Not easy to choose the best way to manage your money

Every year, many people experience financial difficulties or have questions about the best way to manage their budget.

To wrap up the year, here’s an overview of some real-life cases:

Beatrice, a self-employed worker, is tight on her budget this month and has to make a choice: pay her cell phone bill or the installment on her personal loan. Which missed payment is more likely to affect her credit?
A late payment is a late payment, whether it’s $50 or $500, warns Pierre Fortin, a licensed insolvency trustee and president of Jean Fortin & Associates. Beatrice should first determine which creditor is more likely to agree to make arrangements with her and not report a late payment on her credit file.

Before making a choice, it’s also important to assess the impact of a missed payment: not repaying her car loan is likely to have more consequences if it leads to vehicle repossession compared to missing a credit card payment, for example.

Last year, Jacques and Nicole went through a long period of unemployment and accumulated numerous late payments. How long will their credit file be affected?
A negative credit rating (R-3, R-7, R-9, for example) will remain on Jacques and Nicole’s credit file for 6 years. However, their credit score, or “report card”, will improve over time. “Remember that a credit file is like a reputation: it takes a long time to build, but unfortunately, it can be easily tarnished”, emphasizes Pierre Fortin. 

Robert, a truck driver, wonders if he will lose all his assets if he files for bankruptcy.
When seeking protection under the Bankruptcy and Insolvency Act, several assets remain exempt under certain conditions. This includes salary, furniture, RRSPs (excluding contributions made in the past 12 months), life insurance (depending on the beneficiaries), as well as all assets with a secured loan that is up to date and has little or no equity (such as a car or a house).

Before making a decision, Robert should seek advice from a licensed insolvency trustee who can inform him which of his assets might be at risk if he files for bankruptcy. If the value of his house is lower than the mortgage balance and the mortgage payments are up to date, his residence is protected. However, it could be seized and sold if it’s worth more than the mortgage balance. In that case, Robert could consider a consumer proposal.

Marie-Christine, a retiree, still has unpaid balances on her credit cards. Should she cash in some of her RRSPs to repay them?
Using a long-term asset to solve a short-term problem is not necessarily the best solution. By tapping into savings that took years to accumulate, Marie-Christine could have a significant impact on her future income throughout her retirement. She should consult a professional to explore other possible options.

Marc-André is in a relationship with Sophie, who has been unemployed for 4 months. They can no longer afford to pay their mortgage and want to know if they can simply give their house back to the creditor.
If they stop paying the mortgage, their financial institution will initiate a property foreclosure process, which takes an average of 4 to 12 months. “The bank will try to sell it at the best possible price, but this type of distress sale is likely to yield much less than under normal conditions”, explains Pierre Fortin.

If the price obtained is insufficient to cover the mortgage balance and fees, Marc-André and Sophie will be responsible for the shortfall unless they have opted for a consumer proposal or bankruptcy. Remember: you can’t simply hand the keys back to the creditor and have your debt erased…