Financial challenges of building a cottage – Real-life case

Faced with the rising costs associated with building a residence, many people are turning to self-building instead of hiring a general contractor. This is the choice Pierre-André** made, who quickly found himself overwhelmed by the magnitude of the work and the accumulated debts, following various problems encountered during construction. Pierre Fortin, a licensed insolvency trustee, will talk about this project.

Pierre-André, a 56-year-old municipal employee, plans to retire in about 5 years. With this in mind, he acquired a wooded lot including a rustic camp, which he wants to transform into a comfortable four-season cottage. However, things did not go as planned.

Having purchased the land in the Mauricie region for $45,000 and mortgaged it, Pierre-André thought he had made a good deal. He planned to renovate the rustic camp at his own pace to make it his home, year-round. In the spring, he invested $15,000 in materials to start work as soon as the weather would permit.

The risks of building a cottage yourself

Unfortunately, several unforeseen circumstances dampened his enthusiasm. Firstly, the late spring delayed his access to his land for several weeks, preventing him from completing his projects. To make matters worse, his doctor also diagnosed him with angina pectoris and advised him to limit his physical efforts.

“With all these expenses, Pierre-André has no financial leeway. He wonders if he should try to sell the cottage in its current state. However, the materials have been delivered and partially used, but the work is still far from being completed,” notes Pierre Fortin. Having no solution to get out of this predicament, the future retiree came to consult our trustee firm, Jean Fortin & Associés, to find out how we could help him out of this financial troubles.

“Who among us has never undertaken an ambitious renovation project without ever exceeding their budget? Another challenge lies in the fact that renovations often involve starting with demolition. This is precisely what happened with Pierre-André’s cottage,” says Pierre Fortin.

If Pierre-André’s story resonates with you, do not hesitate to ask us your questions now or to book an appointment for a free analysis of your financial situation, as well as to discover possible solutions for you. We also encourage you to continue reading to find out how Pierre-André managed to overcome this financial difficulty.

Financial solution for the indebted self-builder

The future retiree finds himself in an unfortunate position: even if he was considering abandoning his project, it would be extremely difficult for him to sell the cottage since the renovation work remains unfinished.

However, the trustee reassures Pierre-André, indicating that the solution is often not as radical as one might imagine. In his case, in addition to the $15,000 spent on materials, he also accumulated $8,500 in credit card debt. “He still has a few years to turn the situation around before the inevitable drop in income associated with retirement occurs,” Pierre Fortin points out.

After taking into account Pierre-André’s salary, the current value of the cottage with unfinished work, and the value of remaining and used materials, the most appropriate solution for this indebted self-builder was a consumer proposal.

Pierre-André filed his consumer proposal for $13,500, payable to creditors in 60 installments of $225, interest-free. “This repayment plan respects his budget, allowing him to keep the cottage while having the opportunity to complete the work gradually and at his own pace,” says Pierre Fortin. Thus, Pierre-André will be able to settle all his debts before retiring.

  • In the context of a consumer proposal, the trustee calculates the amount that could be offered to creditors based on what these creditors could expect to receive if the individual were forced to declare bankruptcy. Creditors will generally accept a settlement offer, even for an amount lower than the total debts, if it allows them to recover more money than in bankruptcy.
  • The success of a consumer proposal relies on a solution where the client and creditors are mutually beneficial: on one hand, the client reduces his/her monthly payments to an amount s/he can afford while avoiding bankruptcy, and on the other hand, creditors receive an amount higher than what they would have received in bankruptcy. This win-win approach helps resolve the financial difficulties, reducing the monthly payment they have to bear while limiting losses for creditors.

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

*Names have been changed to preserve anonymity.