What are my options?

Betty Lou (not her real name) told me she was being sued.  For many years Betty Lou had been supporting a relative who had been unable to find employment and who relied on BC Persons with Disability.  She is retired and nets $3,144 every month but simply did not have enough to meet her own living expenses and to contribute to those of her relative.  She used credit to get by.

Now Betty Lou has $76,400 in credit card debt, taxes, and lines of credit.  We often observe persons heading into their retirement with more debt than they can handle.  The debt load hits home when the retiree’s income has dropped at the end of their working career, and this is what happened to betty Lou.

She is being sued for $5,600 and that was enough to topple her over. Possibly she could have persisted in ignoring them – they would not have been able to garnishee her pension, unlike how they would garnishee her wages if she was working.  But she still had all that other debt and making minimum payments was a struggle.

Options is being sued

So, what are the options if you are being sued? How can we create a manageable payment plan to deal with these debts?

To stop a lawsuit by a creditor, you pay them off.  Or you go bankrupt.  Or you make a consumer proposal through a Licensed Insolvency Trustee.  Or you somehow convince them to stop, perhaps by negotiating with them.  Betty Lou chose a consumer proposal.  If you are being sued you need to stop the lawsuit.  That’s only fair to put all creditors on an even footing.  Make a consumer proposal and you stop this lawsuit.

 

How much should she propose to pay?

Well it depends.  It’s not some fixed amount such as 30% of your debts.  It really depends on your circumstances. What are your total debts? Who do you owe?  How much money do you make each month? What are your future prospects? What assets do you have?

The Analysis

Do you know how long it takes to pay back $76,400 at an interest rate of, say, 15%?  Well, the monthly interest alone is $955 so anything less than that means it would never get paid off.  In fact, the total debt would only increase.

Maybe if Betty Lou explained her situation to her creditors they might reduce the interest rate.  Even if all future interest was eliminated, it’s still a whopping $76,000.  It would still take an unreasonably long time to pay a debt load like that.  She cannot afford to pay her debts back even without any interest.

In a bankruptcy – which would be Betty Lou’s first bankruptcy – she would expect to pay about $541 a month for 21 months – $11,361 – and her creditors could expect a 6% payback.  For Betty Lou, this is a very realistic option.  It would be completed in 21 months, and the cost is affordable to her.  Bankruptcy works really well, but it gives you a horrible credit rating.  Betty Lou wanted to avoid filing bankruptcy and we discussed the consumer proposal option, only available through Licensed Insolvency Trustees such as Ken Rowan.

The Proposal Offer

So we prepared her budget.  Betty Lou could afford to pay about $550 a month; so we offered a manageable $400 a month for four years under a consumer proposal. Our calculations showed this proposal would provide an 18% payback to creditors – importantly, more than they would get in a bankruptcy scenario.

I think her consumer proposal will be accepted by her creditors.  This consumer proposal to pay $19,200 over four years equates to 25% of her total debts.

Let your debts go

Your situation will be different from Betty Lou’s.  If you have too much debt and would like to consider a consumer proposal, your proposal will probably be different too.  I can get you headed in the right direction.  Contact me at ken@debtsgo.com.  You’re only a click away from financial security and freedom from debt.