I met with Maureen (not her real name) in my Brantford Office, and after looking at her debt issues, she was happy to discover the advantages filing a consumer proposal over a bankruptcy. A proposal isn’t right for everyone, but for Maureen it made perfect sense and I will explain why.
Maureen is a single mom of two kids. She works full time, makes an average of $3,200 per month and receives an average on $300 per month in Child Tax Benefits. She does not receive any support from her ex.
There are no assets in Maureen’s name other than a $4,000 RESP savings account for her children and her 2005 Chevy.
Maureen was not financially prepared for her separation and since separating has found it increasingly difficult to survive on her income alone. Maureen is not alone in this situation. Divorce is one of the leading drivers of insolvency in Canada.
With the cost of sending her kids back to school this fall seeming higher than normal and because she felt like some debts might be on the verge of going into collections, she thought it about time she called someone to seek professional advice.
Maureen’s biggest fear about calling us sooner was that she thought she’d have no choice but to file bankruptcy. She really wanted to avoid filing a bankruptcy because she is trying to teach her children about financial responsibility and thought that if her kids knew she was bankrupt, that they’d not pay much attention to lessons she was trying to teach them.
For this reason it was important for Maureen to attempt to try and pay back her debts in full, or at least pay back as much as she could. She was worried that if she filed for bankruptcy she’d feel terrible about not paying back the money she borrowed. She was also worried about her car, her RESP and her tax refund.
Another concern she had was that she’d heard from a friend that a bankruptcy requires that you do certain duties all the time such as report your income every month and you have to attend various meetings and even go to court! She was worried that being a single mom who works full time that she’d just simply not have the time to juggle around all her responsibilities at home, work and to the bankruptcy….
After gathering the facts about Maureen’s situation, we started to talk about her options including that of a debt proposal through a trustee.
After our review Maureen knew it would be the right answer for her. I explained to her that yes, in a bankruptcy she’d lose her tax refund and RESP’s and that losing the vehicle or not would depend on whether or not it was worth less than $5,650?
I also explained to her that her payments in a bankruptcy would be based on the governments surplus income rules and that because her average income each month was over $3,000 per month (the limit set for a family of 3 is $2,948 currently) that her bankruptcy would last for 21 months and she’d have to pay 50% of the amount she was over the limit by.
I outlined the duties of a bankrupt and confirmed that yes, she’d have to report her income and provide proof every month. I mentioned that although I could sympathize that she was undoubtedly a busy woman, it’s imperative that she fulfill all her duties during the bankruptcy other wise yes, it could ultimately result in her having to go to court to explain why she did not do the things she was supposed to.
I then started to lay out some of the advantages of filing a consumer proposal:
- She can keep her RESP
- She can keep her tax refund
- She can keep her car
- She does not have to report her income to me each month
- She does not have to worry about going to court
- It would be one payment each month so it’s easy to budget and manage her finances
With an accepted proposal, the only thing you have to worry about are attending two credit counselling sessions in our office and making your payments.
We quickly figured out the terms of the proposal for Maureen and set her payments at a rate she could realistically afford. It gave her a good feeling knowing that although she could not pay all her debt back, she was offering to pay back as much as she could realistically afford.
In keeping with wanting to impart good financial lessons to her children, she asked if she could bring her kids to the two counselling sessions? She wanted them to see and hear the credit counsellor and have the opportunity to get advice on budgeting, money management and recognizing the warning signs of financial difficulty – My response – Sure, no problem!
Maureen is glad she picked up the phone. She wishes now she’d done so earlier.
If you are struggling with debt, contact one of our Licensed Insolvency Trustees for a free consultation.