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Freida Richard with Rotary Past President Jim Peddie
This Tuesday we were pleased to welcome Freida Richard, a partner at Grant Thornton, to talk to us about the options available to us regarding financial insolvency. She has worked in the financial industry for twenty-nine years and has written a financial column for the Globe and Mail for the past eight years. She and her team at Grant Thornton work with clients to help them understand their options and choose the best one for their personal situation.
Freida began by saying the age group most affected by insolvency has shifted to a younger age group, Millennials aged 27 to 42, since the COVID pandemic. She said this is most likely the result of multiple factors. This age group grew up with using credit over cash and generally do not have enough financial smarts to navigate the much more complicated financial world we have today. They have also been affected by several big downturns in the economy that affected their ability to find and keep well paid steady work, find accommodations that are affordable and deal with the ever more complicated and expensive world around us.
She said that our relationship with debt is a major factor in the increase in the number of insolvencies since 2008. Our comfort level for more debt has increased, partially due to lower interest rates and has resulted in a buffet of credit card options. Some common myths about debt are that it only happens to low-income people, higher income people have higher financial skills, debt results from poor choices, or that having debt means you are lazy. In reality, the top reasons for debt are living beyond your means, relationship breakdowns, gambling or addiction, business failure, medical issues, non-compliance with tax filings and loss of income. Some warning signs to watch for are reliance on pay day loans, being in overdraft every month, and going from one financial crisis to another.
Freida told us that the first things to do when you become overwhelmed are to consider budget revisions, selling non-essential assets ( this does not include pensions or RRSPs), negotiating with your creditors (only practical if there are three or less), consolidating or transferring your debt to a lower interest loan ( although this can cause issues) and consulting with a not for profit agency such as the Credit Counselling Society to help you negotiate with your creditors.
When these options are not practical there a several federally legislated programs involving the courts available that an insolvency specialist can help with. An Orderly Payment of Debt, a Consumer Proposal and Bankruptcy (the least preferred option). An Orderly Payment of Debt can be obtained through Money Mentors in Alberta. A Consumer Proposal should be prepared by an insolvency specialist and involves a court ordered stay of proceedings to freeze interest and stop collection action. You retain control of your property, it is budget friendly and involves joint proposals from you and your creditors. It presents your creditors with a comparison of what they will get if they agree to this as opposed to what they will get if you declare bankruptcy. The amount you agree to pay on dollars owing in debt must be agreed to by your creditors and the amount owing must be paid within five years Once agreed upon the conditions are legally binding.
The last and most onerous option is Bankruptcy. It is also the most highly regulated option with many specific rules that must be followed. It involves a sale of assets to cover your debts with a list of stipulated assets and amounts that you are allowed to keep. The time frame for payments varies depending on your past history with insolvency and the amount paid depends on your net income and number of people in your household. It also affects your ability to obtain credit for many years to come.
We would like to thank Freida for this very interesting and knowledgeable introduction to insolvency.
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"The Friendly Club"
Edmonton, AB T6L 6B6
Canada