Yesterday, I met with a lady by the name of Dawn (not her real name). Dawn is a single mother of two daughters – 14 years and 18 years old respectively. She earns a salary of $40,000 per year and has about $60,000 in credit card debt.
Dawn considered filing for personal bankruptcy, however, the problem was that she had a Registered Education Savings Plan with a balance of about $8,000. If she were to file for bankruptcy, she would lose the RESP in the bankruptcy proceedings.
So in the alternative, she wanted to facilitate a debt settlement with her creditors through a consumer proposal. The problem was that Dawn had very little money left over to finance a monthly proposal payment after paying her living costs for rent, groceries, car insurance, etc. A salary of $40,000 does stretch very far for a single mother of two children.
However, Dawn did have annual income tax refunds of approximately $2,000 per year. Because she has two dependents, she was eligible for personal tax credits in her annual income tax returns which always resulted in refunds.
So I was able to come up with a consumer proposal that would be financed from her annual income tax refunds over 5 years. That is, a $10,000 proposal payable in 5 yearly installments of $2,000 per year.
The morale of this story: a consumer proposal offers great flexibility in helping people settle their debts.
© Fong and Partners Inc 2013.