Inspired to deal with Debts

Howard Hayes - Cambridge

This week I met with a couple in our Cambridge office.  To protect their identity I’ll call them Tina & David.   Tina and David are both in their 50’s. 

David works in the manufacturing industry but last year his company closed down due to the economic down turn.  He used to make $25 per hour for that company, but had to look elsewhere for further employment.  When he eventually found a new employer he had to take a pay reduction to $15 per hour.  Until recently, Tina worked as a legal secretary, however she became ill unexpectedly and had to take a year off work.  They have one 5 year old child who is diagnosed with autism.

The problems

Tina and David have hit hard financial times in the last few years with the unexpected costs of providing extra care for their son, the drop off David’s income and Tina’s illness. 

Like many people do, after eating away at the savings they had, they then turned to using credit to cover day to day expenses, in the hope that their situation would turn around for the better and they’d be able to repay the credit they had borrowed.

They booked an appointment to come and see us for a free consultation that we offer to talk about ways they can deal with their mounting debt load. 

The Inspiration

Before coming to see us, they took inspiration from Gail Vaz-Oxlade’s book “Never Too Late” and had been regular viewers of her TV show “Til debt do us part”. 

Latest Book From Gail Vaz-Oxlade

Gail’s latest book explores the concept that it’s never too late to start making a plan for retirement.  It helps people to focus in their financial goals by addressing these three main points:

  • Where are you now?
  • Where do you want to be?
  • How do you get started?

They suddenly realized after reading Gail’s book that they had not paid too much attention in the past to building up their retirement funds (that they drained during the hard times) and an emergency fund to cover unexpected expenses.

As they are both in their 50’s and retirement catching up to them, they quickly realized that the first problem they had was the mounting debt load.   They were quickly able to look at the three questions above are draw these simple conclusions:

  • Where are you now? We have too much debt to service on our current income
  • Where do you want to be? We’d like to retire with no debt and some savings for our approaching retirement
  • How do you get started? Get professional help to eliminate the debt so we can develop a plan to start saving for retirement and unexpected expenses.

The facts

So, with an average household income of $4,500 per month and regular living expenses (rent, utilities, vehicle payments, groceries) of $3,500 per month they came to us for help with how to deal with the $50,000 consumer debt load they have.

David & Tina rent their home, they have $1,000 left in RRSP’s and the vehicle they have is on purchase finance with 2 years left to pay and costs $300 per month.

As they have no significant savings left and nothing to offer as collateral to a consolidation loan, they cannot approach their creditors themselves to offer to pay them back in full and after following some of Gail’s tips in her book for cutting back expenses they soon realized they were not left enough money left over each month to meet their minimum payments.

The Options

They thought about credit counselling, but the payments each month would be over $1,000 per month.  Debt Management Plans through non for profit Credit counselling companies generally can eliminate the interest you pay to lower your payments.  However, with $50,000 principle debt, the 4 year program would have drained them of all the disposable income they had.

The only realistic solution would be to reduce the principle amount of debt they have.  The only legal options you have for doing that in Canada are to either file a Personal Bankruptcy or a Consumer Proposal.

Both Tina and David shuddered a little hearing the word ‘bankruptcy’.  They both said they felt like honest people that wanted to repay as much of the debt back they could afford.

In the bankruptcy, they would not have lost any assets.  The vehicle is on finance, so as long as they continue the payments as normal to the finance company, they can keep the vehicle.  The RRSP’s won’t be seized by the trustee as they have not made any contributions into the RRSP’s in the last 12 months. (A trustee in bankruptcy can only seize the last 12 months worth of contributions into an RRSP when you file bankruptcy).

The payments they would be required to make in the bankruptcy would be based on the governments surplus income calculation.  The concept of surplus income in a bankruptcy is this – “The more you make, the more you have to pay”.  For more information on how surplus income is calculated, visit our Hoyes.com website where you’ll find details on how it’s calculated and a guide to help you work out what your surplus income payments might be in a bankruptcy.

In David & Tina’s situation, the threshold for a family of 3 is just under $3,000 per month.  Whatever they make over that, they’d have to pay half of the amount they are over.  As they average $4,500 per month, they are $1,500 over so half of $1,500 is $750 per month.  The obligation to pay that would last 21 months. 

$750 for 21 months would mean total payments of just over $15,000. 

Compared to the $50,000 of debt they have that’s a saving of $35,000.  However, from a cash flow perspective, it would still be a large payment of $750 per month to make which again, would be most of their disposable income and would not leave much over for emergencies. 

Tina is also worried that she may lose her tax refund for this year in the bankruptcy as she normally receives around $1,000 per year with the credits they qualify for with their Son being autistic.

So we then looked at the Consumer Proposal.  Based on the above information, the creditors might expect to gain approximately $16,000 from the bankruptcy.  ($15,000 in surplus income payments and the $1,000 tax refund).  

The idea behind a Consumer Proposal is that we look at putting together a better deal than a bankruptcy.   Given their budget, we looked at the idea of offering the creditors $400 per month for 50 months.  That would return the creditors $20,000 which is better than the $16,000 they’d likely get fom a bankruptcy.  At $400 per month, David & Tina felt they could afford that payment and could also live comfortably within their means and have a little something in reserve for unexpected emergencies.

The solution

At $400 per month, they’re offering a Consumer Proposal the creditors will likely accept (they’d get more than they would if Tina & David chose to file the bankruptcy) and it’s something Tina & David can realistically afford in the long run.

Tina & David were also happy that the proposal gives them the sense of feeling like they are offering to pay something back as opposed to just walking away from it in a bankruptcy.

The proposal is also open ended, so if their situation improves during the four years, they can pay the proposal off sooner if they wish, without penalty and without the creditors demanding more from them.

This solutions gives Tina and David the opportunity to get their lives back on track and aim for the goals the set themselves after find their inspiration from Gail’s book.  They now have a clear plan set to get out of debt, save for emergencies and also look forward to saving a little away each month for their approaching retirement.  The relief from the stress of wondering how to deal with the bad luck they’d been dealt also now gives them more freedom and energy to put their focus into helping their son through his autism.

You can find out more about Gail Vaz-Oxlade at her website. There you’ll find lots of great information from Gail herself on how to cope with debts, budgeting advice and setting financial goals.  Details of books she has written and her TV shows can also be found – check it out! Follow her on twitter at @GailVazOxlade  and on facebook 

Call me today at (519) 622 3773 or 310-PLAN or email me your details if you’d like me to look at your situation and find solutions that may work for you.  Although your situation may not be exactly the same as Tina and David’s the first step is making the call to find out your options.  It’s free to call or email me, so let’s get started.

Howard has worked in our Cambridge office for many years helping Cambridge residents find solutions for debt problems. As a licensed trustee in bankruptcy Howard is able to explain all your options and find a solution that works for you.

Howard Hayes – who has written posts on Bankruptcy Cambridge: The Insider's View from Howard Hayes.


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