A couple came to see me with joint debt of approximately $70,000 and wanted to know their options and what would happen if they did nothing. After reviewing their situation I summarized the following options:
1. Do nothing about your debt
Nine times out of ten, although this is always an option, it does not work as the debt tends to grow with compounding interest and creditor calls don’t stop. It also leaves you exposed to being sued and ultimately your bank accounts being frozen and worse your payroll being garnished.
2. Apply for a consolidation loan
This was not an option, as their debt load was already too high for the amount of their combined monthly income, and it wouldn’t decrease their total debt load.
3. Remortgage the house and pay off the debts
This too was not an option as their house was already mortgaged up to the 80% level currently allowed. Also getting a private mortgage was too expensive, and their budget didn’t allow for the higher monthly payment due to a higher interest rate.
4. File a Bankruptcy
Although an option, the monthly payment was also too high for them to manage. It was a result of the amount of home equity and their monthly payments for surplus income requirements (which is a guideline set by the government, based on income). The combined payment was too high for their budget over the period of time a bankruptcy can take.
5. File a Consumer Proposal
The only realistic option for them was filing a consumer proposal, as the payments could be spread over 60 months, which fitted into their budget and they retained control of their house and other assets. Also there would be no accumulating interest on their debt and no penalty if they at any time were able to pay off the proposal early.
When the meeting ended, the debtors decided they were going to try do this on their own. About six months later the couple returned to our office and in their own words said that they should have listened at the first meeting. Since our initial meeting their debts had grown with interest, the equity in their house had gone up and their incomes had increased.
The sooner, the better
As a result of their procrastination, we did file a consumer proposal for them, but their monthly proposal payments had gone up from $700 a month for 60 months from the initial meeting, to $1,300 a month for 60 months. This scenario plays out far too often, with a debtor believing they could get ahead of their situation on their own. Ultimately they end up returning and having to make a consumer proposal at an amount higher than originally discussed. However, they are still in control of their situation with much lower stress (finally)!