Doug and Sue's worst fears confirmed

There are different degrees of over-indebtedness, just as there are many reasons for getting into debt. Some people are unable to repay their debts because of income interruption, unforeseen large expenses, personal difficulties or poor money management.

Doug and Sue are over committed debtors. They couple owes $30,000 in unsecured debt. The two have little in the way of assets, with the exception of an older car, some household goods and their clothes. Doug and Sue have no savings.

Their debt consists mostly of credit cards and a small bank loan. In addition to high interest rates, several creditors have levied an account surcharge for over-limit and missed monthly payments. One of their creditors has even raised their annual interest rate from 18% to 23% due to the missed payments.

Bill collectors are repeatedly calling, escalating the severity of the situation.

Knowledge is power

When a credit counsellor encounters a family or an individual whose debts exceed their current ability to repay; it is the counsellor’s responsibility to discuss all available options.

These options include:

  • Negotiating new terms with creditors (always get this in writing).
  • A consolidation loan (borrowing money to pay debt). For some consumers this may option may not be possible.
  • Seeking help from a credit counselling service. If you are facing financial difficulty speak to a qualified credit counsellor. Not all counsellors are created equal, though. You could also consider a Debt Management Program.
  • For a small fee you may wish to speak with a bankruptcy lawyer, before speaking with a trustee.
  • Declaring insolvency and filing a consumer proposal with a trustee.
  • Making an assignment in bankruptcy with a trustee.

Going over the monthly budget for this family, it’s evident Doug and Sue have no ability to pay their creditors. Their budget is short $1,250 per month if they were to pay the creditors.

Unfortunately, there is no ability to create a Debt Management Program or offer a consumer proposal to their creditors. Doug and Sue are insolvent and it is my recommendation that they speak with a bankruptcy trustee.

Doug fights back the tears while Sue cries quietly. Their worst fear has just been confirmed. After analyzing all their financial information we have discovered a solution for Doug and Sue: bankruptcy.

It’s important to note Doug and Sue have not been told to go bankrupt, but merely suggested as a good option, given their current financial situation. The couple is referred to a trustee to determine what is the best course of action.

Using credit is an economic fact of life for most consumers, In Canada there are 44.1 million Visa and MasterCard users. Nearly 19 million cards, or 46% carry a balance.

In my experience as a counsellor, bankruptcy is not about money but rather circumstances in life. These circumstances are like life itself – temporary.

If you find what you read in this article helpful. Tell your friends, you’ll be glad you did, because they will be glad you did – knowledge is power.