Expensive renovations and her divorce put her on the chopping block: 3 scenarios to restore the situation

Julie, 40, has joint custody of her two young children. After her separation, she had to carry out major renovations on the family residence in order to be able to sell it. In debt because of this work, she is now struggling to make ends meet.

The renovations indeed cost several thousand dollars which she charged to her credit cards. The interest on the cards being very high, Julie does not see the day when she will finish repaying them. Added to this is a loan contracted to pay the lawyer’s fees during his divorce, which was not easy.

She hoped to be able to pay for the renovations when the house was sold, but once the commission, the move and the down payment on her new property were paid, she was left with nothing of the sale price. “I just can’t do it anymore. Because of the work and the lawyer’s fees, I accumulated debts of $55,000. And I also have to pay my car loan and my mortgage…”, she says, discouraged.

A vicious circle

Between her salary, family allowances and income from the rental of the basement of her current residence, Julie’s monthly income amounts to $3,780. To meet her living expenses, she needs $3,360 per month. However, currently, it is half of its income that is swallowed up in the minimum payments of its debts. “Therefore, she constantly has to use her cards to meet her other financial obligations. It’s a real vicious circle from which she is unable to get out,” says Stéphanie Michel, financial recovery advisor at Raymond Chabot.

Moreover, she has now used the maximum credit available on her cards and she is in a bind. She fears losing her house and no longer being able to provide good living conditions for her daughters.

Three scenarios

Stéphanie Michel reviewed Julie’s file and established three scenarios. The first is to obtain a consolidation loan from your financial institution so that you can repay all your debts at once. She would then have only one debt to repay at a lower interest rate than her credit cards. “Given his financial situation, his credit rating and his debt ratio, this is not possible,” said Stéphanie Michel.

The second scenario consists of carrying out a mortgage refinancing, but this turns out to be impossible because the equity she has on her residence is not sufficient.

Third option: the consumer proposal, which will allow him to pay part of his debts, but not all of them, while keeping his house. “This offer to its creditors takes into account its real ability to repay, while protecting its assets. She will therefore pay a monthly amount of $385 for five years. I also worked with her to help her establish a realistic budget that incorporates certain expenses in advance. This will prevent her from having to resort to credit in the event of unforeseen circumstances,” says Stéphanie Michel.

HIS FINANCIAL SITUATION

Assets:

  • Residence: $160,000
  • 2013 Nissan Maxima: $8800

Debts:

  • Mortgage: $149,000
  • Credit cards: $35,000
  • Personal loan: $20,000
  • Car loan: $5500

TOTAL DEBTS: $209,500 including $55,000 unsecured

Monthly income:

  • Employment income: $2200
  • Family allowances: $955
  • Basement rent: $625

TOTAL REVENUES: $3780

Monthly expenses:

  • $3362 (including mortgage, taxes, telephone, electricity, gasoline, groceries, license and registration, car loan, etc.)


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