June 2016
Bob Hauck, 4 Pillars Consulting Group, Kamloops, BC
Jason was in trouble and he knew it! He didn’t have much debt – really only about $10,000, but it was the worst kind of debt – payday loans. Much like the 1980’s cult classic movie, “Escape from New York”, he needed to escape from his payday loans! Getting into them had been innocent enough – Jason was working part-time, trying to support his family and complete his post-secondary education so he could better provide for his growing family. There was never enough money to go around. He had a small credit card and line of credit from one of the main banks, but with his limited income, the bank was not willing to extend more credit. With no savings, and no other way to make it from paycheque to paycheque, Jason began relying on payday loans.
At first it didn’t seem to be too bad – 21% or 23% interest wasn’t that much more than the 19.9% interest on his bank credit card. Trouble was, he did not realize this rate was 21% for two weeks!! Jason also was unaware about the penalties he would face when he couldn’t pay the loan back within the 14-day period. Next thing you know, Jason owed the first payday loan company nearly $900, and they didn’t want to lend him any more than that. The second payday loan company gave him a loan to stay current with the first place, with no more checking on his financial ability to pay them back than the first place. No problem, Jason thought, things will get better soon and he’ll be able to pay them both off. Well, things did not get better. The 21% interest over two weeks, compounded over a year, and supplemented with penalties when the loan was rolled over or payments missed, turned into an absolutely horrid situation!!
Over the next few months, Jason found himself in a vicious cycle of going from one payday loan company to the next – he was trapped!! By the time he looked for a completely different solution to his troubles, he had racked up payday loans with several different companies and he knew his financial situation was spiralling downward. To make matters worse, Jason had to provide each of these companies with access to his bank account, so when he wasn’t able to make payments to them by the due date, they automatically debited his bank account to take their minimum payments from his account. Next thing you know, Jason was starting to fall behind on utility bills and cell phone payments as well. Soon, the rent money was in jeopardy.
Eventually after months of trying to manage and find his way out of his predicament, Jason reached out to the 4 Pillars office in Kamloops. But first he did his research. He looked us up online and read the many testimonials from past clients about our service. Jason realized that we were going to work for him, and not for his creditors. When we met with Jason, we had analyzed his situation and had figured out his options to deal with his debt.
Besides doing nothing, which wasn’t really an option, and paying the debt back in full, which wasn’t feasible, Jason had two main options. First, he could file for bankruptcy. Since Jason had no assets, and very limited income given his part-time employment and his family size, he could have filed for bankruptcy and been through the whole process in nine months. In fact, if he had turned to a bankruptcy trustee’s office for help instead of 4 Pillars, this course of action is very likely the advice he would have been given. Jason would have paid about $200 per month to the trustee to cover the administrative costs of the bankruptcy. But he did not want to file for bankruptcy. Jason realized that given his relatively young age, it would be a black mark that would stay on his record for the rest of his life. It seemed like a tragedy to go bankrupt for such a small amount of debt. Fortunately, Jason had a “Plan B”.
We discussed with Jason the possibility of filing a consumer proposal with his creditors. He was immediately intrigued with the advantages of a proposal. Unlike a bankruptcy, he would not have to submit monthly income/expense reports to the trustee’s office. His post-secondary training program was coming to an end soon, and Jason really hoped that his studies would lead to a better job. If he went bankrupt, and then received a good job offer with a decent wage, it might mean that in a bankruptcy he would have something called ‘surplus income.’ In simple terms, Jason would be earning enough money that he would have to pay much more back to the trustee on behalf of the creditors and instead of his bankruptcy being a 9 month obligation, it could last for 21 months. If Jason earned enough income, he’d actually be paying back almost all of his debt to the creditors, since he had a modest debt load to start with.
The consumer proposal, by contrast, would require no reporting of income and expenses. Instead, the creditors would be agreeing to a new deal where Jason would pay back some of his debt, but much less than 100% of his total. The foundation for the deal would be his current income, and if he began earning more in the future, it would all be money in his pocket. Also, the fact that Jason had filed a proposal would not be a lifelong black mark on his financial profile. Finally, although his credit had already been impaired by the struggles he was having with making payments on the payday loans, Jason was anxious to have a plan in place that would allow him to rebuild his credit as quickly as possible. With his young family, he knew access to credit was going to be important for the future for access to reasonable interest rates on vehicle loans, and the possibility of obtaining access to mortgage money. The proposal would allow him a much greater ability to rebuild his credit quickly than would a bankruptcy. For all these reasons, Jason decided that filing a proposal to deal with his debt was by far his best option.
Jason and 4 Pillars Kamloops worked together to prepare him for filing his proposal. He had to provide more paperwork on his financial situation than he realized, and in the meantime, the payday loan places were relentless in their collections efforts. Jason had moved his bank account so they could not automatically debit it anymore. Some of the staff, who in the beginning were very helpful and friendly when signing Jason up for his high interest loans, really seemed to take it personally that he was no longer making payments. In fact, one of them started showing up at his house and threatened him with all kinds of legal action. As you can imagine, it was a very stressful time and the faster he could gather up the documentation for his proposal, the better.
Once Jason’s paperwork was ready, we introduced him to a licensed insolvency trustee (LIT). They are officers of the court and represent the creditor in insolvency matters. LITs used to be called bankruptcy trustees, and although their name has changed, their role hasn’t. When someone decides to file a consumer proposal (or a bankruptcy for that matter), the proposal has to be filed with an LIT. However, it’s very important to understand that the trustee’s role includes being a legal and financial representative for the creditors, so they cannot represent the debtor in these proceedings.
When we first met with Jason, we had forecast that his proposal would cost him about $100 per month. After we reviewed all of the information he had provided, we prepared an offer on his behalf to be presented to the LIT and the creditors of $80 per month over 60 months. If accepted, the offer would be legally binding and would mean Jason would be paying back $4,800 of the $10,000 of debt that he owed, but at zero percent interest.
Within about six weeks of Jason filing his proposal with the trustee, we were able to give him the happy news that he had successfully escaped from his payday loans!! His creditors had accepted his proposal. As long as Jason fulfilled his side of the agreement by paying back the $4,800, his debt would be legally extinguished. Although the plan was to pay it back at $80 per month, Jason has the ability to make pre-payments on the new deal at any time, with no penalties.
Fast forward one year. . . Jason finished his post-secondary training and has a new job, which pays him a good wage that allows him to provide for his family. Had he filed a bankruptcy to deal with his debt, it would likely have turned into a 21 month process. Instead, Jason has already paid down over $1,000 of his $4,800 proposal. We have helped him with a credit rebuilding program that is exclusive to 4 Pillars. It protects his proposal from some of the most common reasons why a proposal might fail, due to job loss or disability, but the program is structured in a manner that it helps him rebuild his credit.
Perhaps most importantly, Jason feels stress-free about his finances. He has been able to put money away into savings and he doesn’t have a black cloud hanging over his head anymore. We’ve helped him with his household budget and he can look forward to the future without fear and anxiety about a burden of debt. Jason is delighted that 4 Pillars Consulting Group was able to help him find a solution to the financial rollercoaster he once was riding. In fact, he is so pleased, he has referred other friends and family to our 4 Pillars office in Kamloops, and we are grateful he did.
Thank you Jason, and best wishes for continued success in your financial future!!
About the Author
Bob Hauck operates the 4 Pillars Kamloops, BC Debt Restructuring office. To contact him directly visit his website or call him directly at 250-434-4505.
