A lot of people who contact our offices in the London area are looking for consolidation loans or debt consolidation. They are often reluctant to even listen to another option such as bankruptcy or proposals. Once though they have heard about the “other” options, many choose a proposal to help solve their financial problems.
What made them change their minds?
First, the “typical” debtor – and I have to let you know now, that no one ever really is a typical debtor, but many have common traits – will have more debt than any equity in their assets. This means they do not have enough money in investments, or could sell a house and recover enough funds to pay off the debt. Sometimes in their efforts to pay unsecured debts such as credit cards and lines of credit, they end up losing their house or vehicles because they cannot make those payments
Second, the cash flow of a debtor does not have enough room to even make minimum payments on their debt. They have cashed in investments such as RSPs to continue payments to the creditors, but now are finding that once they have paid regular household bills such as food and rent/mortgage, utilities and gas for the vehicle(s) and insurances, there is not enough left to keep the credit card and lines of credit amounts paid.
Third, many people say they are paying everything, but once we go through their budget, we find out that they are paying something toward a credit card or line of credit and then taking the money right back out. They say they take it out to pay food, but in reality it is the debt that is being paid with money put into that debt.
Now, imagine they find someone who will lend them money for a consolidation loan. They likely have no security to give against the loan (that means the person would take that security and sell it if payments were not made), and many times the amount they earn is not enough to give the lender a comfort level they can pay so any loans given would have quite a high rate of interest. Thus their minimum payments would be as high or even higher than their current minimum payments.
What they would do is exchange one type of debt for another without being able to change their cash flow or the amount they need to pay in total. Often they need to pay even more since there is more interest charged.
So when I show them that a consumer proposal will pay off a portion of their debts over a period of up to five years for an amount that they can afford in their cash flow – without borrowing more money – they listen. We work out the amounts required based on their assets, their income and the creditors involved and try to come up with a monthly amount they need to pay that will satisfy the return that the creditors would like to see. And that is when they realize a consumer proposal will assist them much more than a consolidation.
No one likes to do a filing under the Bankruptcy and Insolvency Act but if you are experiencing any of the problems described above, call us. You may find a consumer proposal is the answer to your debt problems, your cash flow problems, your worries about how you will pay everyone off. Calling 310-PLAN or checking out a consumer proposal at www.hoyes.com can get you started.
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