Arthur is a medical student. He has about five years left before he completes his residency and can begin practicing his profession. However, his long studies and his lifestyle have caused him to accumulate excessive debt.
“I was studying in another field before entering medicine and over time, I actually accumulated significant debts. I now owe $380,000 to my various creditors,” Arthur worries.
Currently, his student loan is $25,000, his credit card balances are $5,000, but it is his $350,000 line of credit that is weighing heavily in the balance. With the recent increase in interest rates, the amounts to be repaid each month have climbed even further and amount to more than $2,200 per month. Even though he can count on a resident income, it is not enough to meet his expenses and repay his debts.
Realizing that he couldn’t do it alone, he went to see a professional.
Caught up in reality
Patrick Roberge, Licensed Insolvency Trustee at Raymond Chabot, notes that this type of case is not uncommon. “We’re seeing them more and more often, and the scenarios are almost always similar. In the context of certain studies (in engineering, medicine, veterinary medicine or dentistry, for example), young people are granted significant margins of $100,000 and more. With the increase in rates in recent months, we’re seeing a resurgence of financial problems,” he explains.
Arthur, because he earns a resident salary and also has access to a generous line of credit, has tended to spend without much thought to the consequences, trusting that in a few years he would be earning a comfortable income that would allow him to pay it all back. But reality caught up with him long before he began his practice.
Proposition concordataire
The young man wanted to avoid bankruptcy at all costs, even though it could have been considered given the level of his current income compared to the amount of his debts.
What other option does he have? “A consumer proposal was not an option because his debt is over $250,000, which disqualifies him,” says Patrick Roberge. In addition, this type of agreement lasts a maximum of five years (60 months), which would not be enough for Arthur.
In his situation, the most appropriate choice is therefore the composition proposal. “The composition proposal is not limited in time. We can therefore make a longer-term offer and increase the amounts to be reimbursed once the residence is completed when the income will be much higher,” specifies the trustee.
Thus, it was agreed with the creditors to pay a total sum of $170,000 over a period of seven years (84 months). At the beginning, the monthly payments will be $400 in order to respect Arthur’s budget, then they will gradually increase and will be much higher during the last two years when he will be practicing his profession with a salary accordingly.
“Some students have access to large lines of credit, which is an interesting tool for financing their studies and paying for current expenses. However, this can be a double-edged sword, which is why it is essential to make a budget, to use the available amounts wisely and not to buy luxury goods or treat yourself to trips,” concludes Patrick Roberge. He adds that the worst mistake to make is to think that the high income at the end of studies will allow you to regularize the situation, especially in a context where interest rates are very high.
HIS FINANCIAL SITUATION
Active:
· Toyota Corolla 2020
Debts:
· Credit cards: $5000
· Line of credit: $350,000
· Student loan: $25,000
TOTAL DEBTS: $380,000
Monthly income:
· Resident salary: $3150
· Bourse: 800$
TOTAL INCOME: $3950
Monthly expenses:
· 3550$ (including rent, telephone, electricity, gas, groceries, license and registration, insurance, gas, etc.)
