He bails his son and has to go bankrupt

Six years ago, Simon bought a mobile cafeteria for $110,000, and his father agreed to be a guarantor for the loan. Unfortunately, this decision will have dire consequences.

When Simon bought his own mobile canteen route (van and location), he was very excited and happy to be his own boss. “I invested all my savings — $10,000 — and took out a loan to pay off the remaining $100,000. The bank asked for a deposit, and my father Jack was kind enough to support me.”

At the time, business was doing well, but the pandemic disrupted everything. After months of forced closure, and although activities have since resumed, nothing is as it was before. Many office workers are now working from home, causing a sharp decline in clients and revenue. “I haven't been able to get back on top financially,” laments Simon.

The difficulties he faces are so great that he is now struggling to pay the loan installments. He tried to sell his company, but he was unsuccessful, because it was now much less profitable than before. After refinancing the loan twice to make repairs on the truck and putting money into the business, the outstanding balance is now $78,000.

“However, in the case of a signed or guaranteed loan, all signatories, here Simon and Jacques, are 100% liable. The bank can demand the total amount of debt from each of them,” explains Pierre Fortin, president of Jean Fortin & Co. Who realizes that he will no longer be able to postpone the problem.

$58,000 debt

Simon hesitated before telling his father because he didn't want to worry him. But at a dead end, he had to give in to discussing the matter with him. They then both went to consult a personal financial advisor from Jean Fortin to see what their options were.

Jack is 69 years old and has been retired for several years. He does not trade gold: his income allows him to pay his minimum expenses, but a little more. He has no savings or a home, just a $20,000 RRSP that would be out of reach in the event of bankruptcy or a consumer filing.

As for Simon, he is single and has no assets or savings. Once his business closes, he hopes to find a job that will earn him about $50,000 a year.

Pierre Fortin confirms that “the value of the truck is about $20,000, which will leave the bank with a loss of $58,000, and Jacques will be the only one to pay it because his son is unable to do so.”

Two different solutions

After reviewing the pros and cons of bankruptcy and the consumer's proposal, Jack finally chose bankruptcy. “Due to his low income and since this is his first bankruptcy, he will have to make monthly payments of $170 for nine months. After that, he will be freed from his debts and the stress caused by the situation,” Pierre Fortin states.

As for Simon, due to his young age, he prefers the consumer offer that extends over 60 months. The consultant at Jean Fortin negotiated with the bank and received its approval for an amount of $14,500 to be paid in 60 monthly payments of $242. “With a salary of $50,000, if he had gone bankrupt, he would have had to repay a total of $5,500. It is a smaller amount than with the proposal, but he rightly preferred to avoid bankruptcy,” concludes Pierre Fortin.

advice

• Remember that your signature as guarantor or co-signer will bind you in the future in the event of default. Know the risks and responsibilities before signing. In fact, you should only guarantee a loan to a friend or loved one if you have the ability to repay it.
• Age is a critical factor when it comes to weighing the pros and cons of bankruptcy and a consumer proposition. Because the younger a person is, the more likely they are to experience financial difficulties later in life, after a divorce or loss of a job, for example.
• Best way to avoid a second bankruptcy? Don't make it first! Bankruptcy should be considered a last resort, and when financially possible, it is best to choose a consumer offering.