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Mortgage 101 – Navigating Personal Insolvency

Clinton Wilkins and Todd Veinotte are joined by guest Tina Powell from MNP to discusses personal insolvency options such as bankruptcy and consumer proposals.

Todd Veinotte
Mortgage 101- Your guide to home ownership with Clinton Wilkins, myself, Todd Veinotte and our special guest.

Clinton Wilkins
We have a special guest today. Tina Powell is here from MNP. Hi Tina, thanks for coming.

Tina Powell
Thanks for having me on guys.

Clinton Wilkins
Tina, you were on with us a year ago. We had you over the phone, and we wanted to bring you here in January. So such an important time we talk about “Merry Debtmas”, and that’s when we talk about refinancing. And we do so many refinances, and it’s so great for people, puts them in a better position. But sometimes people can’t refinance. Sometimes people are not homeowners, or they don’t have the equity to refinance, or maybe there’s another reason that it can’t qualify for. You know, maybe it’s credit, maybe it’s income, and they need to have, you know another solution, and that’s really what we want to talk to you today about. So give us a little rundown on what you do, what your job is, etc, and, I’m sure we’ll have a lot of questions for you.

Challenges and Humanizing the Job

Tina Powell
Well, sure. My name is Tina Powell. I’m a licensed insolvency trustee with MNPLimitedd. I work out of the Dartmouth office, and I deal with personal insolvencies, which include bankruptcies and proposals as well. We often offer free, confidential consultations to people who need our help. We’re just a phone call or a click away.

Todd Veinotte
Tina, it’s a great service that you do for everybody but I would think that it’s got to be a look. It’s a challenging job. I would think, because you’re seeing people in it, let’s face it, in a somewhat desperate state. How do you humanize the whole job and make it a good experience as best as you can, and be compassionate and all that stuff because these are attributes that I’m sure that you have.

Tina Powell
I will tell you that we are dealing with people at such a critical time in their lives, when people have financial stress, it impacts every area of their lives. We treat people with respect. We want them to come into our office and not feel judged. Our debt counselors are very empathetic, and we just want to make people feel that they’re not judged and they’re just that the service is there when we’re here to help them. We want people to feel that there is help available.

Clinton Wilkins
I see so many merit matrimonial breakdowns and things that happen around like debt, and debt issues and I see so many couples too, that don’t even talk about their finances.

Legal Options and Financial Assessments

Tina Powell
Often people will isolate themselves when they’re dealing with a financial crisis, and it does have a profound impact. They’re scared of feeling judged, and they feel ashamed, and it’s a lot of people don’t even know that there is help available, so it’s really important to try to get you know the information out there that we can help you.

Todd Veinotte
Thank goodness somebody saw the wisdom in creating these laws, right, that are meant to help people in these situations. So I guess, empowers us a bit with somewhat some of the legalities of this. What are people’s options?

Tina Powell
So when somebody comes to us, we do a pretty detailed assessment of their financial situation, and if their credit situation is not too severe, we can look at sometimes just helping them by doing just a simple budget fix right reviewing their budget, which may free up some cash. Sometimes they have access to some assets which they can use to pay down debt, or maybe they may be a candidate for a consolidation.

Clinton Wilkins
I’ve had some referrals from your office as well. You know, for customers that are refinancing makes sense, and they just don’t think of that even as an option.

Tina Powell
But for those who you know are more severely indebted, we often will suggest and work with them to do either a consumer proposal division one proposal or a bankruptcy. When I’m talking proposals, a proposal is a formal debt settlement, right? And it’s a different mechanism than bankruptcy. But both are legislated under the Bankruptcy and Insolvency Act. These are federal laws. Both are there to provide a stay of proceedings, which is stopping a collection action and legal action from the creditors. Both are a mechanism or a means to pay down a portion of your debt and to discharge your debt, and both offer financial counselling sessions, which can get you on the road to making better financial decisions going forward.

Todd Veinotte
Do you find that people often have a real sense of relief? I’m sure that you can see that and you should empathetically explain what’s available to them, you might probably see a weight lifted off.

Assets and Mortgages in Bankruptcy

Tina Powell
I’ve had people tell me that they haven’t slept in years, and even before we actually sign the formal documents, they’re already starting to see that there is a light at the end of the tunnel.

Todd Veinotte
What can people hold on to in bankruptcy?

Tina Powell
So assets are legislated. There are some assets which are federally exempt and some provincially exempt assets. So in Nova Scotia, it’s household furniture, personal effects life insurance policies would prefer beneficiaries those life insurance policies, like a whole life policy that would have a cash surrender value. RRSPs are exempt, except for any contributions in the 12 months prior. Tools of trade, so if you’re self-employed, you can have tools to trade up to $7,500 and a vehicle, if it’s not secured, if you own it outright, the $6,500 so there are some assets that people can hang on to.

Clinton Wilkins
What about a home? Can someone keep their home if they have a mortgage and go through bankruptcy?

Tina Powell
Absolutely a bankruptcy or a proposal, you have the option to continue to pay that mortgage, as long as you’re not in default of the mortgage when you file a formal proceeding. We encourage people to try to work with the lender so that the transition is as smooth as possible. People keep their homes and cars all the time.

Clinton Wilkins
I think that’s a stigma. I think people think that if they’re gonna have bankruptcy, they are losing everything.

Tina Powell
You can maintain your assets and maintain the security agreements separately or outside the proposal or the bankruptcy. People can file bankruptcy, and nobody really would know, right, because there’s no change in your residence, your everyday operation.

Clinton Wilkins
Your everyday life now with bankruptcy, and correct me if I’m wrong, but there is a certain income level where you have to pay back a certain portion of the income as well. So I know normally in a bankruptcy, it takes about a year, I think, to be discharged. Is that right?

Tina Powell
Well, yeah, so the superintendent of bankruptcy issues an income guideline. It’s a federal guideline based on the number of people in your family. So if you’re a first-time filer, if you’ve never filed for bankruptcy before, if your income doesn’t exceed the income guideline that’s based on your family size, you can be discharged in as little as nine months. If your income exceeds the income guideline, then you may be looking at a 21-month bankruptcy, which is not a long time, it’s less than two years. If you’ve had previous filings, then you’re required to report your income to us for a longer period, and you’re in bankruptcy for a longer period. But it’s still a viable option for many.

Clinton Wilkins
I would assume multiple bankruptcies are relatively rare. I assume they’re on the increase.

Tina Powell
Well, they’re not as rare as you think. We have a lot of multiple filers. When somebody comes and files bankruptcy previously, we’ll try to work with them to enable them to file a proposal to the creditors, because it’s so much easier on their credit writing, and overall, they feel much better when they’re doing a proposal.

Clinton Wilkins
Of course, because I think a double bankruptcy stays on the credit bureau for 14 years from the date of your discharge. That could be a long, long time.

Tina Powell
That’s right. So if you file a second bankruptcy and you have what’s called surplus income, which is when your income exceeds the superintendent of bankruptcy income, you have to report your income for 36 months before you’re eligible for a discharge. And then that’s an additional 14 years on your credit rating.

Clinton Wilkins
So 17 years you’re in Purgatory. Talk to me about a proposal, because I know that falls off the credit bureau a lot quicker than bankruptcy, even if that’s your first one. That sounds like a positive way for a lot of people to proceed if they have the income. Can you talk to me about what a proposal looks like?

Tina Powell
So when somebody comes to us, as I mentioned, we do a detailed financial review of their situation and regard to assets and income, and if they can file a proposal, many prefer that option. So sometimes, when reviewing their budgets, we will go through when just freeing up the unsecured debt repayment will enable them to have sufficient cash flow to be able to file a proposal, and a proposal, in most cases, is you’re paying back only a portion of your debt. So it is a viable option. Proposals have gained a lot of traction in the last five to 10 years, people prefer a proposal.

Todd Veinotte
How much leniency do lenders have on proposals when it comes to the is there like 50% or 6% generally, I suppose it would depend on the situation.

Approval Process and Credit Rebuilding

Tina Powell
You’re right. It does depend on the situation. We generally look at what the creditors would receive in bankruptcy and improve the offer so that they’re getting a better deal.

Todd Veinotte
So it’s math, it’s in the lender’s best interest.

Tina Powell
Yes.

Clinton Wilkins
Is that usually approved, like when you put these forward to these lenders, because sometimes you’re dealing with 1020+ lenders, because they all have to agree?

Tina Powell
That’s right. So when we put a proposal together, most generally, they’re made to the unsecured creditors, and all we’re looking for is a simple majority of approval. So that’s creditors get one vote technically, for every dollar they’re owed. So you could have one creditor that’s owed $10,000 that could outvote three creditors that, in total owed $7,000. But credit, they are very favourable and considering too with a proposal, dividends are paid out regularly to the creditors in a bankruptcy, often dividends aren’t paid out till the end of the bankruptcy. So that’s more favourable.
Todd Veinotte
Do you have relationships with these lenders?

Tina Powell
Well not really relationships, but what we do is sometimes there’s a bit of a negotiation going. So if a creditor wants to counteroffer, the offer that we put forth, then, we will negotiate and try to work out something.

Todd Veinotte
So how does that work? When a proposal is done and it’s how long till somebody can rebuild their credit off a proposal?

Tina Powell
A consumer proposal stays on your credit rating for six years from the day you file the proposal, a consumer proposal, term cannot exceed five years. I see, but what we generally see, and it’s gaining a lot of popularity, is that people will start rebuilding their credit before they even complete the proposal, so that they’re well underway and already, you know, gaining some financial stability.

Clinton Wilkins
So the bankruptcy stays on for six years, and then the proposal stays on for how many years? Once it’s discharged.

Tina Powell
It stays on for six years from the date that you file.

Todd Veinotte
We’ve got Tina for the next segment. We have some more questions for sure. Mortgage 101, we’ll be right back.