How To Navigate & Avoid Bankruptcy In Real Estate

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio.

[00:00:13] I declare bankruptcy.

[00:00:16] No, you don't. But didn't we already make that joke on the show? People are saying our jokes aren't funny, so you just got to be careful with this stuff.

[00:00:25] Okay, you know, yeah, I don't declare bankruptcy and maybe we should stop making jokes, but honestly, you know, some people then in this market may actually have to declare bankruptcy.

[00:00:39] Yeah, I agree. It is a pretty scary time for the real estate market.

[00:00:44] Yeah, but you and I don't know much about declaring bankruptcy and that's a very good thing.

[00:00:49] Yeah, but the guests that we have on today's show is an expert in the subject.

[00:00:56] His name is Scott Terrio. He is a Certified Credit Counselor Manager for Consumer Insolvency.

[00:01:02] Now, if you're asking what the heck that means, so as I asked Scott that direct question.

[00:01:09] So don't worry, we get fully into what his role looks like, who he speaks to and much more in to the in the episode here.

[00:01:19] Yeah, not only that, but we get into many other great subjects like the importance of cash flow and monthly income and the fact that monthly costs can kill you.

[00:01:29] Yeah, that was probably my biggest takeaway there is if you can't handle your monthly payments, it doesn't matter what your net worth is or how much your house is worth that will that will kill you.

[00:01:41] And it's always vindicating to hear that kind of stuff.

[00:01:43] And we've been talking about that and preaching that kind of stuff for years because we also talk about cash flow versus capital appreciation from a real estate investors perspective.

[00:01:52] And, you know, what that looks like from a potential bankruptcy perspective.

[00:01:57] We also talk about how to file for bankruptcy and what actually happens when you do and what happens after you do.

[00:02:05] Yeah, we're going to talk a bit about the difference between proposals and bankruptcies, not marriage proposals, by the way, not a marriage podcast.

[00:02:12] And being able to keep your house because one of the things that we had originally thought to bring Scott on the show was actually he had put an episode or sorry, he'd put an article out in McLean's from like 2017.

[00:02:25] And he reshared it on LinkedIn recently.

[00:02:27] And I thought that was interesting because he he had actually just learned this thing that he shared.

[00:02:32] So we're gonna talk about that.

[00:02:34] We're gonna talk about negotiating with creditors and how the long the pain of bankruptcy can last for people like you always hear, you know, the seven year rule or whatever when it's expunged from your record.

[00:02:45] Is that true? I don't know.

[00:02:46] We're gonna ask Scott because we actually have no idea.

[00:02:49] Expunged.

[00:02:50] Is that the right word?

[00:02:51] That word.

[00:02:51] Well, I hope so.

[00:02:52] Good use of that.

[00:02:54] So anyways, welcome back, everybody.

[00:02:56] Thank you for joining us for another episode of the Canadian Real Estate Investor Podcast.

[00:02:59] My name is Nick Hill, joined as always by my good friend Daniel Foch.

[00:03:04] And today, without further ado, let's bring in Mr. Scott Terrier.

[00:03:08] Or as we have nicknamed him, Captain Buzzkill, which actually rhymes with Nick Hill.

[00:03:14] It's cool.

[00:03:15] Could be a show.

[00:03:16] Nick Hill and Captain Buzzkill.

[00:03:17] There we go.

[00:03:18] We are joined today by a very special guest with hopefully some very interesting insights that I'm very excited to hear about as well.

[00:03:30] Now, we usually introduce our guests, but I am not exactly sure as to what a day to day life of a manager of consumer insolvency looks like or what that entails.

[00:03:45] So, Mr. Scott Terrier, thank you so much for joining us today on the Canadian Real Estate Investor Podcast.

[00:03:51] Can you please start us off with maybe a little introduction as to who you are and what you do and what a manager of consumer insolvency is?

[00:04:01] Yeah, that's totally fair question.

[00:04:03] Thanks, Nick and Dan both for having me on.

[00:04:05] And I get that, you know, what does this guy do is a real thing.

[00:04:09] So basically, I work with Hoyes Michaelis and Associates and we are a licensed insolvency trustee, which means that we file personal bankruptcies and consumer proposals.

[00:04:19] And they're both provisions under the Canadian bankruptcy law.

[00:04:23] So if you get too much unsecured debt and you have to do something major about it, that's where we get involved with consumers.

[00:04:31] We don't do business filings.

[00:04:33] We just do consumers.

[00:04:35] I mean, sometimes we do the, you know, consumer filings as a result of business failures, but we don't do actual corporate filings.

[00:04:41] There are trustees who do that.

[00:04:43] And so we are in, we're all across Ontario.

[00:04:46] So we have 25 offices across Ontario and I think we're the largest non-national, you know, private consumer insolvency firm in Canada.

[00:04:55] So we see a lot of this stuff.

[00:04:56] So I spend my days talking to people who are at the end of their rope in terms of where they're at with their debt situation.

[00:05:05] Awesome.

[00:05:06] What is a typical, yeah, no, it's okay.

[00:05:08] I just, I'm still fascinated by this because, you know, we've, we've seen bankruptcies on the rise and I know we're going to get into that, but like, and I'm wondering if you can share this Scott, but what is a typical, you know, you say a person at the end of their rope.

[00:05:21] What does that look like?

[00:05:22] What does that mean?

[00:05:23] Right.

[00:05:23] I mean, we all hear about businesses going bankrupt or, or having to declare bankruptcy.

[00:05:28] I mean, I know there's a lot of more ways, creative ways that businesses can be protected from bankruptcy or, or the pitfalls of, of what comes with the clear bankruptcy.

[00:05:39] What is a typical consumer, like an end user, like you, me, or the listeners to the show?

[00:05:44] What is, what, how do they get to where they're talking to a guy like you?

[00:05:48] Right.

[00:05:49] So usually it's a fairly long and circuitous route.

[00:05:52] We study all our filings in what's called Joe debtor.

[00:05:55] Every year we study our, you know, three or 4,000 filings from the year.

[00:05:58] And we, we kind of put together statistics and, you know, trends, I guess, on what's the consumer look like that's filing with us.

[00:06:06] And so we have very specific answers to that actually.

[00:06:11] And, but, but more broadly, if you, if you've got way too much debt and you can't handle it anymore, usually by the time you decided that until you call us, we figure is anywhere from 12 to 24 months.

[00:06:25] Like it's a long route still longer for homeowners than renters.

[00:06:28] And we can get into that more later, but you know, from the time people realize I'm probably can't do this anymore organically or with family help or whatever, until they're actually picking the phone up to it's still a long time.

[00:06:41] So, and part of that is, you know, natural defense mechanisms that we have.

[00:06:46] We don't want to admit that we have either failed or that we need help or whatever.

[00:06:50] But Canadians are also very resourceful when it comes to debt.

[00:06:53] I'm sure you guys know this.

[00:06:56] You know, we, we find ways to get out of financial situations without having to, you know, go to the extreme of filing a legal insolvency proceeding.

[00:07:07] So our typical filers have between 40, 50,000 and 75, 85,000 in credit card line of credit tax debt, that kind of stuff.

[00:07:18] It differs between renters and homeowners quite dramatically how much they have, but that's pretty much what it is.

[00:07:25] You got too much credit card debt, too much unsecured line of credit debt, maybe too much tax debt or all three.

[00:07:30] And, you know, other things like payday loans and installment loans and that kind of stuff cumulatively tipping you to the point where typically you can make your payments.

[00:07:39] There are two definitions of insolvency. One is the balance sheet. So you owe more than you own.

[00:07:45] The liabilities exceed your assets or you can't pay your bills as they come due, the cash flow definition.

[00:07:50] And usually it's the cash flow definition in our case, because people don't call us saying, boy, my personal balance sheet is terrible.

[00:07:58] You know, that's just doesn't happen.

[00:07:59] They call us because they're missing payments and they're stressed out and they can't sleep and there's collectors after them.

[00:08:03] Yeah. Very interesting that, you know, the way you said it's kind of a long process as well reminds me a lot of that, that quote from Hemingway's 1926 novel, The Sun Also Rises, where the guy says, how did you go bankrupt?

[00:08:17] And Mike responds, two ways, gradually and then suddenly, right?

[00:08:22] Yeah. I don't want to be on a podcast where there's not a literary reference. So thanks. That's awesome.

[00:08:28] No problem.

[00:08:29] Check out the big brains on us.

[00:08:30] Yeah.

[00:08:32] What are you seeing? Like, so you mentioned a lot of the unsecured stuff and one of the big things that prompted this was the discussion around real estate, right?

[00:08:42] And so what are you seeing in regards to bankruptcies involving real estate?

[00:08:46] And we'll get to your 2017 article after this.

[00:08:49] Sure.

[00:08:49] You know, where does that play a role?

[00:08:53] And is it generally households suffering or is it investors and speculators?

[00:08:57] Like we just did an episode on how real estate bankruptcies are trending at the highest clip of any other sector or any sector in the country.

[00:09:04] And so curious to get your take on what you're seeing on the ground level there.

[00:09:08] Yeah.

[00:09:09] So, I mean, homeowners are calling us because their mortgage payments went up.

[00:09:13] I mean, they went up sometimes so much combined with, you know, a generational inflation event.

[00:09:19] And, you know, that, you know, that pandemic thing, you know, all of this is happening once in the last four years or so.

[00:09:26] And, you know, they're, so their credit card and unsecured line of payment line of credit payments are falling behind because everybody will prioritize their mortgage payments.

[00:09:34] Right. So there's only so much money coming into the house and, you know, you're not going to lose your house.

[00:09:40] So you're going to, if you can't make it, make ends meet for all the reasons we just mentioned, you're going to let your line of credit, your credit card debts payments slip before you're going to let your car payment and your mortgage slip.

[00:09:53] And then you'll let your car payment slip before your mortgage because I'd rather them take my car than my house.

[00:09:58] So it's prioritizing once you're into a very real cash flow crunch.

[00:10:03] That's normal households that are calling us now that weren't before.

[00:10:06] There's also the, you know, your over leveraged investors.

[00:10:08] Right. So the, I don't know, you know, the teacher, the high school teacher who bought a micro condo in downtown Toronto, looking to rent it out after he attended a real estate seminar.

[00:10:18] And then three others that were with them in the seminar.

[00:10:21] And now the rents are lower than the mortgage payments.

[00:10:23] And so they're upside down on their payments are probably negative, negative equity as well in some cases.

[00:10:30] Cause you know, if you bought a condo 2021, 22 and you know, that whole market went down a bit.

[00:10:37] Well, you know, just because you're negative equity doesn't mean you have to do anything, but when you start to get negative cashflow, that starts to hurt every month.

[00:10:44] And so, and that's without any other family event happening, like your wife losing her job, or I don't know, your parents getting sick and you got to go look after them or something like that.

[00:10:53] So there's no stressors as well.

[00:10:56] Condo fees increasing on older condos.

[00:11:00] We're seeing some of those people phone us now cause their condo fees gone way up.

[00:11:04] And now next year they're being asked to pay, you know, one-time fees here and there because, you know, the building's older just, it needs those 20 or 30 year upgrades or whatever that's happening.

[00:11:14] And we're also seeing presale condo disasters, you know, not closing, losing down payments, possibly the builder suing you for not closing or whatever.

[00:11:24] So that's all the, that's the real estate, the homeowner stuff we're seeing now and that we weren't seeing for a long time.

[00:11:31] Yeah, that's kind of scary stuff.

[00:11:35] Now, Scott, you, I think what kind of prompted this, this whole thing was that you had reposted a 2017 article about how people could walk away from their homes.

[00:11:49] What made you just decide to reshare that article on LinkedIn all these years later?

[00:11:54] You know, are you seeing the relevance of, of that coming back?

[00:11:58] Walk us maybe a high level overview of the context of the article and then the, the relevance in 2017 and the relevance we're seeing today or that you're seeing today.

[00:12:08] Well, the prompting was that, you know, if you're wrong for seven years and then you're finally right, you want to brag.

[00:12:12] Yeah, you and I are both.

[00:12:15] Eventually someone other than my mom was going to read that.

[00:12:18] So you guys are the, you guys are the broken clocks.

[00:12:20] That's the right idea.

[00:12:25] So what, what prompted writing it back then was conversations with, you know, people who weren't filing because, you know, for 10 years homeowners didn't need to file bankruptcies or proposals because the equity was growing in their house and they could find 10 ways to not call me.

[00:12:41] So trustees didn't meet with homeowners for a long time.

[00:12:45] And now we are.

[00:12:47] But back then, you know, that's still quite a bit after the great financial crisis in the States where people were actually, you know, walking away from their homes.

[00:12:56] The jingle mail thing where they put the keys in the mail and back, you know, mailed back to their mortgage lenders and said, see, I'm done.

[00:13:04] Those discussions were always happening back then.

[00:13:06] And I thought to myself like, well, you know, you can actually, in Canada, you, there's full recourse, but not if you do an insolvency proceeding.

[00:13:14] So if you, you can't just walk away from your mortgage here, except in Alberta with no consequences.

[00:13:21] But if you file an insolvency proceeding, any shortfall that comes from that walking away, it becomes an unsecured debt from a formally secured debt.

[00:13:30] And it's therefore eligible to be put into an insolvency proceeding.

[00:13:33] So I just thought at the time that was, I didn't know that.

[00:13:36] So presumably people who don't do my job certainly didn't know it.

[00:13:40] And it turned out that a lot of people were like, whoa, really, you can do that now?

[00:13:44] No one.

[00:13:44] That doesn't mean anybody did it for seven years, the intervening seven years, most of a decade.

[00:13:51] But they're starting to now.

[00:13:52] And, you know, that's probably going to be taken up as a as a measure for people who need to do it, because oftentimes, you know, back to, OK,

[00:14:02] our typical homeowner has 70,000 or so in credit card unsecured debt, which is fairly substantial.

[00:14:09] And we're also seeing record tax debt and that kind of stuff.

[00:14:11] If you add to that a shortfall on a mortgage that you've walked away from, those are often pretty big, right?

[00:14:18] I mean, you don't lose $5,000 on your house.

[00:14:21] You lose 50 or 100.

[00:14:23] And so to throw that on top of the 70 and all of a sudden you have a massive problem that you probably can't deal with yourself or maybe even through a proposal, you might have to do bankruptcy.

[00:14:35] So I think that was more to say, hey, look, you know what?

[00:14:38] Train wrecks can happen.

[00:14:40] And it doesn't mean you have to, like, you know, flee the country.

[00:14:45] Yeah, interesting insights for sure.

[00:14:47] You know, it's not it's something that you don't want to have to talk about on a show like this.

[00:14:52] But given, like, the difficulty that the market's seeing, you sort of have to.

[00:14:55] The skunk at the wedding phenomenon.

[00:14:57] Yeah.

[00:14:59] Which I'm used to.

[00:15:00] Yeah.

[00:15:01] Yeah, I guess.

[00:15:02] Like, you're just the Captain Buzzkill.

[00:15:05] A lot of people call me that.

[00:15:07] I got the Doomer Dan moniker on.

[00:15:11] I might have to use that.

[00:15:13] I got Captain Buzzkill and Doomer Dan here.

[00:15:15] I'll keep the mood light here for everybody.

[00:15:17] Oh, fantastic.

[00:15:19] So what are the mechanics of like of all of this look like?

[00:15:22] And maybe not even just the mechanics, because I think you described that pretty well in sort of the process of how if somebody does declare, then the house comes out of it.

[00:15:30] But the like, is there a hierarchy in which people should start worrying about debt?

[00:15:36] You know, which ones are the most severe that need to be paid the most attention to?

[00:15:40] Like you said, you know, you mentioned how people seem to go delinquent on the mortgage last.

[00:15:43] And that seems to be evident in trends.

[00:15:46] And I don't know how much of that is to be credited to the lack of forbearance measures, I suppose, that have been basically allowed by the government or almost softly pushed on lenders.

[00:15:59] But like, if somebody is in debt, walk me through like what point they should start worrying, what point they should start engaging somebody like you, which category of credit is the one that they should be paying the most attention to?

[00:16:14] That's a really good angle and question on this, because I see a ton of bad advice on the Internet for people about this.

[00:16:21] And mostly it's what you do before you file.

[00:16:24] So and I think what you're getting at here is, you know, should I pay this or this or what should I be doing either before I file or what do we do when we file?

[00:16:32] Once you file, it's all the same.

[00:16:34] Tax debt, credit card debt, mortgage shortfalls.

[00:16:38] We all we throw it into a big bucket and nobody has priority.

[00:16:42] OK, there's no super priority for tax or anything like that.

[00:16:45] It's just all unsecured debt.

[00:16:48] What you want to be careful about, though, and I want to again, this is building on what you were getting at there, I think is it's it's important to.

[00:16:59] Be aware of what you ought to do before you file, because if you file a consumer proposal, you're getting your creditors to vote on it.

[00:17:06] OK, so there's bankruptcy and there's proposals in a bankruptcy.

[00:17:09] Just file it.

[00:17:10] OK, I'm, you know, I'm following my sword.

[00:17:12] I'm doing a bankruptcy.

[00:17:13] Nobody gets to object.

[00:17:14] Yes, creditors can oppose your discharge, but it's rare and it has to be certain circumstances where you did something wrong or whatever.

[00:17:21] It rarely happens in a proposal.

[00:17:24] Your unsecured creditors are voting on it.

[00:17:26] So that's why it's called a proposal, not like a slam dunk or something.

[00:17:30] Fifty one percent of the of the dollars owed is what carries the proposal.

[00:17:34] So basic majority, it's like it's like an election.

[00:17:37] We only count the votes we get, too.

[00:17:39] So if you owe one hundred grand and 40 percent of your creditors by dollars owe vote.

[00:17:43] Yes.

[00:17:44] Well, the other 60 are in like this.

[00:17:46] There's no opt out, but they're voting.

[00:17:49] So if you just spent two years paying, let's say, CIBC and not RBC, RBC is not going to be super happy with you because you did a legal preference.

[00:17:59] OK, and that's Section 95 of the Bankruptcy Act.

[00:18:03] And you wouldn't have known this, but it will end up affecting your proposal because you just paid 30 grand to CIBC and you owe 60 to RBC or just yet.

[00:18:12] So so in this stuff, you wouldn't know this unless you called us.

[00:18:16] And so this is why I always say and Doug always says and all of our people say that it's better to call a call sooner than later because you can probably prevent yourself from doing something you shouldn't have done.

[00:18:28] And we tell people this every day, right?

[00:18:30] If you call me in early enough and you have all these factors and all these debts going on, you maybe you have a business and all this stuff.

[00:18:37] I will tell you what to avoid in order to make sure that the creditors are treated as equally as possible if it comes to that.

[00:18:44] So that's a really good point.

[00:18:47] You know, I see on the Internet all the time.

[00:18:48] Well, make sure you pay the highest highest interest one first and then call the trustee like that's a terrible idea.

[00:18:53] OK, you know, or pay the government first.

[00:18:56] The government doesn't care.

[00:18:58] So, again, engaging a professional just like in your business or any other business, frankly, as early as possible, especially if something's going wrong, is a good idea because you would never know this stuff unless you call.

[00:19:11] And you can we can it's easier to prevent in this business than it is to fix, I guess.

[00:19:16] Yeah, it's you know, we see that all the time in the mortgage space as well.

[00:19:20] Scott, you know, yeah, people come to us and it's like this has been going on for six months.

[00:19:26] Like, why?

[00:19:27] Why are we hearing about it now?

[00:19:28] Or, you know, you should have been talking to the lender six months ago.

[00:19:31] And, you know, the simple fact that there are 95 plus sections of the Bankruptcy Act.

[00:19:38] But there's more.

[00:19:40] It's like less than halfway.

[00:19:42] Yeah, it's overwhelming.

[00:19:43] Right.

[00:19:44] So I think the engaging the professional is such good advice.

[00:19:48] The public doesn't know about it.

[00:19:49] So, you know, but, you know, people get panicky and they make bad decisions and they think they're doing something good.

[00:19:55] And then sometimes it can end up being very bad.

[00:19:57] So, again, sooner is better as in many industries.

[00:20:01] For sure.

[00:20:02] Now, you had mentioned earlier homeowner versus renter debt and homeowners being worse off.

[00:20:11] Now, I'm assuming that's based off of the fact that homeowners have a large mortgage in most cases and renters don't.

[00:20:17] But can you elaborate on that and shed some light as to, you know, because on the flip side, a homeowner could be like, well, I have the equity in my home, whereas a renter doesn't.

[00:20:26] Right.

[00:20:27] So.

[00:20:27] No, I was referring specifically to unsecured debt in that actually.

[00:20:30] So in our Joe debtor study every year that we, you know, we publish in February for the year prior of all the people who filed with us, renters typically have about 50, 55,000 in unsecured debt when they approach us on average.

[00:20:45] Homeowners have about 70, 75.

[00:20:47] That's 50% more.

[00:20:49] That's quite a bit.

[00:20:50] And it's because they're more credit worthy generally.

[00:20:52] It doesn't include your mortgage.

[00:20:54] So you could have a million dollar mortgage or a $300,000 mortgage.

[00:20:56] That's not part of the calculation.

[00:20:58] That's secured debt.

[00:20:59] So the reason for it is that lenders will tend to typically tend to lend more to homeowners than renters just because of the equity.

[00:21:08] The thing that you mentioned it yourself, you're just more credit worthy.

[00:21:12] So unfortunately, that sometimes it just means that you get into more trouble.

[00:21:17] I mean, I file, I file people making $750,000 a year and it's because they spend 760,000 a year.

[00:21:24] So it's, you know, it's more of a, you know, you can be very wise about it or you can either be not wise or get into trouble.

[00:21:32] Typically, very few people who file with us have gotten into debt nefariously.

[00:21:36] Like it's all got to do with either gradually not enough income or events have happened to them and circumstances were just, you know, bad luck kind of thing.

[00:21:45] So, but yeah, renters typically 50, 55,000 unsecured debt.

[00:21:50] Homeowners about 70, 75.

[00:21:52] And that's, again, just because homeowners over time tend to be more credit worthy to lenders when things are good.

[00:21:57] And they will give you more runway, more credit card maximums, more line of credit maximums, that kind of thing.

[00:22:04] On that note, you know, the idea of like you were saying people buying the condo to rent out or whatever as well.

[00:22:14] HUOX, I feel like, play a big role in this.

[00:22:16] And I think they play a role like kind of people using their house as an ATM feeling like they personally have more runway because they have that equity that they can tap into.

[00:22:23] But also like for debt consolidation and debt consolidation has been a really big theme we're hearing about in private mortgages right now where people are taking that 22% debt and rolling it into a 12%, 15% private mortgage.

[00:22:36] How often do you see this being one of those kind of early signs that something's going to happen?

[00:22:41] And should people, like if that's the wall that somebody is up against, should they be having a conversation with someone like you before they're or and or at the same time they're having a conversation with a rescue lender?

[00:22:51] Yeah, I think they should because it doesn't hurt to have information.

[00:22:55] I think they won't because it does psychically hurt to call a trustee.

[00:23:01] I mean, you know, there's a lot of big difference between calling a mortgage broker to fix your problem and then calling a trustee to fix your problem, even if you have no intention of filing.

[00:23:10] And I mean, six out of 10 people that call us don't file at all.

[00:23:14] So, you know, it's very normal from our end of things for people to call on me to just give you information.

[00:23:19] And, you know, you can do this, you can do that.

[00:23:22] You shouldn't do this, you shouldn't do that.

[00:23:23] You know, go off and do what you're going to do.

[00:23:26] Never hear from them again oftentimes.

[00:23:28] But yeah, it's certainly an indicator for us, especially now that we're talking to homeowners again after, you know, a decade on the sidelines and hearing what people are turning to doing, right?

[00:23:40] Like you had indicated, okay, well, going for privates, you know, I mean, I see that as a growth industry right now.

[00:23:46] You know, and even if the rates are what we would have considered extortionate a few years ago, still better than having, you know, credit card level or certainly retail credit card level interest rates of 18 to 27%.

[00:24:03] So, you know, if you can either add that on as a second mortgage or private or roll it into the whole thing when it's time to renew or whatever you can do, then great, right?

[00:24:14] You know, and certainly that's happening.

[00:24:16] And for the people we do speak to, they tend to tell us, you know, without much prompting that they've looked at that, looked at this.

[00:24:24] And so, yeah, where I, you know, a year from now, I'll be able to tell you a lot more about that because we will have heard from a lot more people.

[00:24:30] We'll have you back on in a year.

[00:24:34] Yeah.

[00:24:34] So it's certainly starting.

[00:24:37] Like trustees didn't speak to homeowners for a long time, you know.

[00:24:40] And, you know, we keep track of that.

[00:24:42] And our, you know, our percentage of people who file with us who are homeowners sat at about 1% for like the better part of a decade.

[00:24:49] And now it's at 6%, okay?

[00:24:52] So it's going up.

[00:24:54] It maxed out about 30 back in, you know, 09, 10 kind of thing, 11 maybe.

[00:25:00] And so it might not go to 30, but it's going to be way higher than 6% at some point in the next 12 to 24 months, I think,

[00:25:07] because I think a lot of people are just running out of options.

[00:25:11] When you see investment properties or people who have investment properties in their whatever they come to you with,

[00:25:17] what seems to be the biggest risk factor that's causing that to no longer work?

[00:25:21] Like, is it a tenant stopped paying rent?

[00:25:24] Is it they were already cash flow negative and everything just kind of piled up?

[00:25:27] Like, is there a specific catalyst that you would point to that?

[00:25:29] Because I just, you know, for the purposes of like stress testing models for the investors that we advise.

[00:25:34] It's, I think it's way more cash flow, like negative, you know, the rent is less than the mortgage kind of thing,

[00:25:41] because bills are what hurt people, right?

[00:25:43] People live monthly.

[00:25:45] Like, I live monthly.

[00:25:47] You know, if I have, if the condo I bought four years ago is underwater by 40 grand, I don't really care.

[00:25:53] Like, if I think the market's ever coming back and I'm planning on keeping that forever, okay, that's not keeping me up.

[00:26:00] What's keeping me up is me forking out a thousand bucks a month that I didn't think I was going to fork out when I went to the real estate seminar.

[00:26:05] That's what keeps me up.

[00:26:07] And so they don't call us because they're 40,000 underwater.

[00:26:12] They call us because they're a thousand underwater every month because their own mortgage on their principal property just renewed.

[00:26:18] Okay.

[00:26:18] So they went up there.

[00:26:20] The condo fees on the condo went up.

[00:26:22] Okay.

[00:26:22] They went up there and inflation's bit them in the ass.

[00:26:25] It's, you know, that's, this has all got to do with what's coming in monthly and what's going out monthly.

[00:26:31] And as I said, there's two definitions of insolvency.

[00:26:33] You know, either you owe more than you own balance sheet or you can't pay your bills as they come due.

[00:26:40] And I'd say eight, nine times out of 10, it's, it's, it's bills, it's payments.

[00:26:45] So I think that's how this country is structured from a debt standpoint, right?

[00:26:48] You guys know this.

[00:26:49] If you can make the payments, if you can make the payments, who gives a damn?

[00:26:52] Yeah, we just did an episode on it.

[00:26:54] Roll the dice, man.

[00:26:55] With the new CMHG extensions.

[00:26:57] I mean, they're counting on basically people, people reducing their payments to prop up the market and get more insured loans on the bank.

[00:27:03] You know, people saying that, you know, your mortgage is, or the whole thing's going to cost you 25% more over the lifetime of a 30 year amputation.

[00:27:09] Nobody cares about that.

[00:27:11] No, they don't care.

[00:27:11] Nobody cares about that.

[00:27:13] People shop payment first.

[00:27:14] Like even people who will go out and look for deals, they, it's all reverse engineered off of the payment.

[00:27:19] And if, and all of a sudden if the payment, if the payment goes down because their interest, the interest rate came down, then their budget just went up, right?

[00:27:25] Nobody thinks about what.

[00:27:26] Look at trucks.

[00:27:28] Yeah.

[00:27:28] Right.

[00:27:28] Look at cars, right?

[00:27:29] Like, you know, I mean, I file guys living in Timmins.

[00:27:36] Yeah.

[00:27:36] Denali HD.

[00:27:37] Yep.

[00:27:38] In the driveway.

[00:27:39] Did you see the episode?

[00:27:40] Did you see the episode?

[00:27:55] Well, which is probably worth more than the property.

[00:27:58] Yeah.

[00:27:58] It might be a good truck to pull a trailer if you got to live in one, but you know, it's funny because I saw the Equifax report with the, and they had like debt by household.

[00:28:07] And Fort Mac really stood out to me.

[00:28:11] The Denali effect you called it.

[00:28:13] Yeah.

[00:28:13] Well, I'm like, this is a, you can really see the Denali on that chart, but you know,

[00:28:17] I mean, in Fort Mac, I guess the average household earnings would be significantly higher.

[00:28:20] So relative to income, they actually might not be that much.

[00:28:23] Yeah.

[00:28:23] And it funny thing about the truck and the Denali thing.

[00:28:25] I had a guy call us a week or two ago.

[00:28:30] So when we do proposals, there's two kinds of proposals.

[00:28:33] There's a consumer proposal, which is nine times out of 10 that will be filed.

[00:28:37] Then there's a division one proposal, which is a big court proposal that needs higher thresholds of approval, needs court approval.

[00:28:43] And there's fees, you know, we charge like lawyers on that one.

[00:28:46] Okay.

[00:28:47] That's when you have $250,000 or more in unsecured debt, but it's actually $250,000 excluding your principal mortgage.

[00:28:54] So it could include your car loan, which never mattered before because nobody had car loans that were insane.

[00:29:02] But now that you got the, you know, the $100,000 truck.

[00:29:05] Okay.

[00:29:06] And I'll go back to you.

[00:29:07] You've got $100,000 in credit card and tax debt.

[00:29:10] Well, you're at 200, dude now.

[00:29:12] So 250 is the threshold, excluding your mortgage.

[00:29:16] So we have people actually breaking the threshold of 250 by virtue of the truck loan that they have.

[00:29:23] Crazy.

[00:29:24] That's the thing in the last 10 days.

[00:29:27] So like, I look at your comment on the Denali effect.

[00:29:30] That's exactly what I thought.

[00:29:31] I'm like, wow, dude, like this, these car loan things are becoming real now because they're actually pushing people into a next echelon of a proposals filing.

[00:29:40] Crazy.

[00:29:40] Yeah.

[00:29:41] It is interesting, right?

[00:29:42] Because the real, like you get a lot of people in the real estate profession that are, you know, like,

[00:29:45] I know people who have payments on like, you know, looking over their shoulder to not like, you know, avoid the repo man on Lambos and G-Wagons.

[00:29:54] Like, honestly, it's just ridiculous.

[00:29:56] Yeah.

[00:29:56] Yeah.

[00:29:57] And I mean, it's not a debt shaming thing.

[00:29:58] It's just that, you know, over time, these things can matter.

[00:30:02] Right.

[00:30:02] As you, as little, it's debt creep, I guess.

[00:30:05] It's, you know.

[00:30:06] Yeah.

[00:30:06] Lifestyle creep is like huge.

[00:30:07] People get used to debt, right?

[00:30:09] Like, we have a threshold for debt tolerance now that is much higher than it was 15 years ago.

[00:30:14] Or you make like 500 grand in 2021 and assume the real estate market is going to be like that.

[00:30:19] You know, you're a realtor, a mortgage broker.

[00:30:21] You just made 500 grand in 2021.

[00:30:23] 2022, three, four are the slowest years of your career.

[00:30:26] Yeah.

[00:30:26] You know, things get ugly pretty quick in that regard.

[00:30:28] Yeah.

[00:30:29] And we, you know, a lot of self-employed people that we meet with are exactly in that situation, right?

[00:30:34] Where they, you know, you have a great couple of years and you think, well, that's going to last.

[00:30:39] And then it doesn't.

[00:30:40] And, you know, a lot of self-employed people are not great at books.

[00:30:43] Like, they're really good at what they do, either trade or whatever.

[00:30:46] But their bookkeeping is not great.

[00:30:48] They end up with tax trouble.

[00:30:49] It doesn't take very long for that $500,000 year or two to unravel.

[00:30:53] For sure.

[00:30:53] Yeah.

[00:30:53] I think the, you know, the debt shaming piece is really interesting.

[00:30:56] That's definitely not something we're trying to do on the show.

[00:30:58] I can assure you, everyone listening, that all three of us talking right now, we have debt, whether it's mortgage or credit.

[00:31:04] Oh, yeah.

[00:31:05] So whatever.

[00:31:05] I got the Denali debt.

[00:31:07] Dan's part of his own problem.

[00:31:10] Forget the Doomer debt.

[00:31:12] Denali debt.

[00:31:13] But actually, that's got a nicer ring to it.

[00:31:16] But, you know, I just think it's, we've just gotten so carried away with that lifestyle creep that, you know, this is really, unfortunately, it's going to be that rude awakening for a lot of people.

[00:31:30] And again, it's not debt shame.

[00:31:32] It's just like, this is just reality, right?

[00:31:35] It's consequence.

[00:31:36] Come back to reality.

[00:31:36] Exactly.

[00:31:37] Yeah.

[00:31:37] I mean, you know, I don't want, I don't want the world or the government or the financial authorities to remove risk from financial transactions, right?

[00:31:47] That's kind of how things work.

[00:31:49] And we've done a lot of that in the past.

[00:31:51] Like a lot of risk has been removed from the system.

[00:31:54] And, you know, we could go probably do a full podcast on that.

[00:31:57] But it's okay to have a reset sometimes, you know?

[00:32:01] In fact, a lot of people, you know, a lot of people, I'll mention this now.

[00:32:06] A lot of people think my job is brutal.

[00:32:07] Like I must, at the end of the day, I must want to shoot myself.

[00:32:10] And it's the exact opposite because when people call us, it's the first time that somebody has helped them out of something in their life, in their financial life, rather than, you know, either adding on to things or whatever.

[00:32:22] And so when they call us, it's like a download, you know, and there's a solution coming to something.

[00:32:30] And it's not the end of the world that they thought it was going to be.

[00:32:32] So my point is, you know, it's okay to tackle something sometimes because you might feel better too, right?

[00:32:40] And five years from now, it's not going to matter, you know?

[00:32:43] And if you're in your 20s or 30s, you've got so much runway left.

[00:32:46] Don't worry about it.

[00:32:48] Yeah.

[00:32:48] Can you actually just run us through that timeline a little bit?

[00:32:50] Like what is the – like what happens after you file?

[00:32:54] What does the timeline look like when you say five years, seven years?

[00:32:57] Like when does it stop mattering?

[00:32:58] Well, since eight or nine files out of 10 of ours are consumer proposals versus bankruptcies.

[00:33:03] And you guys can understand why that is because, you know, we live in a credit-obsessed country.

[00:33:06] And if you don't have to file bankruptcy, you shouldn't.

[00:33:09] And oftentimes bankruptcy is like killing an ant with a sledgehammer.

[00:33:13] Like you don't have to do it.

[00:33:15] And if you can put together a viable proposal, A, it's better on your credit.

[00:33:20] But B, it also – it allows you more options and freedom.

[00:33:23] And so a proposal is a five-year maximum, so 60 months.

[00:33:28] And we set them all up for 60 months because they're open terms.

[00:33:30] So you can pay it anytime you want.

[00:33:32] So in a proposal, I'm saying to you, my group of unsecured creditors, including taxes and everything,

[00:33:39] I will pay you X hundred dollars for 60 months.

[00:33:43] And there's a formula that's based on and all that stuff, but it's basically based on a hypothetical bankruptcy.

[00:33:48] So if you call me and have no intention of filing bankruptcy, and I say, okay, in the background,

[00:33:53] I'm calculating what a bankruptcy filing would cost you because if you – when you offer a proposal,

[00:33:58] you have to give the creditors better than they would get in bankruptcy because the creditors know that the math that I just did,

[00:34:04] including your income and your assets and any prior bankruptcies.

[00:34:06] There's a series of factors that – by which we determine what a bankruptcy would cost you and how long it would be.

[00:34:13] And you have to beat that in a proposal because you're making them wait 60 months instead of 21 months or nine months in bankruptcy.

[00:34:18] Makes sense.

[00:34:19] So because, again, the creditors get to vote on the proposal.

[00:34:22] So if I owe you – if I owe $100,000 and I offer you $24,000, so $400,000 for 60 months, you get to vote on it.

[00:34:28] Yes or no?

[00:34:29] Typically, they'll counteroffer.

[00:34:31] Okay.

[00:34:32] So we try and like, you know, offer enough that it's pretty good.

[00:34:35] Maybe not like offer too much out of the gate.

[00:34:37] Kind of like the way real estate was before bidding wars.

[00:34:40] Remember that?

[00:34:41] Someone listed a house for $400,000, you offered them $350,000, like some sane person.

[00:34:46] Now, if they elicit for $400,000, you offer them $600,000.

[00:34:49] It's insane, but that's where we're at.

[00:34:52] So in a proposal, we're still in sane land.

[00:34:55] Okay.

[00:34:55] I offer you X, you ask for me for more, we make a deal.

[00:34:58] Because it's better for me than if you did the bankruptcy.

[00:35:01] Great.

[00:35:02] In a proposal, you get an R7 credit rating instead of an R9.

[00:35:07] And in the future, you never have to answer yes to the question, have you ever filed bankruptcy?

[00:35:12] Because someone's going to ask that, baby, especially if you're in your 30s or 40s.

[00:35:15] You've got a lot of time left in the marketplace and landlords are asking that.

[00:35:20] And employers who aren't supposed to ask that are asking it.

[00:35:23] And everybody's asking it.

[00:35:24] But what they don't ask is if you've filed a proposal, because the proposal just really isn't in the collective consciousness.

[00:35:30] So it's a better credit rating.

[00:35:32] The proposal is five years.

[00:35:33] You can pay it sooner if you're able to any time.

[00:35:36] Either Uncle Jimmy dies and leaves you $25,000.

[00:35:39] You pay the $25,000.

[00:35:42] Or more typically, you just either get better financial circumstances and you pay it gradually faster to get it done sooner.

[00:35:47] Because a proposal can only be on the R7 for the proposal can only be on your credit rating for six years maximum.

[00:35:54] So the time of the proposal plus the time after.

[00:35:56] So if you go five years, five plus one.

[00:35:59] And it can only be on for three years maximum after.

[00:36:02] So if you're able to pay it in one or two years, you can shorten that six, two, four, or five.

[00:36:06] So you have a better control.

[00:36:09] You're protected, full protection from the creditors.

[00:36:11] So you get all the protection of bankruptcy, none of the bad stuff.

[00:36:14] And that's why proposals are popular with people.

[00:36:16] You can also keep your house if you do a proposal.

[00:36:19] Real estate podcast.

[00:36:22] So you can have equity in your home.

[00:36:28] But if your equity in your home exceeds your unsecured debts, you might not be able to do a proposal.

[00:36:32] Because the creditors might say, okay, well, hold on.

[00:36:34] You got $200,000 equity and you owe $50,000 in credit card debt.

[00:36:38] Why would I wait five years to get paid when you could sell your house and pay me now?

[00:36:43] Now, how many Canadians sell their house, guys?

[00:36:47] Quick show of hands.

[00:36:48] None of them.

[00:36:48] Correct.

[00:36:50] So that's not a thing, okay?

[00:36:52] Because you've got to be a desperate bill to do that in this country.

[00:36:55] That's not the way we're wired, right?

[00:36:57] So creditors are saying no to 100-cent proposals because they don't want to wait five years to get paid.

[00:37:03] They'll say, well, look, how about we reject the proposal?

[00:37:06] And we know you can't go bankrupt because you can't go bankrupt with equity because a trustee gets your house and sells it.

[00:37:11] So either you refinance, you do something with your equity and pay us now or sell your house and pay us now.

[00:37:16] But if you have, let's say you have $20,000 or $30,000 equity and you owe $100,000.

[00:37:22] Well, you can do a proposal on, I don't know, maybe $40,000 over the 60 months because otherwise creditors wouldn't get paid very soon anyway.

[00:37:29] This way they know they're getting paid trustees doing all the work.

[00:37:32] So you can keep your house.

[00:37:34] Likewise, if you have negative equity, you can do a proposal because the equity isn't even in play.

[00:37:39] In a hypothetical bankruptcy filing, you wouldn't lose your house because there's no equity and I only want your house if there's equity.

[00:37:46] So you could owe $60,000 in tax debt and credit card debt, have negative equity of $100,000 and still do a proposal and keep your house.

[00:37:53] So that eventually if your house comes back with equity, either you pay your mortgage down or the market goes up or both.

[00:37:59] You've paid off your unsecured debts using the proposal.

[00:38:01] You've kept your house.

[00:38:03] So that's a really quick, you know, I'm going to jam this into this podcast, you know, picture of how you could do a proposal while being a homeowner because that's what we're going to get.

[00:38:13] Yeah, no, that's fascinating.

[00:38:14] And I think that the difference between that proposal and the bankruptcy is just extremely important for people to understand.

[00:38:22] So I appreciate the insight on that one, Scott.

[00:38:25] Final question from me.

[00:38:28] We're going to get emotional here.

[00:38:29] How are you feeling?

[00:38:31] Like, are you scared about what's happening right now?

[00:38:34] Is this, are there alarm bells going off?

[00:38:36] Should there be alarm bells going off?

[00:38:38] I mean, you know, if, put it this way, if you're scared, I feel like we should be.

[00:38:42] And I feel like a lot of other people should be as well.

[00:38:45] So I'm really curious as to, you know, what do things look like from here?

[00:38:49] And is, is it as bad as things are being made out to be in, in, in some media outlets?

[00:38:54] And do you foresee getting worse?

[00:38:57] Like, where are we right now?

[00:38:59] Well, that's a lot of pressure, Nick, but I will try and do that one.

[00:39:02] So, okay.

[00:39:04] It's funny because by all, you know, metrics, we should be worried.

[00:39:12] But there's way too much consumer debt that, and it's, it isn't just recent.

[00:39:17] The consumer debt has been built over time because the last time there was an insolvency

[00:39:21] peak for filings is 2009, 10 guys.

[00:39:24] Like it's a decade and a half.

[00:39:26] What happened back then again?

[00:39:27] Yeah.

[00:39:28] So, so, so, I mean, we probably should have had another wave or semi-wave of insolvency

[00:39:34] filings again around mid decade, but we didn't because everything was rocking and rolling.

[00:39:39] Equity was going up, house prices were going up.

[00:39:42] And that covers up a lot in a country like ours, especially.

[00:39:47] So on one hand, there's a lot of debt there that hasn't been dealt with other than, you

[00:39:50] know, getting more debt to deal with it.

[00:39:54] So when I look at the metrics, it's terrible.

[00:39:56] Like there's, you know, we're record credit card debt levels, we're record tax debt levels,

[00:40:01] you know, by almost every measure we have, we're in record country.

[00:40:06] But again, you know, things are starting to swing back, aren't they?

[00:40:10] Like rates are coming down and, you know, the government is putting out measures like we

[00:40:15] saw this week.

[00:40:16] And, you know, with, and I don't think it takes much in this country for our mentality

[00:40:21] to shift to positivity, despite all the metrics.

[00:40:26] So I think this is going to be a very long insolvency filing run for guys like me.

[00:40:31] I'm not busy right now, like I am, and I'm extremely busy right now.

[00:40:35] And the numbers, you know, we could go through the all time filing record this year quite easily,

[00:40:41] even if we, even if the last four months of this year, our filings at the rate of last

[00:40:47] year, and we're up 17% over that, we're still going to go through the maximum.

[00:40:52] So, okay.

[00:40:54] But that's, you know, that's still less than 200,000 insolvency filings in a country of 40

[00:40:59] million people.

[00:40:59] It's a drop in the bucket.

[00:41:01] But I think what it indicates is for every person having to resort again, back to the,

[00:41:05] you know, if you're calling me, it's really bad, right?

[00:41:07] Every person that's calling me, there's probably 10 who are in trouble.

[00:41:10] And it's hard to cover up monthly payment problems.

[00:41:13] And that's where we're at.

[00:41:14] We're in monthly payment problem country now, right?

[00:41:17] We weren't ever before.

[00:41:18] And, you know, that's what happens when you have 10 rate increases in 18 months, people

[00:41:23] get hurt and inflation.

[00:41:25] And it's hard to cover that up.

[00:41:27] So I think while there's not being, you know, a tsunami or a major catastrophe, I think that

[00:41:34] a lot of people are going to be filing for a long time because of the staggered nature

[00:41:38] of mortgage renewals.

[00:41:40] You know, homeowners are back at the plate.

[00:41:43] And every year there's X number of homeowners renewing.

[00:41:46] And they're, you know, even if rates come down a bunch of times, you're still going

[00:41:49] back at much higher than you had when you set yourself up in 2021, 22, whatever, right?

[00:41:55] 20.

[00:41:56] So it's hard to cover that up.

[00:41:58] You know, when your mortgage goes up a lot, it's very hard to mask that for the rest of

[00:42:03] your financial life.

[00:42:05] So I don't think we're in like, you know, the country's not going to hell, but it's

[00:42:09] going to be a long drawn out, like a 90s kind of a slide.

[00:42:13] You know, I think it's going to just be slow and gradual.

[00:42:15] And, you know, it just won't be very exciting for the, you know, guys in the real estate

[00:42:21] industry, I guess.

[00:42:22] Like it'll be better than it was in the last two years.

[00:42:25] But as you know, it's not going to be fun times like it was before for a while.

[00:42:29] And so for guys like me, we're going to be busy for a while because other things like

[00:42:34] people resorting to installment loans, it's very hard to, once you have one or two of those

[00:42:40] $10,000 loans at 48%, you're done.

[00:42:44] And that's a real popular thing in the last few years.

[00:42:47] So we're going to see a lot of filings for a long time, probably four or five years here,

[00:42:51] I'm guessing.

[00:42:54] But, you know, the closer we get to rates being low again, that will mitigate some of that.

[00:43:01] That was kind of a, maybe a little bit of a chicken shit answer, but...

[00:43:05] No, not at all.

[00:43:06] No, I didn't mean to be wishy-washy there, but it's going to be bad.

[00:43:10] But I think we're going to get through it is, you know, what I'm saying.

[00:43:13] We always do.

[00:43:14] This too shall pass, right?

[00:43:15] Yes.

[00:43:17] Thanks a lot.

[00:43:18] Anything you want to leave our audience with before we send you off?

[00:43:21] No, if you know anybody who you know is struggling, urge them to talk to somebody.

[00:43:26] It doesn't have to be a trustee, an accountant, trusted family, friend, whatever, because you

[00:43:31] will find that, you know, talking is easy, doesn't cost you much.

[00:43:36] And even if you learn one or two things that save you a lot of trouble in the future, just,

[00:43:42] you know, own up and talk to somebody about it because time is the enemy in this.

[00:43:48] Yeah, well said.

[00:43:49] And Scott, if people wanted to find more about your website, www.captainbuzzkill.com.

[00:43:55] Is that it?

[00:43:56] Nicely done.

[00:43:59] Might have to rename the firm here.

[00:44:02] That could be a marketing hit, actually, you know, ironically.

[00:44:06] Yeah.

[00:44:07] Hoys Michaelis, www.hoys, H-O-Y-E-S.com.

[00:44:12] And we do a ton of research and we do a ton of education.

[00:44:16] We have courses online that are free.

[00:44:18] We have videos.

[00:44:19] We have YouTube.

[00:44:20] We've got a podcast of our own.

[00:44:22] Like, I mean, we got six people who full time just, you know, research stuff and produce

[00:44:29] everything.

[00:44:30] It's, yeah, it's a bottomless pit of information and it's all accurate.

[00:44:36] Perfect.

[00:44:36] Well, appreciate that.

[00:44:37] We will definitely put your links in the show notes so people can reach out to you and anybody

[00:44:43] out there that is struggling or can sense it on the horizon.

[00:44:48] Reach out to Scott and his team before it's too late.

[00:44:52] Scott, sincere thank you from both Dan and myself for joining us today and providing insight

[00:44:56] onto what is an emerging and somewhat scary landscape for the Canadian market.

[00:45:03] But as Dan said, this too shall pass.

[00:45:05] Thank you very much.

[00:45:06] You're welcome.

[00:45:07] Thanks, guys.

[00:45:08] The Canadian real estate investor podcast is for entertainment purposes only and it is

[00:45:14] not financial advice.

[00:45:16] Nick Hill is a mortgage agent with Premier Mortgage Center and a partner in the G&H Mortgage Group.

[00:45:23] License number 10317.

[00:45:26] Agent license M21004037.

[00:45:31] Daniel Foch is a real estate broker licensed with Rare Real Estate, a member of the Canadian

[00:45:38] Real Estate Association, the Toronto Real Estate Board, and the Ontario Real Estate Association.

[00:45:43] Thank you.