Beware of credit card misuse during unemployment

Beware of credit card misuse during unemployment

Martin, 33, is a day laborer and has to deal with four months of unemployment a year. The scarcity during those periods of unemployment drove him into a debt trap. The accumulated debt is now over $53,000 and is literally out of control…

Eight months out of the year, Martin collects $3,010 in income, but for the remaining four months that’s $2,734 in unemployment insurance benefits.

Having great difficulty managing his budget, he does not cut back on his expenses while he is unemployed. He also cannot count on a financial cushion as he cannot save, especially as he has also developed a dependency problem. Eventually, he also has to pay off his student loan, the balance of which is still $19,509.

Accelerated debt

To make ends meet, Martin uses his credit cards and even takes out a loan from his financial institution.

But the bad checks are piling up, and so is the debt. To get out of this mess, he applied to his bank for a debt consolidation loan, which unsurprisingly was turned down given his poor credit rating.

As a last resort, he turns to a loan company that makes quick loans and borrows another $26,000. The problem is that the interest rate charged by this type of lender is very high, in Martin’s case it is 32%.

In the end, he only has to pay an amount of $1680 in minimum monthly payments. But with basic expenses of $1,984 a month, he has a deficit of $654 and even $930 during his unemployment. Indebted and also suffering from various addictions, his wife urges him to radically change course if he wants to save his couple. In addition to starting detoxification therapy, he therefore consulted insolvency specialists.

Two options

“During the preliminary meeting, we listed all of Martin’s assets, but even if we sold them, the amount received was not enough to repay his creditors,” explains Rachel Bouchard, licensed liquidator at Raymond Chabot.

Two options are open to him: the consumer application and bankruptcy. He preferred to avoid the latter because he wanted to regain control and partially repay his creditors. Therefore, the consumer proposal has prevailed. Again he faced a choice.

“Either he paid a certain amount for eight months of the year and a lesser amount during his four months of annual unemployment, or we calculated an average annual income that served as the basis for the consumer proposal payment,” says Rachel Bouchard.

It is this second solution that Martin has chosen to make identical payments over a period of 60 months, ie 750 USD and this without interest. Creditors accepted the proposal and this breath of fresh air allowed him to regain control of his budget and financial balance.

In five years, he will be fully discharged of his debts, including his student loan because he graduated more than seven years ago, the condition for inclusion of that debt in a consumer filing or bankruptcy.

Financial assets :

2004 truck, not roadworthy: $4000

Snowmobile, 2015: $7900

Half of primary residence: Martin’s equity valued at $5235

consumer debt :

Student loans : $19,509

Private loan : $1733

Credit from a credit institution: $26,000 (32% interest rate)

Credit card : $6119 (19% interest rate)

total debt: $53,361

Monthly income :

earned income: $3,010

Monthly expenses:

$1984 (including mortgage, telephone, electricity, insurance, groceries, license and registration, gas, etc.), but excluding the minimum monthly debt payment $1680