Aaron’s Story: Debt Relief Sooner Than Expected

debt solutionAaron’s debt story is pretty typical. He was young and single, starting life after graduation. He was lucky enough to graduate without student loans and was now on his own for the first time. Just beginning in a new career, Aaron expected he would be able to work hard, prove himself and move up in his new company. His first credit card purchases were for some furniture for his new apartment and clothes for work. Aaron also took out a car loan, co-signed by his father, to purchase a used car for $25,000.

Being very social, Aaron found himself doing well at the company, making friends easily and going out after work with his co-workers on a fairly regular basis. During his time off, Aaron went on vacation with friends, enjoying his new life. Unfortunately, not monitoring his spending, his credit card bills started to grow. Then his company cut back on promotions and overtime pay was hard to come by. All too quickly he found himself with more debt than he could handle. While he was managing to pay his rent and car loan payment, he was barely making any payments towards his credit card debt.

Aaron’s Situation:

Credit card debt $25,000
Secured car loan $15,000, co-signed by his father
After-tax Income: $2,600 a month

No longer able to keep up with his monthly payments, and worried about the impact of not paying his car loan on his Dad’s credit, Aaron met with a trustee in bankruptcy for help. Aaron wanted to clean up his debts sooner as opposed to later, so he could start fresh.  He had a girlfriend and wanted any debts behind them if they ever considered getting married and starting a family. Aaron also wanted to avoid filing bankruptcy and keep his car if he could.

Aaron’s Debt Solution

His trustee helped Aaron compare the costs of a debt management plan versus a consumer proposal. In a 4 year debt management plan Aaron’s payments would be $520 a month. In a consumer proposal, he could likely make an offer to his creditors for $200 a month for 48 months.  A proposal like this would give his creditors more than they would receive in a bankruptcy and had a good chance of being accepted.

Aaron chose to make a proposal to his creditors for $200 a month for 48 months and was willing to extend this to 5 years if needed. 46 days after filing his proposal, his trustee called to tell Aaron the proposal had been accepted as filed meaning he would be required to pay $9,600 over 48 months.  He was also able to work with his bank to continue to make his car loan payments and keep his car.

For the first two years of the proposal Aaron made all of his payments in full and on time.  He also attended two mandatory credit counselling sessions with a credit counsellor recommended by his trustee.  Aaron found these sessions helped him learn to manage his budget better.  In particular he learned to track where he was spending money each month and save for larger purchases like a vacation rather than putting them on credit.

Aaron found the advice so helpful, he was able to significantly cut back on his expenses and 26 months into the proposal he called his trustee to ask if he could pay off the balance early. For his next payment Aaron brought in $4,400 and was able to receive his Certificate of Full Performance of Proposal 21 months early, much sooner than he originally expected.

While Aaron was dating a new girlfriend now, he was happy to have his debts behind him and more importantly, he knew he was now better prepared to manage his money going forward.

If you would like to compare the cost of your debt relief options, try out Debt Options Calculator or contact a trustee for advice.

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