Consumer Proposals: The Best Debt Solution Nobody Talks About

Consumer Proposals: The Best Debt Solution Nobody Talks About

I realize that regular readers likely have no need to ever do a consumer proposal. Why would they? This blog’s audience is primarily prosperous people, not folks who are drowning in debt.

But I’m still going to talk about consumer proposals today for a couple of reasons. One, I want everyone to know these things exist and they’re incredibly useful. And two, I want every bank, mortgage company, and loans for dirtbags shareholder to realize just how terrifying they are from a lender’s perspective.

Nobody knows they exist

The really interesting thing about consumer proposals is how the PF-o-sphere knows nothing about them.

Seriously. It’s bananas. There are a million how to pay off debt articles out there. They all contain the same old predictable advice. Did you know that saving money in other parts of your life can be used to pay down debt? How about paying the credit card with the highest interest rate first? Or if you’re really in a pinch, you can even use a balance transfer to temporarily pay a very low interest rate.

Yeah, I know. Real groundbreaking stuff.

Most PF bloggers want nothing to do with bankruptcy because a) it destroys someone’s credit and 2) bailing out on your debts is not a very honorable thing to do. We can debate point 2 all day long, but anti-bankruptcy folks don’t realize that it’s really not that hard to live without credit in 2017. If you play your cards right, destroying your credit can be nothing but a minor convenience.

What is a consumer proposal?

Now let’s talk about consumer proposals, which are basically like bankruptcy without the repercussions.

Here’s how they work. You go to a Licensed Insolvency Trustee (LIT) and tell them that you’re struggling under debt. They’ll go through your situation and create a proposal to take to your lenders.

This document will propose one of two things. The borrower will either ask to settle the debt for a fraction of what’s currently owed (which is common) or they’ll ask for more time to pay back the total amount (far less common). It may also ask for other arrangements like waiving interest charges or certain late penalties.

The LIT then submits the document to your creditors. The creditors have a number of options. One (or more) can call a meeting to discuss the proposal — called a meeting of creditors — if they’re not happy with it. Note that only creditors who are owed 25% of the total amount (or more) can decide to call a meeting. The guy holding 5% of the total debt is out of luck, even if he REALLY wants to call you a terrible person face-to-face.

A meeting of creditors almost never happens, which leaves us with two realistic scenarios. Each lender can decide whether they accept or deny the consumer proposal. If lenders representing more than 50% of the dollar value owing decide to accept it, it’s done. It doesn’t matter how vehemently the other 49% oppose it. It’s a done deal.

Note that if the proposal is ignored for 45 days then it’s deemed to be accepted.

If it is accepted, then the LIT handles all the payments to forward onto the lenders. The borrower is also required to attend two financial counselling sessions, which I’m pretty sure consists of Robin Williams telling you “it’s not your fault” about twelve times.

The reality of consumer proposals

Think about a consumer proposal for a second here. A debtor is basically going to his creditors and saying I’m close to declaring bankruptcy but I’d like to make a deal with you. Here’s an offer for 15 cents on the dollar for what I owe.

If you were the creditor, what would you say? That’s what I thought.

You’d be nuts to say no if the debt is unsecured. You know the next step is bankruptcy. At least this way you’d get something.

Secured debt is a little trickier, but not entirely so. If somebody owed $15,000 on a $10,000 car, it makes no sense to let him default and take the car back. Negotiating would be the best move in that situation. I would at a minimum look to defer payments for a little while or cut back on the guy’s interest.

You can probably guess what happens in the real world when an unsecured creditor gets one of these. It’s immediately accepted. It’s a whole lot better than bankruptcy.

A consumer proposal scam?

This is where things get a little conspiracy theory-y. What’s stopping someone from using their good credit to get $50,000 in credit card room, charge it all up, and then going through the consumer proposal process?

In theory, nothing. In fact, if somebody played it right, they could come through the whole process far richer than when they started.

Here’s what you do. Say you charged $50,000 in purchases on your credit cards. You can then sell that stuff for $30,000. So you do so, making sure to keep the money hidden in an envelope somewhere. You stop paying the minimum payments on the credit cards, claiming you need all your money for food, shelter, etc.

After being harassed by creditors for a few months, you go and do a consumer proposal. You ask to pay back $7,500 of the $50,000 owing. They accept and you arrange a payment plan for a few years at a very low interest rate.

And that’s about it. You’ve just made yourself $20,000+ and all it really cost you was damaged credit. It really is that easy.

Let’s wrap it up

Lenders are terrified of consumer proposals, and it’s easy to see why. They’re a fantastic deal for people who are struggling. You don’t even need to be that far behind on your payments, either, meaning it’s entirely possible to basically scam your creditors using one.

More Canadians should be made aware of consumer proposals. I can imagine a lot of people being outraged about how easy they are. I can also imagine a lot of people who could really use one but they’re unsure the process exists.

My 5 Favorite Investing Podcasts

My 5 Favorite Investing Podcasts

A few months ago I was asked by a reader (it might have been in this ask me anything post) what my favorite investing podcasts were. Because I am nothing but a crotchety old bastard, I responded with something approximating “I don’t listen to that crap. Also, get off my lawn. Damn teens.”

I’ve since changed my tune. I tore through the only interesting books of my library’s audiobook collection pretty quickly, leaving me with nothing to do when I work out. I tried staring deeply into the eyes of the person on the elliptical next to me, but my wife just rolled her eyes and told me to cut it out.

(Speaking of creepy stuff, here’s a fun thing to do. Go up to a stranger, look them deep in the eyes, and sing this song. Please note I will not bail you out of jail)

I had two choices. I could just *not* work out anymore, which is the option that almost won out. Or I could find myself some investing podcasts to listen to. I chose the latter. Here are five of the best.

Bigger Pockets

The Bigger Pockets podcast is dedicated to investment real estate. The two hosts — Joshua Dorkin (editor’s note: heh. dork.) and Brandon Turner — interview a vast array of real estate investors. Some are house flippers. Some are buy and hold investors. And others are professionals with millions of dollars worth of properties.

The hosts do a great job asking pointed questions to each guest, calling them out (in a very gentle way) if they don’t believe their hype. Yet the show has a decidedly muted feeling. You won’t hear a lot of grandiose claims in this investing podcast.

A new episode comes out every week and there are 214 in the archives, all at least an hour long. You’d better get started.

Suggested episodes: 

213: Investing in Real Estate Without Becoming a Landlord with Noah Kagan

209: Flipping 83 Homes in the Last 18 Months with Kevin Carroll

208: Buying 41 Units on Your First Deal + Mobile Home Park Investing with Jack Baczek

108: Building a $350 Million Real Estate Empire Using the 10X Rule with Grant Cardone (My favorite one. Cardone is bananas.)

How I Built This

How I Built This is a relatively new investing podcast from NPR. Yes, I’m a little surprised NPR has tackled such a topic, but let’s not discourage them.

(I am being told I have outdated stereotypes of NPR. Duh. Outdated stereotypes are the best kinds, FYI)

The concept behind How I Built This is simple. The show interviews somebody who has built up a business from scratch into something worth millions (or, usually, billions). It’s a little light on details but is usually quite entertaining. Each episode is only a little more than a half hour long, making it the perfect podcast for the gym.

Suggested episodes:

Virgin: Richard Branson

Zumba: Beto Perez and Alberto Perlman

Serial Entrepreneur: Mark Cuban

Southwest Airlines: Herb Kelleher

(All episodes are listed on this page)

Podcast tip! Listen to these bad boys at 1.5x speed (or faster if your ears can handle it). You’ll cut an hour long show into 40 minutes. Or, if possible, read the transcript. Most people can read a whole lot faster than they can listen. 

Planet Microcap

The Planet Microcap podcast interviews prominent microcap investors, usually folks with a value bent. It discusses the unique challenges with investing in the asset class, as well as a myriad of other investing topics that are interesting to those of us who build portfolios full of individual stocks. Like I always say, the best opportunities are where other investors won’t go, and we all know plenty of investors who won’t touch small companies.

Suggested episodes:

Episode 37: Banking Sector, Investing Books and Articles with Nate Tobik

Episode 34: Deep Value Investing with Tobias Carlisle

Episode 14: Information Arbitrage and Microcap Investing with Maj Soueidan

Value Investing Podcast

This is the first investing podcast I stumbled upon, probably because the title is exactly what I searched. Host John Mihaljevic — the author of The Manual of Ideas, a valuable book on idea generation for value investors — interviews all sorts of different value-focused fund managers. Topics range from individual securities to more general investing themes with pretty much everything in between.

Suggested episodes:

James Roumell on Deep Value Investing

Behind the Book with Jeroen Bos

Ben Strubel of Strubel Investment Management

Howard Marks of Oaktree Capital Management

The Meb Faber Show

This last choice was a tough one. I could have included about five different investing podcasts I enjoy here, but Meb Faber takes the final spot with a podcast that checks off all my boxes. Interesting guests? Check. Good topics? Double check. He even takes the time to answer listener questions. Faber is also kind enough to put his podcast transcripts on his page for those of us who’d rather read than listen. He truly is a God among men.

Suggested episodes

Episode 39: Ed Thorp “If You Bet Too Much, You’ll Almost Certainly Be Ruined”

Episode 28: Larry Swedroe “There is Literally No Logical Reason for Anyone to Have a Preference for Dividends”

Episode 13: Want Buffett’s Returns? Here’s How to Get Them

Episode 12: Why Shareholder Yield Beats Dividend Yield

Honorable mentions

Here are some other podcasts I listen to that just weren’t good enough to make the top 5.

The Tim Ferriss show — A lot of people don’t care for his promotional ways (and there are a lot of ads), but Ferris consistently has fascinating guests talking about interesting things.

NPR’s Planet Money — This podcast is a little less to do with investing and a little more to do with money in general. The tagline is “the economy, explained.” There are more than 750 episodes in the archives, so be prepared to spend a little time.

The James Altucher Show — Altucher is an interesting guy. I know of at least one finance blogger who thinks he’s an outright sham, but his podcast is pretty good. Like with Tim Ferriss, expect a lot of general money talk and not a whole lot about investing.

Do you have any favorite investing (NOT personal finance) podcasts? Feel free to share in the comments. 

5 Great Financial Lessons From The Simpsons

5 Great Financial Lessons From The Simpsons

Because hey, when you think good financial lessons, you think The Simpsons.

I don’t believe I’m exaggerating when I say The Simpsons is quite possibly the best television show of all time. Or at least the first 10 seasons, anyway. Those episodes are packed full of memorable characters, jokes that are still hilarious today, and enough subtle humor that I watch them 20 years later and still find new things to laugh at.

Naturally, the show has touched on various financial topics over the years. Some of the stuff talked about was incredibly unrealistic, but other plots had some great — if indirect — financial lessons. It turns out you really can learn stuff from a dumb animated show.

Here are 5 of the best financial lessons from The Simpsons.

Taking risks

Over the years, Homer has tried all sorts of different side hustles and hare-brained business ideas. He owned and operated a snow plow, which he was surprisingly good at. He recycled grease and opened his own daycare and imitated Krusty. Those are just the ideas that I came up with off the top of my head, too.

Homer tried and failed at a lot of things. And he never let it get him down. He’d forget all about it the very next week and be off doing something else. Some of these side businesses worked out so poorly that Homer would lose his primary job, but things always worked out in the end.

The lesson here is pretty simple. Don’t be afraid to try new things and take a risk. What’s the worst that could happen?

Don’t get greedy

Lenny: Hey Homer, how come you’ve got money to burn? Or singe, anyway.
Carl: Yeah, Homer, what’s your secret investment?
Homer: Take a guess.
Barney: Uh, pumpkins?
Homer: Yeah, that’s right, Barney. They’ve been going up the whole month of October. I’ve got a feeling they’re going to peak right around January and BANG! that’s when I’ll cash in.

(After Halloween at Homer’s broker’s office)

Broker: Homer, you knuckle-beak, I’ve told you a million times! You’ve got to sell your pumpkin futures before Halloween! Before!
Homer: Alright, let’s not panic. I can make the money back selling one of my livers. I can get by with only one.

The financial lesson here is pretty simple. Sometimes selling an investment is the best decision you can make, especially when you’re Homer and you invest every penny you have into pumpkin futures. Although, admittedly, it seems like the pumpkin futures market would be predictable enough that even Homer could make money at it.

Don’t lie on your taxes

“Look at all those morons (standing in line at the post office to send their taxes to the IRS). I paid my taxes over a year ago.”

In his rush to get his taxes done before the April 15th deadline, Homer commits several counts of tax evasion. He tells the IRS Marge requires 24-hour nursing care, Lisa’s a clergyman, Maggie is seven people, and Bart was wounded in Vietnam. This naturally doesn’t work out, and the feds come looking for him. In exchange for going to jail, Homer is offered the chance to wear a wire and snitch on Mr. Burns, who’s holding a trillion dollar bill the government wants back.

If Homer had just done his taxes right, that week would have been far less exciting. I’m pretty sure if you don’t do your taxes you’ll end up in a similar heap of trouble.

Choose a good college major

Kent Brockman: Things aren’t as happy as they used to be down here at the unemployment office. Joblessness is no longer just for philosophy majors — useful people are starting to feel the pinch.

That quote still gets me every time. One of the best 25 in Simpsons history, easily. If not top 10.

Us here at Financial Uproar are somewhat anti-college, although it’s not something I write about often these days. It’s pretty simple. While a college or university degree usually means someone will make more than their uneducated brethren, it’s the underlying qualities that really matter, not the piece of paper. If you’re smart, ambitious and hard working, you’ll do well. Even if you don’t step foot into a classroom after high school.

Besides, a great education can be had for about a buck fifty in late fees at the public library. Good Will Hunting quotes in a post about The Simpsons? I’LL ALLOW IT.

The ease of becoming a millionaire

This is a terrible financial lesson, but screw it. It’s still damn funny.

Kid: Hey. Look how much Skinner makes. $25,000 a year.
Everyone: Wow!
Bart: Let’s see. He’s 40-years-old, times 25 grand…Whoa! He’s a millionaire!
Skinner: I wasn’t principal when I was one!
Nelson: Plus in the summer he paints houses.
Milhouse: He’s a billionaire!

There you have it, kids. That’s how easy it is to become a millionaire. Hey, it’s gotta be true. It was on TV.

Hey DINKs: If You’re Not Saving 50%, You’re Doing it Wrong

Hey DINKs: If You’re Not Saving 50%, You’re Doing it Wrong

Saving is hard. I get it.

Except it’s not.

There are approximately 5,293,028 excuses people use for why they can’t save. I have to commute; I live too far from work. I have 14 kids that all have to join boy scouts and gymnastics and soccer and the glee club because lord knows a kid can’t spend an hour alone using their imagination. I live in an expensive city. I’ll save later. And so on.

And it’s all bullshit. Every last word of it.

We all agree people should save. Where we disagree is how much their savings rate should be. I used to advocate people start by saving 10% of their income and go from there. Once 10% gets easy, up it to 20%, then 30%, and so on. When it starts getting hard, people have a choice to make. They can max out there or make changes to really accelerate their savings rate.

I’m a fan of the latter, especially if you don’t have kids. Here’s why you should save 50% of your income.

Freedom is so close

It should not be hard for two educated people sharing resources to save 50% of their gross income each year.

I’m too lazy to look up the actual numbers, but let’s assume households headed by two university grads make about 50% more than the average. This is in no way scientific, but I think it a reasonable assumption. The average household in Canada makes about $80,000 per year, so we’ll assume our DINK couple makes $120,000 annually.

Is it really so hard to assume this couple can “only” live on $60,000 per year? That’s $5,000 a month. That much money goes a long way, even in places like Toronto or Vancouver.

Taxes would be a big expense, but those could be minimized by strategic RRSP contributions. Rent could easily be had for $20,000 a year (or even less), leaving $25,000 or $30,000 to live. This is easily achievable.

If people picked a lower cost of living area it would be even easier to accomplish this. I paid $195,000 for a three-bedroom, two bathroom house. Our minimum expenses each month (including our mortgage payment) come to about $1,300, plus food. Car expenses are minimal as well; we’re saving tons of money by only having one vehicle. If we wanted to, we could live on about $25,000 per year, but we’re big spenders. We’ll probably spend about $40,000 in 2017.

I don’t keep exact track of the numbers, but I’d estimate we’ll save anywhere between 60% and 75% of our gross income in 2017, with that number actually going up as Vanessa’s income increases in 2019. It’s getting to the point where I’m beginning to question what we’re saving so hard for. Luckily, those feelings go away quickly.

I’m not saying this to brag. I point it out because if you’re aggressive enough, getting enough money for some serious freedom is just a decade or so away.

If you manage to save $60,000 a year and you invest that cash earning a modest 8% per year, you’ll have more than a million bucks in a decade (excluding taxes). That’s enough to do just about anything. You could retire, quit your job to do something more fun, start a business, or even just decide to keep working and turn that one million into two million. The world is your oyster.

Is average really for you?

One thing that used to really amaze me was how different my life was versus my friends. They’re struggling to make ends meet. I invest enough in one stock or one private mortgage to eliminate their credit card debt. They eagerly await payday. I couldn’t even tell you what exact day I get paid from my biggest writing client. I worry very little about day-to-day financial decisions because they don’t matter. It’s the big picture that encapsulates me.

And let me tell you, kids. It’s the best.

Although I’m not yet comfortable retiring with my nest egg, it is enough that I could probably stop working. Certain early retirement bloggers have quit with less than I have today. I have very little interest in retirement. But I have a lot of interest in doing fun things that I enjoy.

I can easily cut back on my writing and only work half days. I’ve considered this at times since I’ve always liked the idea of a semi-retirement filled with golfing. I’ve also considered rejuvenating my goal to go see a baseball game in all 30 MLB stadiums. Or I could recline my chair and fill my days making a dent in my massive reading list.

The point is simple. The more you save, the more freedom you have. You can’t control investment returns or getting promoted at work or whether your house goes up in value or a million other variables. What you can control is maximizing your saving. Do that for a long period of time and everything else will fall into place. That’s the ultimate lesson here.

Weekly Linkfest #25

Weekly Linkfest #25

I rent an office in the crappiest mall imaginable that just got a whole lot worse.

This mall has two spaces for major anchor tenants. The first use to hold a Woolworth’s and then a Liquidation World, a chain which actually closed up because times were too good and it couldn’t buy cheap crap from closing stores any longer. Liquidation world shut its doors in 2007 and its space has been vacant since, with the exception of the town’s annual rummage sale and a few other one-off events.

The other big tenant is a grocery store that has been struggling for years now. Last week it finally bit the bullet and announced it was officially shutting its doors, effective at the end of the month.

It’s a bittersweet moment. I’m happy that they’re no longer burning perfect good capital to keep the location open (it was subsidized by two other profitable divisions, lumber and gasoline), but I feel bad for people who are losing their jobs. My fellow mall merchants who actually depend on foot traffic are pretty screwed, too. Who’s going to visit a mall that doesn’t have any anchor stores?

And most importantly, where am I supposed to go for snacks? I’m asking the important questions here.

The saddest part of this whole situation is, IMO, that store was run terribly. I’m convinced I could have cut the losses at least in half with a little active management and tighter controls. It was obvious for years, but instead of doing something the present management team just focused on the profitable divisions, letting the store go all to hell. It was a damn shame.

Links I liked

1. Let’s start things off with an investor nobody can accuse of not trying, Mark Charles Barnett. Mr. Barnett (who is from Florida, naturally), paid an unnamed man $10,000 to place bombs in Target stores all along the east coast. He then planned to buy depressed Target shares to make himself a tidy profit. THAT’S GOOD HUSTLE.

2. Here’s a great interview with Charles Koch, a man I’d consider one of my business heroes. It’s just too bad he felt forced to spend so much of his energy on political causes, although these days he mostly just throws money at things.

3. Speaking of videos of smart business guys, I wrote a few days ago about Charlie Munger and the Daily Journal annual meeting, which is just like the Berkshire Hathaway meeting but smaller and more fun. Here’s a video of the whole thing if you’re so inclined.

4. I think RRSP loans can be a great idea in the right circumstances. Over at Boomer and Echo, Robb talks about the subject and comes to a similar conclusion.

5. Here’s an analysis of a stock I first discovered at about $12 per share, Goeasy Ltd. They’re the company that makes unsecured loans to dirtbags charging 46% interest. Unsurprisingly, that’s a pretty good business and this is a pretty good analysis.

6. Should Ottawa let people invest their TFSAs in small business? Since most small businesses are funded by their founders, it would be a big advantage to them to allow such an investment. I’m not holding my breath, but it’s an interesting idea.

7. This week Warren Buffett’s Berkshire Hathaway announced it sold most of its Wal-Mart stake, signaling what one writer called “the end of retail as we know it.” The title is a little much, but it’s an interesting article.

8. More gold from Paul over at Asset-Based Life, the only blog I know with a dash in its title. He recently wrote about something called the “gas factor,” which is all you need to have a successful career. What’s the gas factor? Does it have to do with farts? You’ll have to click through to find out.

9. Over at Freedom 35 Blog, Liquid presents some timeless advice that certainly bears repeating. If you surround yourself with successful people, you’ll lift yourself up. It might be simple advice, but it works, dammit. I especially remember it when certain people show up and bum me out.

10. Dividend Growth Investor is a good read, even if you’re not a hardcore dividend-growth guy (like me). He recently wrote a great post on how it’s important to recognize risk when investing and embrace it, rather than avoiding it completely. He uses two tobacco stocks, Altria and Philip Morris, to illustrate his point.

11.BMO generated a lot of attention this week by declaring Toronto real estate to be officially in a bubble. Excuse my French here, but, no shit. People have been saying this for years now. BMO doing the same does nothing but confirm already entrenched biases. By the way, how’s shorting the Toronto real estate market working out for everyone? That’s what I thought.

(I agree with BMO and the 4,592 other analysts that called a bubble before this, BTW. I just don’t see what good it does anyone.)

12. Bullish on Realty Income, the overvalued REIT that has more middle-aged male fans than Kate Upton? Ian Bezek just splashed cold water in your face.

13. And finally, here’s a great post on negotiation from I Will Teach You to be Rich. This is something I need to get better at, and you probably do too.

Stuff Nelson wrote

As a reminder, you can hire me to write for your blog, newspaper, or poorly-Xeroxed newsletter. Hit the ol’ contact me page to get the ball rolling. 

1. This week Prem Watsa (of Fairfax Financial) took off the company’s equity hedges after being pretty bearish for years. Good for Watsa to finally figure out betting against markets is foolish.

2. I also asked if TransAlta Corporation is Canada’s cheapest stock. Spoiler alert: probably not, but it’s still pretty damn cheap. I own a bunch of it in my TFSA.

3. With the TSX Composite hitting new all-time highs, it’s time to start talking about taking some risk off the table. I outlined a few easy ways to do so.

Tweet of the week

TWO TWEETS. Oh, I spoil you guys.

I don’t like to get too political, but can’t we all agree corporate welfare is a bad idea?

Have a good week, everyone.