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Mortgage Solutions for the every day Canadian mortgage consumer. Are you thinking about becoming a mortgage broker learn first hand what you should look for in a brokerage and what you need to be successful.
Len 00:02
Welcome. My name is Len Lane, and I am the founder and president of Brokers for Life Inc, and we are Dominion Lending Centers in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.
Len 00:19
Welcome back. This morning, we're going to talk about some of the changes that are happening in people's finances coming out of the pandemic and what we're seeing over the last couple of years. We have seen probably more refinances come across our desk for rather large amounts of money, with people whose debt has accumulated due to whatever reason, over the last three or four years; part of that, of course, is they may need to have access to either consumer proposals or to actual bankruptcies if they're at a point where we can't refinance their properties or get them to a point where they're back into a solvent position. So, my guest today is Sandra Landry. Sandra is the Senior Vice President and the Trustee of Record. Is that correct? Am I saying that correct?
Sandra 01:10
Yeah, Licensed Insolvency Trustee is usually what we call ourselves.
Len 01:14
There you go, right? So, and for MNP, rather large group, great across Canada. And so welcome to the podcast, and maybe give us a little more about your background.
Sandra 01:24
Absolutely. Thank you so much for having me. This is a lot of fun. So yeah, I started out my career as an accountant or as an accounting student, and I very quickly was tasked with helping some of the insolvency team members at the firm I was working for. I was nearly done my designation when I realized that insolvency was where I was supposed to be. I realized that's what it was. So, I very quickly switched over to the insolvency field. I did the CRIP program, learning all about it, and then eventually took my trustees license, so I've now been working as a trustee here at MNP; we have a very big practice, like you said. We are coast to coast. We're in basically every community from from one end of the country to the other so we do our best to service all the Canadians.
Len 02:23
Excellent. Yeah, my first experience with meeting, seeing MNP anywhere, was actually in Fort McMurray, which was, I'm sure it was a busy time up there for them several times over the years. So what exactly are the duties of a trustee?
Sandra 02:39
So big picture, our role, really, as a trustee, is to ensure people know what their options are. Make sure people know what they're getting into and, of course, answer questions. We're really looking at what do people have as options for debt, and it's really important for us that people know what all of the options are, even the options that we don't conduct out of our office. So as a trustee, I'm tasked with making sure that people understand all of those options, and that is very important. And if a proposal or a bankruptcy is not the right option for people, we have an ability to connect them with other professionals that can help them with their financial difficulty. So it is really important that we remain, you know, unbiased, and talk them through the benefits, the risks to all of those options. That's really what our role is.
Len 03:42
Excellent, yeah. And a lot of people, of course, don't quite understand the bankruptcy act itself. I guess. I'm sure that there's some lawyers who probably don't understand the bankruptcy act, but it's, you know, it is a tool that you know, has seen over the years, seen many, many clients actually come out, you know, put themselves in a better place because of it. So I know the country across seeing issues. Finances have been tough for a lot of people. Interest rates higher considerably, when you consider that a used car in finances at 10% these days, that payments have grown and maybe not, incomes haven't followed suit. So are you seeing an increase in the amount of applications, and are they growing in size or amounts?
Sandra 04:27
Yeah, we've seen a lot of changes over the years. And so if you think back to 2019 that was kind of before the bottom fell out. Back in 2019 the average filings in Canada was just shy of 140,000 filings a year. There was a major shift with the pandemic in an insolvency as well as the rest of the areas of the economy. With that pandemic, we actually saw a major slowdown in insolvency filings, which seems counterintuitive, because everybody was broke, but what we saw is government funding had increased. The creditors were significantly more lenient for people waiting for paybacks. We saw that that lasts for a very long period of time. Supply issues raised prices, but that also reduced spending. So people actually had a lot more money in their pockets. And I'm not saying everybody, but there was a there was a large segment of the country that had more money in their pockets than they had before, because the government funding was was very good. They just didn't spend as much. People weren't going anywhere. And so insolvencies dropped in December of 2020, the numbers dropped down to 99,200 roughly 2021 they went down even further to 90,000 just over 90,000 it was in December of 2022, that we actually saw that kind of start turning around. So 2022, filings across the country were just over 100,000; in 2023 was about 123,000, and now, in 2024, we're seeing an even bigger shift. So June 2024 the year over year is up 17.8% and then July is up 24.2% so we're seeing that, of course, in our office, there is a real sizable difference on the number of filings in Alberta, as well as right across the country. The debt to disposable income is actually still very high. So there's a bunch of factors at play. As far as the files themselves, It, you know, it's funny that you bring that up, because that is one of the things that we've talked about at the office for maybe the last three to six months, because during that slower period, we saw much smaller filings, for whatever reason, that was just the shift people's income had dropped, the government funding had dissipated, and we're just relying on lower incomes in order to sustain, you know, those proposals. So those would have been smaller, generally, not all of them, of course, but on a general basis, but I have definitely noticed in our practice that those have grown in size. So indicates to me that people's incomes are coming up and they're still recovering from the lower incomes that they had for a couple of years.
Len 07:41
Yeah, it seems that it's tough for everybody. We were on the west, on the west coast. We're on the East Coast in Halifax, not last year about this time. And it's, you know, just talking to locals and stuff like that. When you start to consider places like where you have a 15% sales tax and your minimum wage is $15 you know, it's really, really tough. Talking to a young couple, and they said they've been saving for years to buy a house, but house prices, of course, kept going up, and regardless of that, their wages weren't catching up. But you know, it's a big jump from $15 to $25 to make it so that you can actually qualify for a property. So.
Sandra 08:21
Absolutely, and you're right, we had traveled out to the East Coast, and we've got some some family out there, and the prices that I've seen in the East Coast are far above what I ever would have expected. That I do understand there's lots of investors who have seen that as a new and upcoming market. So more money is coming in, but the prices, of course, reflect where where the investors are coming from. So I know lots of folks from across the country; it's easy for them to give full price or over asking price, because that number is still relatively small in comparison to some of the other communities they've come from, especially anyone coming out of Ontario. You look at the prices in the East Coast, and they look super reasonable.
Len 09:12
I'll go buy my whole block. Right?
Sandra 09:16
Absolutely, right?
Len 09:17
But jokingly always say that around here, when I sold new homes in the late 90s, you can buy a duplex up in the north in a brand new neighborhood of Eau Claire and on the north side of Edmonton for $109,000 on a pie lot. The other ones were 107, right? But, yeah, it's relative, right for people moving from Ontario, especially that, you know, they've made a ton of money on their houses, had they been there a long time, of course, and but it's really affecting the local people in areas like Nova Scotia, for sure, Halifax, really especially, seem to be the prices. What they're paying 500-600,000 for you could probably still buy here in Alberta at that point for just under four or just above four. So. Literally the scale of economics, right? Of how that all works. So growing sizes. Maybe talk a little bit about what the difference is between a consumer proposal and an actual straight out bankruptcy.
Sandra 10:14
Sure, absolutely. And bankruptcy is a it's kind of a scary word for a lot of people. It can feel terrifying to even call us and talk about finances. So I guess big picture, I want people to know that neither option is great. Nobody really wants to come and talk to us as a trustee and deal with these but we promise to do our best. We don't judge, and we'll make sure people understand what those are. I want to talk about bankruptcy first, and that's really just because a proposal is dictated so heavily based on what a bankruptcy would look like. Essentially, what happens when somebody files a bankruptcy is the trustee, which is us; in this case, we take control of assets and income. Now there's certain guidelines that the government sets in every province that says, here's what assets and here's what income are protected for you. Those are called exemptions in the standard. So we take a look at all of their assets and income, we put them all into an estate, which is like the pot of money for the creditors, basically, the things that are protected, the exemptions and the standards those come out of the estate, and our job as a trustee is to collect on whatever is left in there. The difficult part about a bankruptcy, though, is that it can change based on a person's circumstances. So the more money they earn, the more they will end up paying into that estate. So it fluctuates up and down with income, and then, as well as the acquire assets, those assets during a bankruptcy that are acquired, those will continue to fall into the estate. So think, like windfalls. It's a, you know, lottery and inheritance, sometimes, insurance proceeds, tax refunds, those sorts of things, those monies, they just keep falling into the estate. And so I always tell people that we don't really know what a bankruptcy is going to look like until we're at to the end of it, because it's got so many moving parts. And because of that, there is a fair bit of reporting that has to go along with that, because we've got to monitor the assets and the income during that time. So it's a little bit more of an unknown. In theory, a bankruptcy can be a shorter period of time than a proposal. We just don't really know the exact path.
Len 12:31
Yeah, so the bankruptcy can actually continue to grow as as as they go through it. Because is that what I understood?
Sandra 12:37
Absolutely. So if somebody is filing a bankruptcy in there on employment insurance. They've got very low income. They're probably going to have minimal payments, but let's say, two months in, they get a really good job. They're making great money. There's a really good chance that bankruptcy is going to extend it, and it'll extend it by another 12 months or so, and then they'll pay more based on that income. And so it's a bit more of a question mark as far as what will happen.
Len 13:06
Interesting that, yeah, that was sounded to me like it was okay; here we are today. We'll just cut it off here and and that's the end of it. But that, that obviously not the truth, sometimes gives me concern when a client has done consumer proposal, as opposed to bankruptcy. Now that maybe explains it a little bit more that the consumer proposal, of course, a different scenario, again, right?
Sandra 13:27
Absolutely, and any, even anything like the assets. So if they, you know, they have assets, they acquire, they get an inheritance during a bankruptcy, all those monies are going to end up coming into the estate for the general benefit of the creditors, basically enough to pay everyone in full and change. Yeah, it's almost like a little bit of a predicting your future when you're trying to decide on what option to pick the alternative, of course, is that proposal. And essentially what a proposal is, a negotiation with creditors. The catch with a proposal is simply that it has to be better for the creditors than if that person were to have been bankrupt. Better generally is going to mean there's more money in the pockets of the creditors. You've got a longer period of time. So the majority of the proposals are called a consumer proposal. We call that kind of like the smaller one, and they've got five years, so you can stretch your payments out over five years, which allows people to manage their budget a lot easier, because they can lower those payments. It doesn't mean people are restricted to five years if their circumstances change, or they acquire assets in a proposal, they can take that money. They can pay their proposal off quickly. It just is. You've got to get the creditors on board. So if you want to wait five years to get the money to the creditors, what are you going to offer them as an incentive to do so? But because you're going to negotiate up front, you don't have all those same reporting requirements as, say, somebody who's bankrupt does, and you don't have all the same restrictions. So those assets and that income that doesn't fall into the estate for a proposal, which can be a very important distinction. So, if you know somebody gets an inheritance during a proposal, that money doesn't go to the creditors; that's money in the debtor's pocket. So it's a really different way of looking at kind of what might happen in your future, and we don't always know. There's also no leniency if you're in a job where you're likely to get laid off; you don't get to reduce your payments generally, either. So those folks will have to pay ahead and then stop payments when they're unemployed if they've got really up and down employment.
Len 15:51
So, are they able to go back to and talk to the companies that they owe money to about if they do lose their job? Or is it just set and they have to maintain it?
Sandra 16:01
Essentially, it’s set with a bit of caveats. We have been successful a couple of times, but usually in those cases, it's a permanent change. So it's not, I've lost my job and I'm looking for more work. It's usually, I've been injured, I'm never going to be employed again. Or, you know, something big has changed, in which cases we can sometimes go back and amend the proposal, but there's always a risk the creditors can say no again, and you don't get to you don't get to backtrack and say, Okay, well, I'll just finish my first one. When the creditors say no, it's no. So we only want to do these amendments for very good reason. So generally, for somebody who's, you know, somebody who's self employed with that really fluctuating income, will set the payment at whatever amount at the very beginning, whatever they've offered to the creditors. But then we ask them in their busy months they pay extra so that when they get to their flow months, for those seasonal workers, they can cut back on their payments, because any amount they've prepaid ahead of time, they can basically use up those payments during the proposal with no damage to it. So it gives them a little bit more flexibility in their budget. And, you know, I say that a lot with people with families as well as you know, kids are really expensive, which means during that proposal, something expensive is going to happen. There's going to be a dental bill. There's somebody's going to drive over a bicycle with their car. Stuff happens, right? And so if they've prepaid some on their proposal, and then they've got that dental bill, they can hold a payment for a month with with no risk. It just gives a lot more flexibility than say that bankruptcy would have.
Len 17:42
And that makes sense, because we always, we see a lot of them in proposals, I think, and quite sometimes I feel they don't quite understand that they it's going to take them a long time, but it's taken them a long time because of exactly those reasons, possibly that their income fluctuates, or something like that as well. So talk about consumer proposal and bankruptcy and what it does on your credit bureau.
Sandra 18:06
Both are negative on credit. I don't think that's a surprise to anybody.
Len 18:10
I tell everybody, it's still the bankruptcy act. It's the wording is just different.
Sandra 18:15
Yeah, exactly. Essentially, on everybody's credit, there will be a letter code, and there will be a number code on every account. So the letter codes could be an R, that's a revolving credit, or it could be an I, that's an installment, like a vehicle. And then every one of those will have a number as well, anything from zero to nine. One is everybody's happy. Everything's paid on time. Unicorns and rainbows, right? Nine, that's where anything that sits in collections is, or a bankruptcy. So that's going to be your worst rating. It'll have the heaviest impact on that credit report. Something that's a consumer proposal that sits there as a seven. It's better. It's still not great, ultimately, but every account will have one of those ratings, and then the amount of time it spends on that credit report will change as well. So something like a proposal, it'll sit there as a seven for that account for the entirety of the proposal and three years after, and then it drops off. For a bankruptcy, it's going to be six years after the date of a discharge. So depending on how long that bankruptcy is, is how long it's going to sit on that. So if somebody is a first time bankrupt, super low income, it'll be nine months, let's say, and then six years after that. But if they are potentially a second time bankrupt with higher income, you're already looking at three years to get out of that bankruptcy, plus the six years that it's going to sit on the credit report. And then, of course, with a bankruptcy on a second time, sorry, and on a second-time bankruptcy, it actually sits there longer; it’s 12 years. So your thirty-six months bankrupt, it's going to be 36 plus 12, which is an eternity, it feels like. So sits there a long time.
Len 20:08
Yeah, we've seen, seen a few, and I've learned that early in my career, I guess. But it didn't make any sense to me if a guy said you had been bankrupt, but the date was it had been on there, like seven, eight, well past the six-year mark, right? I'm going like, oh, lender informed me that. Oh, wait, he's been bankrupt twice, right? So you know, and it's funny, coming out of bankruptcies, I think only one time in all of my 17 years of mortgages have I ever seen a client be fully eligible for a straight A mortgage at two years after the bankruptcy. Had a couple in Red Deer who had some issues during Mad Co,w of all things, but came out of the other side of it. Two years later, they when their bankruptcy was done, they had gotten prepaid credit cards. They both got one, they leased two vehicles, and at the end of that, two years after being out of bankruptcy, we were able to get them a regular mortgage. Some are probably so scared after being in a bankruptcy that they don't want to have any credit. And that's even worse, right?
Sandra 21:12
So, you know, I'm so glad you said that, because that is very true. A lot of folks, they do, they come in and say, I'm never going to borrow again. My question is always, well, do you ever want to own a house? Most of the time, the answer is yes, unless, you know, somebody is a senior, they're just going to be collecting pension income. They're not going to borrow a bunch of money anyway at that point. But most folks, yeah, they want to have a mortgage, they want to travel, they want to do all of those things, but you can't do any of those things without good credit, and you can't have good credit without using it. And so that is the difficulty is. And you know, and part of those counseling sessions that we do, we do financial counseling for both bankruptcies and proposals, is we talk a lot about, how do you rebuild your credit. Because what we want is for people to leave our office in better shape than when they came in, and so they have to start doing that work during that filing. They can't wait until the filings over to try and pick up all of those pieces.
Len 22:17
That’s right. Yeah, I think that was the key for them, that they were well-advised that how to get that set up. The minute they were able, they prepaid cards, at least two vehicles, everything that reports the credit bureau, right, and substantial cards, five, I think they put like $5,000 down on two different cards, so they had some money. But, you know, they were able to keep their house through it and stuff like that. So I'm sure that helped some in the long run as well. So Alberta, and in my personal opinion, it's on an upswing. What guess is the point of view of what you do, is it going to make it better for Albertans, at least they're my main focus. What can I say? I'm licensed in six provinces, but still, Alberta is my main focus, right? So.
Sandra 23:02
That’s a tough one. The difficulty is that often the insolvency filings are delayed. So even as things start progressing, people start making more, there is still a bit of a backlog that comes with it. And so we would have seen the front of that at the pandemic, when everything stopped and nobody was filing anything, and it was quite a long period of time before you see those numbers shifting, right? And I had said december 2022 is kind of when we had seen those year numbers shifting. And I still think we're still going to be seeing that wave moving forward. So although the economy maybe is changing here in Alberta, I think there's still going to be a bit of a delay as far as what those numbers look like. Because what you're going to have is you'll have some competing things. You're going to have a bunch of people who have been staving off doing a filing, they've got a bunch of debt, and they think it's going to get better. It's going to get better. I have these plans. Things are going to change. Even once they change, what I think people are going to find is it is way harder to get on top of that debt, even when you're making okay income than you think, because the interest in the penalties are what really impacts somebody's ability to get back on top of it, especially if it's tax debt, as you know it is. I think last time I looked, it was 10% interest. It's compounding daily. It grows really fast. So especially those with tax debts, even making really good payments on it, it can be very difficult to get back on track. And so I think we're still going to see a bit of the wave here in Alberta that's that's going to be a lot of folks that need help yet.
Len 24:54
And it's funny to talk about the tax debt, because people don't realize as the banking calendar rate kept doing this. Is the money charged by the federal government to your tax arrears, right? Was going up considerably. And, you know, even credit cards, though, like 20, 22% probably, on average, I would think, right? And those have been the refi, as we've seen, where they've got credit cards that something happened, and even without the pandemic and something else happened, right? That the credit card debt once it's at that 25-$30,000 level, at average household income, even of a, you know, 120,000 it's gonna be, it's almost impossible to get that down to a reasonable number, right? So.
Sandra 25:33
It is. We usually try and do that math for people too, when they come in and show them, you know, even if you could get a consolidation loan, and you tried to pay all of this, and those are very difficult to get as well, but or doing some of those other options, will try and do the math so that they understand if they really want to do this on their own, this is roughly what they're going to need to do in order to get it there. I think a lot of times, folks have a hard time picturing what that math is actually going to turn out, and it can make a difference.
Len 26:08
Yeah, minimum payments not going to cut it.
Sandra 26:11
It is not going to cut it. Very rarely.
Len 26:14
And of course, the minimum payment is, although, when we debt service somebody, it's 3% but the payments are never that. They're maybe one, if they're lucky, right? If they're even that high in some cases, right? So anyway, Sandra, that was great. That's some great information for our listeners. It's not a topic anybody wants to talk about until they have to, I guess. And but I think part of the message today was, if it's looking bad, don't wait till it is really bad to, you know, to sit down with somebody. And of course, your office is, like you said, very busy right across Canada. So this podcast is heard, I'm seeing coast to coast on our numbers lately. So that's always good to give some suggestions as to where to start, at least if, if nothing else, just to have somebody look at where you're at, and if it's possible to make it a better place when they're done so.
Sandra 27:07
Absolutely, and to not panic and get a lot of information there. It doesn't cost you anything. Any MNP trustee will do a free consultation for anybody in the country. And so don't make snap decisions. Don't strip your assets and sell stuff and operate in a panic mode. That's often worst case. So yeah, it feels like it's really scary to come and see us, but ultimately, our job is to get people information. So feel free to reach out anytime you need information.
Len 27:42
Sounds good. Okay, thanks for your time this morning. I'm sure you've got things on your desk to do today, so we will talk to you soon.
Sandra 27:50
Thanks so much for having me.
Len 27:53
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey, and remember, you can always find our associates at www.brokersforlife.ca/associates. Have a great day.