Bankruptcy

Life After Bankruptcy – A Tale of Two Debt Crisis Paths

  • By Bonnie Hooley, LIT

Adam and Jay are two young men in the prime of their lives, raising families and working hard at their jobs in the manufacturing industry. They both make a similar wage which is average for their family size in Manitoba. They have each purchased homes reasonable for their circumstances, but their homes have not yet accrued much equity. When they bought their homes, they provided the minimum down payment and have used their limited resources for upkeep on the home and to keep their family afloat.

Jay and Adam also each carry a massive debt load that is making life difficult for them. They never seem to have money left to save, so when emergencies occur and vehicles break down, they are always borrowing more than they can afford just to keep going. Continuing on this path is not a long-term solution and soon they will reach their credit limit. Things are at a breaking point when each of them decides to seek help.

Seeking Advice

Adam talked to a Licensed Insolvency Trustee. At first, Adam felt embarrassed. He didn’t know how things had gotten so out of control. He wanted to pay his debts but couldn’t see a way forward. The Trustee spent time with him and analyzed his current financial situation. They looked at his income, family size, debts, nature of the varying debts and his assets. They started to put together a plan that would help Adam and his family dig out of this mess and build a stronger financial future. After reviewing the options of both Bankruptcy and a Consumer Proposal, Adam opted to file an Assignment in Bankruptcy. The Trustee explained that the Bankruptcy & Insolvency Act was designed to help people in these situations — to assist honest and unfortunate debtors to get back on their feet and move forward. Adam left that meeting feeling like a huge load had been removed from his shoulders.

Jay also went and spoke to a Licensed Insolvency Trustee, who also spent time with Jay analyzing his financial situation. The Trustee talked about various solutions under the Bankruptcy and Insolvency Act to help Jay with his financial situation. Jay chose to walk away and think about things. The more he thought about filing for Bankruptcy or Consumer Proposal, the more he rejected the idea. He was determined to dig his way out without the help offered under the Act. He would find a way to avoid Bankruptcy at all costs.

Making the Decision

Adam was surprised that he could keep his house and vehicles while in Bankruptcy if he kept up the payments to those creditors. They seemed to be a lot more affordable now that he wasn’t making payments to so many other creditors. The monthly amount he was required to pay the Trustee was quite small in comparison to what he had been paying before. He didn’t have the use of his credit cards, which in some ways was a bit of a relief. He didn’t have to worry about the bills coming in every month. He was going to use this opportunity to save a little extra for those emergencies, so he didn’t fall back into trouble. He always had his debit visa if he needed to have a credit card number to reserve something.

Jay knew that without Bankruptcy, the only way to get out of his financial mess was to earn more money. He was eager to find additional income and took the first available job he could find where the hours didn’t conflict with his current job. It wasn’t his favorite line of work, but it brought in money. He was working long and hard but believed it would be better than Bankruptcy in the long run. The family tightened their budget even more than before and every penny went to keep up with the debts. Jay was hardly home, and when he was, he was tired. The bills coming in every month seemed to be barely dropping. The financial stress hung like a heavy cloud over their home. No matter what, they would get through this.

The After-effects

As the Trustee requested, Adam began to track all the money his family received and where they spent it. It was difficult at first, but he was getting the hang of it. It was also a bit eye opening as they were being more frugal than he thought with their grocery budget but were expected to put out a lot more money toward school events than they thought they were. He was not going to complain about the work that was required by the Trustee as it was worth it to have the mountain of debt lifted from his shoulders. Adam attended the financial counselling sessions and took to heart all they had to teach him. He was going to set some goals and start saving for them. His immediate goal was an emergency fund, just enough to keep him away from credit again. His medium goal was starting a RESP, so his kids could attend post-secondary school. His long-term goal was a grand family vacation. Could it really be affordable? The counsellor had pointed out that if he put away just a little money every payday, they could have that special vacation paid for in 4 or 5 years.

Meanwhile, Jay’s family seemed to be crumbling. He was never around, and his partner had to handle everything. She was tired of it all. It caused a lot of arguments between them. The kids seemed to be acting out more. Why did they need to do that when things were stressful enough already? Things around the home seemed to also be breaking down. If only he had time to do some maintenance, he could get things on track before they got worse. Each morning when Jay awoke, he had another hard day of work to look forward to. Friends and co-workers were planning vacations and doing all sorts of fun things with their families. That wasn’t an option for his family. He was determined that it would be worth it in the end. According to his calculations, if all went well, they would be out of debt in 10 years.  All he would have to worry about then was mortgage and vehicle payments.

A Year Later

A year after filing his Bankruptcy, Adam needed a major car repair. Normally this would have been another devastating blow to the family budget. Adam was relieved that the Trustee had encouraged him to set saving for emergencies as his first short-term goal. Because of that, he was able to get the vehicle fixed without causing financial threat to his family. He was more determined than ever to work at replenishing that emergency fund.

A year after meeting with the Trustee Jay’s truck broke down. He had been hoping to avoid needing major repair, but with using it to get to and from two jobs was not surprising. There was no money in the budget for a vehicle repair.  He couldn’t work more than he already did. Without the vehicle repair he couldn’t work at all.  He was maxed out on his credit and there was no way creditors would lend him more money. He would have to borrow from the in-laws. This caused a huge fight with his spouse. She did not want her parents dragged into this financial mess. Making payments to the in-laws on top of all the other debt, might set his plan to get rid of his debt back a bit.

There is life after Bankruptcy. Here’s a look at what you can expect after you have been discharged and how to start rebuilding your credit rating.

Was It the Right Decision?

Adam was amazed at how quickly the time had passed, a mere 21 months after filing his Assignment in Bankruptcy he felt debt free. Paying down his house and vehicle was very manageable. Rather than focusing on what he didn’t have – mainly a good credit rating, he focused on what he had. He had his health, his family, his home, his job and hope for a brighter future. He intended to continue what he had learned through his Bankruptcy and use it to give himself a fresh start. He would continue to contribute to the RESPs for his kid’s education, he would continue to set goals and replenish the emergency fund whenever needed. He was also going to redirect the payments he was no longer required to make to his Trustee into his mortgage, so he could get it paid down quicker. His life seemed so much better than it had only a couple of years ago.

Jay was surprised at how slow the time seemed to drag. He had been slogging it out for a couple of years and seemed no closer to the finish line. He would not be able to help his kids with their post-secondary education as he was still paying down debt. He was already missing so much of their lives by working two jobs. He regretted not being able to do more with them. He could only give so much. All his efforts needed to be put toward paying the creditors.

What about the creditors, are they not to be considered in this scenario?

The credit card companies and lenders built the potential for Bankruptcy into their interest rates. They had made so much money off the interest that they had already received from Adam that the Bankruptcy write-off was nominal to them. Adam’s credit rating would show his Bankruptcy for another six years. If he wanted credit again before then, he would have to build his credit rating back up.

As for Jay, the creditors would be satisfied that the debt was eventually paid. But because of the length of time it took Jay to pay off the debt, his credit rating would suffer. Creditors would be a little leery about lending Jay money until his credit rating cleared up. Jay’s credit rating would show the debt for another 7 years after he eventually paid it off.

Who Made the Better Decision?

So, who made the wiser choice? Did Adam take the easy way out with little regard for his creditors? Did Jay suffer needlessly because he made his creditors such a priority? The answer to this question lies in your personal priorities.

Jay feels he did the noble thing — sacrifice all to keep his commitment to his creditors. It was a long and hard struggle, but he did it, without having to admit failure or ask his creditors to forgive the debt. He is proud of that fact. We are all raised to pay our debts. When we can pay our debts, we absolutely should. But at what cost? Should paying our debts become a higher priority than our kids’ future, time with our family, or risking our health?

Adam believes he made an intelligent decision. He humbly admitted he was in over his head and would not be able to keep the commitments he had made to his creditors. He did not enter Bankruptcy lightly. Instead, he took the opportunity that was granted to him under the Bankruptcy and Insolvency Act to get a fresh start. He believed the long-term benefit to his family and health was worth it. Should Adam have hung in there longer, trying to deal with the debt alone? Did he give up too soon? Should your health and the future of your family come ahead of keeping your commitment to your creditors?

So, who made the wiser choice? When faced with overwhelming debt, which path should you choose? Both of these men are satisfied with the decisions they made. Both solved the financial dilemma that faced them. As for who made the right decision – that is up to you.

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Bonnie Hooley, LIT

Bonnie has worked in the insolvency field since 1980. She is a graduate of the University of Manitoba, with a degree in Social Work. In 1999 she attained her license as a Licensed Insolvency Trustee. Bonnie has her Foundation Studies in Accounting from the Certified General Accountants (CGA). She is Read More Bonnie has worked in the insolvency field since 1980. She is a graduate of the University of Manitoba, with a degree in Social Work. In 1999 she attained her license as a Licensed Insolvency Trustee. Bonnie has her Foundation Studies in Accounting from the Certified General Accountants (CGA). She is a member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and Past President of the Manitoba Association of Insolvency and Restructuring Professionals (MAIRP).Bonnie has served on various boards within her community. Her hobby is quilting, her passion is Christ. Close

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