Consumer proposal vs bankruptcy? This Ontario family went from $120,000 to $19,500 in debt

The debt situation: A family contacted our 4 Pillars office in Barrie Ontario. They had $120,000K in unsecured debt. They were considering bankruptcy.

Monthly payments: Their minimal debt payments had risen to a crippling $3,500 per month.

Methods they had tried: The family accepted full responsibility for their debt. They had already looked at other debt solutions. One company had offered them a consumer proposal. This would involve monthly payments of $1,350 for 60 months for a total of $81,000.

Facing bankruptcy: The debt reduction from $120,000K to $81,000 wouldn’t be enough. They still couldn’t afford those monthly payments. If they couldn’t get a better consumer proposal accepted, personal bankruptcy would be their only option.

How we reduced their debt from $120,000 to $19,500

The family met with their local 4 Pillars office. Terryl Allen, a certified Insolvency Counselor by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) who serves the Barrie and Orangeville territories, knew that she could help the family with this massive amount of debt.

Terryl didn’t give up. She worked hard to negotiate a better consumer proposal with bankruptcy trustees. At first, the creditors didn’t budge. They wanted monthly payments of $1,350 x 60 months for a total of $81,000.

But Terryl knew that this was still unaffordable. The family couldn’t make these payments and would fall deeper into debt.

In the end, 4 Pillars helped the family survive this crisis and make a drastic reduction to their debt.

4 Pillars saved this family from bankruptcy. At first, the creditors demanded $81,000 …. then $54,000 …. and then finally accepted the offer structured by 4 Pillars of $19,500.

Needless to say, the family was thrilled and could now rebuild their life.

They went from facing bankruptcy with $3,500 monthly debt payments and a mountain of debt to only paying $325 per month for 60 months (a total of $19,500).

After restructuring their debt

Before 4 Pillars: The family was paying $3,500 monthly payments and owed $120,000K to creditors.

Bankruptcy trustee offers: The family found a bankruptcy trustee who offered a consumer proposal that would involve monthly payments of $1,350.00 for 60 months for a total of $81,000 in debt.

After 4 Pillars: Our Barrie office did an amazing job. The family’s new monthly payments were $325 for 60 months for a total of $19,500. That means, their overall debt went from $120,000 to $19,500!

So how did 4 Pillars do this?

The family was desperately seeking a solution to avoid bankruptcy. They couldn’t budget away $120,00 in debt. They were extremely stressed and couldn’t sleep at night.

They met with another debt restructuring company

The proposed solution was to make a settlement offer via a consumer proposal offering to pay back $1350.00 for 60 months, a total of $81,000.

This was better. But the Ontario family still couldn’t afford it.

The first debt solution company simply took the facts of the current situation, entered it into their computer, and out popped a number. And the number was $1350 for 60 months.

“I knew there was more to the situation and wanted to dig deeper,” says Terryl Allen the 4 Pillars debt consolidation specialist who helped the Barrie family.

“They really opened up about the challenges they had faced. They wanted someone to understand why they were in their current situation and the huge personal challenges they had been through. If no better solution was available they would consider bankruptcy.”

A new strategy for dealing with their debt

At 4 Pillars, we look at the entire picture. We analyze your situation and create a long-term solution.

For example, the first company just came up with a number . . . $1,350 monthly payments for 60 months.

But they didn’t analyze the family’s income and ability to make those payments. This is dangerous! It means you’ll likely fall back into debt over time.

Our 4 Pillars office in Barrie Ontario listened to their story and began to build a plan that would fit their personal situation.

How the bankruptcy trouble began

At 4 Pillars, we understand that there is more to the situation than numbers and dollars and cents. There is always a context to debt and why people fall into trouble.

The Ontario family had been struggling for several years to repay the debt.

After purchasing a home number of years ago they discovered that critical information had not been disclosed during the purchase or been identified in the appraisal and created a home that was unsafe to live in. This had put the family’s health in jeopardy and needed to be addressed immediately.

The couple contacted the realtor and they said there was nothing they could do. They contacted the appraiser, the appraiser said it wasn’t his fault as it was not disclosed to him. He advised them to contact the seller; the seller dismissed all claims and told them to speak with the appraiser.

The couple became overwhelmed. They knew they had to protect the health of their family and immediately began the essential repairs necessary to make the home a safe place to live.

The repairs were substantial.

The family needed to move out and had to rent another home during the extended period of the repairs. On top of the cost of the repairs, they now had two homes to pay for each month.

As with many repairs, the required changes were far more than originally anticipated. The costs spiraled.

The couple had exhausted every avenue to try and repay the debt. They had received help from their family and had done everything they could.

Both of them were working full-time and both picking up extra hours when possible to pay back the debt, but it had become a treadmill they couldn’t get off.

Bankruptcy would personally devastate this family. We needed to find a better solution.

We knew that there could be a compromise between bankruptcy and the unaffordable payment consumer proposal that had been quoted by the other company.

Terryl Allen went to work, analyzing the couple’s debt. She structured a new consumer proposal that fit with the couple’s budget to present to the Trustees.

As she explains,

I gathered all the information. We went through a detailed budgeting process to understand what was an affordable offer we could make which would remove the stress from the family and still provide a better return to the creditors than a bankruptcy. Based on their income and fixed living costs, we came up with an amount of $325 a month. This amount wasn’t just plucked from the air. It was a full review of the budget and the changes that could be made. This was the amount the family could afford to pay and the number we needed to make the new consumer proposal viable.

We find a new trustee to present a VERY LOW offer

4 Pillars’ goal was to get a new consumer proposal offer of $325 per month for 60 months submitted to the creditors by getting a trustee to agree to file it.

This would work for the family. They could afford the payments. But how to make the creditors accept this low consumer proposal offer?

“I knew the offer was low and knew it would be hard to find a bankruptcy trustee that would file the consumer proposal on these terms,” says Terryl Allen.

The bankruptcy trustee only gets paid on a consumer proposal being accepted. Most of the bankruptcy trustees didn’t believe this consumer proposal would ever be accepted by the creditors.

In fact, many bankruptcy trustees didn’t think that the offer was worth the time and energy to even submit the consumer proposal. They wanted the family to file bankruptcy as they thought this would be the only viable option.

“After much phoning around and selling the story, I found a trustee that would work with me to submit and administer the consumer proposal,” says Terryl Allen.

With a new trustee, the real negotiations begin.

The creditors say NO!

One of the largest Canadian banks held the majority of the debt and needed to agree to the consumer proposal for it to be accepted.

After the consumer proposal was submitted by the trustee we all waited for the creditor’s response.

“I had fully informed the family that there may be a counter offer and some negotiations required to find a consumer proposal that was acceptable to everyone,” says Terryl Allen.

What came next was a complete surprise.

The major creditor came back and flat out voted no – they did NOT even give a counter.

The trustee wants to settle at $54,000

I asked the Trustees office to request a counter offer so we could see how far we were away. The creditor came back with a counter of $1,450 per month for 60 months! That is $87,000 that the Ontario family would owe.

The bankruptcy trustees’ solution was to meet somewhere in the middle so that the proposal was accepted. The trustee suggested that we offer $900 for 60 months—$54,000 in total.

Why 4 Pillars kept trying

Isn’t a reduction from $120,000 in debt to $54,000 enough?

Why didn’t we just go with the trustee’s suggestion?

One reason: we didn’t pick the $325 monthly payments for the Ontario family out of thin air. That’s what the family could afford.

As Terryl Allen explains, “I knew based on the extensive budgeting we had done that this was not affordable to the family and the consumer proposal would fail.”

The bankruptcy trustee wanted to see the consumer proposal passed and their role is to administer the proposal and have a fiduciary duty to the creditors and was sure after they had spoken with the creditors that $900 for 60 months would be something they would agree on.

But 4 Pillars is here to advocate for you, the consumer. The family couldn’t afford $900 monthly debt payments. If they accepted this consumer proposal, they’d soon fail and face the threat of bankruptcy again.

We refuse to give up

The family needed this offer to go through.

Terryl Allen knew that if the creditor could fully understand the situation, they would see that this was a fair offer.

“I needed the creditor to fully appreciate what this family had been through. I knew it would help the creditor truly understand the situation. There was much more to this situation than the numbers.”

4 Pillars then helped the family to write a detailed letter to the creditors. As Terryl Allen puts it,

We explained everything they had told me and how they got into this situation, how regretful they were that they were unable to pay their debt in full but the last thing they wanted to do was enter into an agreement that they would be unable to fulfilled. The family felt bankruptcy was the very final option for them.

4 Pillars included a detailed budget showing the creditors what they were requesting was completely un-affordable. We asked the trustee to submit the additional information to the creditors with a request to reconsider the offer.

We wait to hear if the offer is accepted

Terryl Allen’s persistence pays off.

“It was a very anxious 24 hours as we waited a reply. Both the family and I had a sleepless night but mid-morning the following day we got a response from the trustee. They had accepted the original offer of $325 for 60 months. ”

The family went from $120,000 in debt to $19,500. With their new monthly payments of $325 for 60 months, debt was no longer the center of their life.

The Ontario family avoided bankruptcy and is rebuilding their finances.

If you live in Barrie or Orangeville Ontario and are facing bankruptcy or considering debt consolidation, make sure you contact Terryl Allen.

We also have 50+ offices across Canada. Find your local 4 Pillars office here.