Guest Commentary by Douglas Hoyes, BA, CA, CIRP, CBV, Bankruptcy Trustee
Douglas Hoyes, Canadian Bankruptcy Trustee
Each week I meet with Canadians in financial trouble, and they tell me they need to file bankruptcy immediately. They assume bankruptcy will solve their financial problems. For some people that’s true, but for others that’s not the correct solution.
My advice is to deal with your most urgent problems first, which may or may not be solved by filing bankruptcy.
Here’s an example from a person I met with last week:
Joe was out of work for a few months, and he got behind on his rent and hydro, and he’s behind on his credit card payments. He’s back to work now, and everyone is calling asking for money. He wants to go bankrupt to stop the phone calls.
When I met with Joe, I asked him to tell me what was most urgent: getting caught up on his rent and hydro, or dealing with his credit card debt. He told me that the credit card company was calling him every day, so he wanted to deal with them now, to stop the phone calls. That makes sense, but I asked him this simple question:
“If you don’t pay your rent, or your hydro bill, or your credit cards, what will happen?”
He thought about it, and he realized that if he doesn’t pay his hydro bill, they will shut off his hydro. If he doesn’t pay his rent, he’ll get evicted. If he doesn’t pay his credit cards, they will keep phoning him, and eventually they might take him to court to try to garnishee his wages.
“Okay”, I said to Joe, “so what’s most urgent for you right now?” “You just started a new job, so the credit card companies don’t know where you are working, so it’s unlikely they’ll be garnisheeing your wages anytime soon. Hydro knows where you live, so they could disconnect you much sooner. So what’s most urgent?”
After thinking about it, Joe realized that getting caught up on rent and hydro were much more important today than worrying about his credit card bills. So we made a plan:
Joe made a budget, and figured out how much he could give to his landlord and to hydro from each paycheque over the next month or two. We calculated that over the next two months he can be fully caught up on his urgent obligations: rent and hydro. Joe then contacted his landlord, and the hydro company, and proposed the catch up plan. Obviously they both would have preferred that he get everything paid in full immediately, but since he had a plan to get caught up, they both agreed.
So what’s the plan to deal with the credit cards?
Joe might declare bankruptcy in Canada, or he might file a consumer proposal. However, before he decides to do either, he must deal with his most urgent problem: his negative cash flow.
Bankruptcy will deal with his debts, but if his expenses are still higher than his income, he’s still got a very serious problem.
And that’s what Joe plans to do. He will do his best to cut his monthly living expenses (he plans to find a room-mate), and he will use the extra cash flow to get caught up on his rent and hydro. Once he was caught up on rent and hydro, and once he knows he can meet his monthly living expenses, Joe and I will meet again to deal with his debts.
Today, his debts are not his most urgent problem, so we’ll consider his options when he’s ready, and not before.
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