How to avoid bankruptcy with an anticipated inheritance?
Jean-Benoît and Pascale have 2 children and are renters. Even though both of them work, they struggle to balance their budget and have gradually accumulated debts of $35,800. But an anticipated inheritance could potentially save the day.
Indeed, Pascale’s mother has passed away, and her father has moved to a senior residence. The sale of the family home generated a profit of $40,000 that the father wishes to immediately share between his son, Éric, and his daughter. However, considering Pascale’s financial situation, he wonders if it’s a good idea to give her the inheritance right away or if it would be better to wait. He asked his son to meet with Pascale to try to find a solution. But quickly, they concluded that it would be preferable to consult an insolvency expert.
Delaying the Inevitable
«It is entirely normal for a parent to want to help their child if they are in a difficult situation. But we must ensure that the money given will not only be used to buy time and delay the inevitable. The assistance must be well-targeted, and the causes of the financial problems must be identified to ensure optimal benefits from this gift», says Pierre Fortin, licensed insolvency trustee and president of Jean Fortin et Associés.
To gain a clearer understanding, a detailed overview of the couple’s debts was created, including the amounts owed, interest rates, and monthly payment amounts. It was found that every month, the couple had a budget deficit of $600. Then a simulation was conducted to assess the financial situation after a partial repayment of debts using the $20,000 from the anticipated inheritance. «We concluded that even if we only repaid the most expensive debts in terms of interest fees, the couple’s budget would still be in deficit. The debt would be reduced by $20,000 out of a total of $35,800, but not enough to get their budget back on track», explains Pierre Fortin.
Settling the Debts once and for all
Under these circumstances, what would be the best solution for Pascale and Jean-Benoît? After reviewing their credit file, it turns out they are not eligible for debt consolidation, as their level of indebtedness is too high. In fact, they already applied for a consolidation loan from their financial institution last year, without success.
«The best option is to file a consumer proposal. We offered $20,000 to creditors as a complete and final settlement of all debts. They accepted because the amount was payable immediately, and they wouldn’t have received anything like that if Pascale had opted for bankruptcy and waited until after her discharge to receive her inheritance», emphasizes Pierre Fortin. This win-win solution allowed the couple to fulfill their obligations to their creditors to the maximum of their financial capacity while generating a monthly budget surplus of $251 because they are now debt-free. As for Pascale’s father, he is happy to see that he was able to help his daughter permanently resolve her financial troubles instead of providing temporary relief.
THEIR FINANCIAL SITUATION
Credit Cards: $13,100
Credit Cards: $6,200
Personal Loan: $6,700
Marge de crédit: 9,800$
Credit Cards: $579
Personal Loan: $203
Line of Credit: $65
Total Monthly Payments: $851
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