case studies,  consumer proposal,  credit cards

Handling my mother’s credit card debt because she’s irresponsible

My mom got a Capital One Credit card in 2014 with a limit of $7300. She eventually ended up maxing out the card and due to some issues with her relationship, she had to move out. They told her they were going to pass her to collections but they never did, so she forgot about it. About 4 years ago, she ended up buying a house (I don’t know how she got a mortgage with this possibly on her credit record), and she had no problems.

Then Capital One retained a lawyer to recover the debt + interest, so they lawyer told her, she has to pay back $11,313.73 due to accumulated interest. She didn’t respond to them and they ended up getting a lien on her house. So, she ended up trying to do a payment plan with them, and they told her to pay $100 per month and the loan will continue to accumulate interest, so she will be basically paying them money forever.

She started transferring their office money via e-transfer, but after doing this for a year, she got a letter from the lawyer again saying they haven’t received the money. I looked through her bank account and the e-transfers were being returned to her after 30 days of not being deposited (my mom is not tech-savvy at all). She told their lawyers the e-transfer info they gave was wrong but they told her it was not. I looked and she entered their information correctly.

About a couple weeks ago, they sent her mail again threatening to force a sale of her house if she doesn’t pay $12,500 immediately. My mom is not in a great financial position because she has had to take time off work due to an injury she sustained at work, and she is also not financially responsible at all.

In response to their threat, she offered to them to pay $6000, but their lawyer refused and counter offered $12,500 again. My mom has no money in savings (she was going to borrow $6000 from friends and family), I don’t want to lend her money because I know I won’t get it back because she’s extremely irresponsible.

I’ve tried to sit down with her to budget but she refuses because she says “those are numbers on paper, and that’s not how the real world works, you know those things never work”. She is used to financing her lifestyle and getting new things all the time (trading in her car, phone, tablet, whatever she can and refinancing everything to a new monthly payment to get the newest, hottest thing).

Is a consumer proposal the only way out for this or what should she do? They continue to threaten her with saying the loan will continue to accumulate 19.8% interest each year until she pays. She lives in Alberta, but the credit card was and debt was accumulated in Nova Scotia, if that matters.

Victor Fong, Licensed Insolvency Trustee responds:

She should meet with a Licensed Insolvency Trustee in Alberta for a consultation about a consumer proposal.

Whether she’s qualified to file a CP and the amount she’d have to pay if she does qualify will depend on 3 things:

  1. Her income

  2. The amount she owes to all her creditors (not just Capital One)

  3. Her assets

The LIT will need to determine if she’s insolvent which is why it needs to assess these 3 factors. She can only file a CP if she’s insolvent – i.e. the value of her assets < the amount owed to her creditors.

And to clarify Point 2: when a debtor files a CP, all of her unsecured debts must be included as part of her proposal, even if she’s in good standing with them. The mortgage would be unaffected by the CP because it’s a secured debt. A CP only deals with unsecured creditors like Capital One.

Assuming her creditors approve her CP, she’ll be able to pay it off over 60 months interest free. She should pay it off sooner if she can because:

  1. The sooner she pays off the CP, the faster the CP will be removed from her credit history – it gets removed 3 years after she pays it off or 6 years after her CP is filed, whichever occurs first.

  2. The writ on her property will only be removed by the Sheriff’s office once she’s completed paying her CP.

Good luck 🤞

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With many years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. so that he could dedicate his professional life to help people from all walks of life to deal with their debt.