Debt Help After Job Loss for Struggling Victoria Couple

A young Victoria couple who came to us a few years ago in dire need of some debt help. We were able to consolidate an unmanageable $35,000 debt into a non-interest bearing payment plan. We had them out of the debt in 48 months while keeping their house and mortgage.

Lets call them Jason and Bonnie. Jason was employed as a plumber netting about $3,500 per month and his spouse Bonnie was employed in office administration taking home about $2,500 per month. They owned their own home which had approximately $34,000 of equity in it after deduction of the $420,000 mortgage plus estimated selling costs. They had two children and incurred about $400 per month in day care costs. When Bonnie lost her job and was forced to take whatever work she could at a reduced income of $1,500 per month, they felt a real financial squeeze.

Credit Card Debt creating debt problem

The immediate reason for the debt problem was that the couple had roughly $35,000 in joint credit card debt that had been built up over a couple of years due to some “on and off” employment for Jason and some extra medical costs for one of their children. They knew had very little ability to make any serious headway in paying off the credit card debt and dealing with the debt problem. There wasn’t enough equity in the home to get a second mortgage and even if they could do that or get some kind of consolidation loan, that would only mean lower payments – not an elimination of the debt.

Weighing the Possible Options

We met with the couple and went through all their options. These included filing a consumer proposal or filing for bankruptcy. We determined that in a bankruptcy, after Trustee costs, their credit card lenders would receive an approximate payout of 20% of the debt owed. The couple would have to pay surplus income of almost $400 per month for 21 months. They would also have to find a way to deal with the house equity since the principal residence exemption in Victoria was $12,000 each for a total of $24,000 leaving $10,000 to be paid prior to discharge from bankruptcy.

The couple settled on a consumer proposal to pay $350 per month for 48 months. This payment option produced a better net result to the creditors (33% in the proposal versus 26% in a bankruptcy) which allowed the Trustee to recommend to the creditors that they vote in favour of its acceptance.

The creditors followed the Trustee’s recommendation and the required votes of 51% by dollar value of creditors was received. That approval created a binding agreement between Jason and Bonnie and all their creditors (even those that wanted, but did not get, a longer payment schedule).

Benefits and advantages of a consumer proposal

There were a number of benefits and advantages to Jason and Bonnie to filing the consumer proposal:

  • The payment plan provided a consolidation of all their credit card debt into a single non-interest bearing lump sum amount with a clear and reasonable time table for paying it off completely;
  • The couple now had only a single and affordable monthly payment to deal with that fit within their current income situation;
  • They could feel comfortable that they could keep on paying their mortgage and potentially benefit from any future appreciation in value of their home after the proposal was filed;
  • They had a better opportunity to quickly rebuild their credit after filing to proposal.

Contact us today to obtain an assessment of all your options and solutions in dealing with a debt problem.