your Thoughts on The State of Personal Bankruptcy in 2015?
Is it increasing or decreasing over last year, are there more of one type or the other in bankruptcy like more bankruptcy or more consumer proposal, and are there any noticeable trends taking place this year?
So why don’t I start, it’s a little bit different, because if you look at the country as a whole, it’s a lot different that what is happening in Alberta specifically. Right, so if you compared 2013, 2014-2015, overall there’s been nominal increases in Canada, while there’s a nominal decrease for 2013-14, there’s been a nominal increase in the current year so far.
But the problems is a lot different than that trend, and right now the problems compared to last year, is approximately 10% more insolvency filings so that bankruptcies as well as consumer proposals than we had in 2014. Of course, the year is not quite done, and so we’ll see what happens. But I’m expecting that that trend will probably increase in the near future, simply because our economy is really not in a good spot, with oil sitting at roughly $45 a barrel, which is less than half of what it was last year.
I think there is a lot of difficulties that are starting to come to the surface and the only thing I’ll add to that Marc, is that where the total insolvencies as Bart mentioned are solely increasing, the biggest that difference that we see year over year is that the number of bankruptcies is decreasing, or the number of proposals is proportionally and probably a little bit more than that decreasing year over year.
So I think that the longer the proposals are around and available for consumers, and the more change that occurs in legislation to allow these proposals to service more people situations, the more people see this as a more beneficial process to bankruptcy and in fact the way to avoid bankruptcy.
Barton, Desmond, thank you so much for your time. If you want to find out more information, if you’ve got questions about bankruptcy or consumer proposal, you can use our convenient contact form.