Alison in PRINT

Family forced her into debt now bankruptcy looms...

Toronto Star - November 16, 2009

Q: My credit history was fine until I relocated recently to Ontario for family reasons. I haven't been able to work because of family pressures. In this time, I was under great stress and my credit cards got maxed out and my credit hit the skids.

I have about $50,000 in debt; half in student loans (they are 10 years old). My life has been in shambles. I spoke with a debt counselor and he suggested I file for bankruptcy to get a clean slate. I am not too keen on filing for bankruptcy.

I have about 5 per cent of the debt amount in savings. I was wondering if there is a way to negotiate with the debtors to settle the debts and clear out all the debt and start over again?

I am just tired of this and want a clean break. M.C.

A: There’s nothing like a good, old-fashioned dose of stress, especially the family kind, to send a person over the edge financially. But I want to know whether you were pushed or stepped off the cliff on your own volition.

You say your credit cards “got maxed out” as if some unseen force did the deed.

For example, did the move cause you so much financial stress (job loss, additional expenses) that you had to rely on your credit cards for cash flow? Or perhaps you overspent in reaction to the family situation. And have you been carrying those student loans unpaid or underpaid for years? You say your credit rating was fine until you moved, but I’m surprised you have 10-year-old student loans still worth about $25,000. That suggests to me that you have been ignoring them for some time.

I’m not nit-picking here, obviously debt is debt, but how you got into it does have a role to play in how you plan to get out. If you are not clear about which road led you to this place you are likely to repeat the experience years from now.

Bankruptcy is truly a last resort and it will remain on your credit report for six long years. However, if you are not working and there is no possibility of a job because you are caring for a family member then your choice is likely made for you.

A debt repayment plan or consumer proposal will only work if you have income. Making a repayment deal when student loans are involved is always difficult, still, with $2,500 cash in hand, you might be able to negotiate with at least one of your credit card providers for a lump sum payment. But there is no point in doing this if you are unable to pay the other debts.

Return to your debt counselor and work through all the alternatives based on your ability to pay. Then make the decision and prepare yourself for years of strengthening all aspects of your financial life.


Q: I am in big trouble because I blew my student loans and I owe my landlord two months for room and board off campus. My parents will kill me. I don’t know what to do. H.H.

A: You’ve got yourself into a fine pickle but I doubt your life is in danger. Make haste to the office of financial aid at your college or university. Confess your sins and ask for help in laying out a budget for the rest of the year. Don’t be embarrassed, they run into this kind of thing all the time.

Second, talk to your landlord. Perhaps you can work out a work-for-rent agreement. Cleaning, dog walking, gardening – beg and plead. Eventually you may have to fling yourself upon your parents’ mercy, but try to get out of this yourself first. You’ll be a better person for it, both financially and otherwise.