Debt issues during parental leave – Real-life case

The arrival of a child is a joyful event, but it can also bring unexpected financial challenges for parents. Pierre Fortin, President and Licensed Insolvency Trustee at Jean Fortin & Associés, shares the story of Charles and Magalie, parents of a 2-year-old girl, who have just learned that the stork will be bringing them… twins! Faced with debts related to their studies and credit cards, in addition to expenses to anticipate the twins’ arrival, they wonder how they will manage their debt during parental leave.

What to do when parental leave causes financial concern?

Charles, a high school teacher, earns an annual gross salary of $52,000, while Magalie, a pharmacy technician, has an annual gross income of $41,000. The first maternity leave already put significant pressure on the couple’s budget, forcing them to resort to their credit cards to make up for the shortfall.

Together, they now have $26,000 in credit card debt, in addition to Magalie’s $9,000 student loans and Charles’s $30,000 student loans. Charles also has a personal loan of $8,000. They are already struggling to meet their monthly payments, and the future worries them even more. The imminent arrival of the twins means an inevitable move, the purchase of furniture and accessories, not to mention expenses related to diapers and infant formula. Charles is particularly anxious, knowing that studies have shown that the increased financial stress caused by Magalie’s twin pregnancy can have repercussions on the newborns. Faced with this situation, they are seriously considering getting rid of their debts.

After several inquiries, the couple decides to contact the firm of Jean Fortin & Associés, a licensed insolvency trustee. In less than 24 hours, they have obtained an informative meeting to analyze their financial situation free of charge. Their financial advisor will then present them with all the possible options to improve their family’s financial situation.

If you find yourself in a situation similar to that of Charles and Magalie, we invite you to make an appointment or ask us your questions now. The rest of this article will reveal how this family plans to overcome its financial challenges during its parental leave.

How to deal with debt when family expenses increase during maternity leave?

“Charles and Magalie were wondering whether they should both declare bankruptcy or if they could transfer all the debts to one of them in order to keep the other’s credit intact,” explains Pierre Fortin. Here are some solutions available to them to cope with the new expenses without compromising their children’s quality of life:

• Budget improvements: Reviewing their budget to identify unnecessary expenses, saving on certain expenses, and developing a more efficient financial plan.
• Sale of assets: Getting rid of what they no longer need can generate liquidity to reduce their debts.
• Agreement with creditors: Considering negotiating payment arrangements with their creditors can reduce their monthly payments or interest rates.
• Debt consolidation: Consolidating their debts into a single loan with a lower interest rate can simplify the management of their finances.
• Consumer proposal: Offering creditors a reduction in the total amount of debt, thus providing financial relief.
• Bankruptcy: As a last resort, bankruptcy could be considered to significantly reduce debts.

Currently, the couple and their daughter live in a 4 1/2 apartment with a rent of $800 per month. They have been living in this apartment since the beginning of their studies, benefiting from low annual increases. However, by moving to a larger and necessarily more expensive apartment, they estimate that the rent could reach $1,400 per month.

During Magalie’s first maternity leave, they failed to reduce their expenses and increased their credit card balances, resulting in monthly payments of $540 for Charles and $240 for Magalie. In addition, they each have payments of $410 and $230 respectively to repay their student loans. They therefore anticipate a similar scenario for the second maternity leave, fearing a financial catastrophe.

How to improve your financial situation during pregnancy?

“We collaborated to establish a budget to assess the costs of their new accommodation, as well as to explore solutions to their existing debts,” says Pierre Fortin.

With the need for an additional room for the twins and an expected increase in heating costs, their housing expenses could increase by about $700 per month. At the same time, maternity leave will result in a reduction of about $625 per month in their net income, while family allowances will increase to $930 per month from the birth of the twins.

For Charles, the best solution is to file a consumer proposal, reducing his debt from $26,000 to $12,000 and reducing his monthly payments to $200 for a period of 5 years, instead of $860. “By being under the protection of the Bankruptcy and Insolvency Act, he will also have the opportunity to suspend the repayment of his student loan during Magalie’s maternity leave, which will provide them with some financial relief,” adds Pierre Fortin.

For her part, Magalie will not have to file a proposal since her debt was not very high and it was possible to implement a repayment plan over 36 months.

THEIR FINANCIAL SITUATION

Charles’ Income: $52,000$ gross/year

Magalie’s Income: $41,000$ gross/year

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee

**The names of individuals have been changed to preserve their anonymity.