When faced with bankruptcy, a family in Ontario wanted to know their options. Here are the 6 steps we recommended, reducing their debt from $57K down to $15K.
The bankruptcy situation
The financial hardship began when Sara (name changed for privacy) became sick and took a leave of absence from her work. She was away from work for 6 months and was able to claim EI but only received 50% of her wages.
During her illness, finances became tight but manageable. Her husband remained working and took on extra hours to help cover the bills.
Unfortunately, during this time her husband also became sick and had to go on short-term disability. He only took two months off work to recover. But this meant that they relied on credit cards for groceries, bills, and expenses.
Within a few short months, they had fallen behind their bills. Even though they both returned to work, they faced high credit card balances and struggled to rebalance their finances.
Meeting with a bankruptcy trustee in Toronto
The family knew they were in financial trouble. Each month, their debt increased and both were under tremendous stress.
They considered bankruptcy and began researching their options online. After meeting with a bankruptcy trustee in Toronto, he recommended that they begin the process of filing bankruptcy.
While they knew they were in financial trouble, they couldn’t bring themselves to completely dismantle their lives with bankruptcy.
A new strategy to avoid bankruptcy
Two months after meeting with the bankruptcy trustee in Toronto, they still hadn’t made any decisions.
They continued to struggle and go deeper into debt. But they didn’t feel that bankruptcy was the right solution for them. They wanted something less drastic to turn things around. They began meeting with their financial planner for advice.
The family had a small amount of money in retirement savings and asked their financial planner to cash out this investment. It wasn’t a large sum and so the financial planner became concerned.
He asked the family if everything was alright financially and they confided with him. They were afraid that they would need to claim bankruptcy and so had begun to liquidate their retirement savings and sell their assets in a last ditch effort to survive.
The financial planner recommended 4 Pillars. He had worked with 4 Pillars before and our local offices had helped other clients of his avoid bankruptcy.
After a few meetings and consultations, the family’s local 4 Pillars office began working on their file. In the end, we delivered the following results:
- 4 Pillars helped the family avoid filing bankruptcy
- Client reduced their debt from $57K down to $15K
- Completely rebalanced their finances, moving them from debt to rebuilding credit and saving for the future
Here are the exact steps we took.
4 Pillars’ strategy to avoid bankruptcy
The family began by contacting their local 4 Pillars office and meeting with one of our experts.
We listened to their situation and then began analyzing their debt and creating a plan.
In their first meeting with 4 Pillars, we began by explaining how the bankruptcy industry works in Canada.
As this family didn’t want to claim bankruptcy, their local 4 Pillars office presented them with a range of different options.
Once they understood that they had options beyond bankruptcy, we recommended a course of action.
Step #1 – Analyze debt and create a detailed budget
Of course, debt is like quicksand. It builds each month, making it harder and harder to stop the bleed.
We created a detailed budget, tracking their expenses and payments for 30 days.
We determined that based on their debt, income, and monthly expenses, it would be nearly impossible for them to maintain these payments. If they kept up their current pace, the stress would surely make them sick again and push them even further into debt.
Step #2 – Determine options beyond budgeting and bankruptcy
Budgeting is an excellent way to control spending and get out of debt.
But when debt climbs to a high level, budgeting often simply cannot fix the problem.
4 Pillars explained all the different options to the family, showing them that budgeting wouldn’t be enough to climb from debt. If they maintained their current financial course, things would likely become worse over time.
It became evident that they could never pay the debt back or catch up on the payments and they would need to look at restructuring in order to avoid filing bankruptcy.
Step #3 – Restructure and rebalance
Knowing they had looked at all the options and tried everything, the family felt better about debt restructuring. It wasn’t as drastic as bankruptcy and they would be able to put this struggle behind them.
This had three benefits:
- The family didn’t have to claim bankruptcy
- Client reduced their debt from $57K to $15K
- With 4 Pillars’ guidance, they could start rebuilding their financial lives
Step #4 – Create a debt repayment plan for their individual situation
The family was very happy with this new direction.
They felt that they had reviewed all their options and didn’t just give up and file bankruptcy.
One of the most important things about 4 Pillars is that we actually review and analyze your monthly income and expenses. This allows create a plan that makes sense for you.
For example, if your income is $3,000 per month. Then it makes no sense that a creditor demands $1,000 per month in payments. This will not only keep you in poverty but eventually lead to more debt and possibly a future bankruptcy.
We made sure that the family was working towards a better financial future. Not just pouring everything into unreasonable debt payments.
Step #5 – Fit the plan to your finances
As we had reviewed their budget, 4 Pillars knew what the family could afford each month.
As consumer proposals do impact your credit rating, we helped to make sure that the family had control over how long their credit rating was impacted. They had the option to pay off the debt earlier, giving them flexibility and control over their future.
Step #6 – Build a new plan for a secure future
The final step was getting the consumer proposal and plan accepted. 4 Pillars has a network of bankruptcy trustees that we have found to be fair and sympathetic to families in trouble.
We recommended a bankruptcy trustee to file the consumer proposal and waited to hear the result.
Once the proposal was accepted the family immediately entered into the credit rebuilding program to further reduce the impact on the credit rating. This program helps to minimize the impact of consumer proposals and restructuring on your credit ratings.
It isn’t easy to rebuild credit ratings and requires a detailed plan and this is one of the most important parts of a debt restructuring plan.
This is something that many Canadians don’t realize or use to their advantage. They remain vulnerable to future financial challenges and excluded from the traditional banking and lending system due to poor credit.
Next, we wanted to make sure this situation wouldn’t happen again.
So, we worked with their financial planner and helped the family to start building an emergency fund and set up regular RESP and RSP contributions.
Summary of key results
- Client reduced their debt from $57K to $15K
- Proposal was interest-free with creditors
- Built a solid plan for the future, making sure debt repayments were affordable
- Worked with financial planner to build emergency fund and make sure the family had a solid new financial foundation
Begin with a Confidential Discussion
Begin your path from debt by contacting one of our 50 offices across Canada. We’ll analyze your debt and help you understand that you have many more options than bankruptcy.
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And finally, here are real stories about debt from Canadians who survived their financial crisis.