Medical student with $380K in debt must make arrangements with creditors

Arthur is a medical student. He has about five years left before he can complete his residency and start practicing. But his long studies and lifestyle have led to excessive debt.

“I was studying another field before I went into medicine, and over time I accumulated a lot of debt. 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 above all, it’s his $350,000 credit limit that’s weighing him down. With the recent increase in interest rates, the amount he has to pay each month has increased even more, to more than $2,200 per month. Even if he could rely on his resident income, it’s not enough to cover his expenses and pay off his debt.

He realized that he would not be able to overcome this problem on his own, so he went to see a specialist.

caught up with reality

Patrick Roberge, licensed insolvency trustee at Raymond Chabot, points out that this type of file is not uncommon. “We are seeing them more and more, and the scenarios are almost always similar. As part of certain studies (in engineering, medicine, veterinary medicine or dentistry for example), young people are granted large margins of up to $100,000 and more. With the rise in interest rates in recent months, we are seeing an increase in financial problems.

Arthur, because he was paid a living wage and also had access to a generous line of credit, tended to spend without worrying too much about the consequences, confident in the fact that in a few years he would have a comfortable salary that would allow him to pay it all off. But reality caught up with him long before he started his practice.

Concordat proposal

The young man wanted to avoid bankruptcy at all costs, even if it was possible given his current income level compared to the size of his debts.

What other option did he have left? “The consumer offer was not possible, because his debt was greater than $250,000, which made him ineligible,” says Patrick Roberge. Plus, this type of agreement only lasts for a maximum of five years (60 months), which would not be enough for Arthur.

In his case, the most appropriate option is to propose an arrangement. “The proposal of arrangement is not limited in time. “So we can make a long-term offer and increase the amounts to be paid once the residence is completed when the income is much higher,” the trustee specifies.

The creditors agreed to pay a total of $170,000 over seven years (84 months). Initially, the monthly payments would be $400 to accommodate Arthur's budget, and would gradually increase and would be much higher during the last two years when he would be practicing his profession on a similar salary.

“Some students have access to large lines of credit, which is an interesting tool to finance your studies and pay current expenses. On the other hand, it can be a double-edged sword, which is why it is essential to budget, use the available amounts wisely and not buy luxury goods or indulge in trips,” concludes Patrick Roberge. The worst mistake you can make, he adds, is to say that a high income at the end of your studies will level the playing field, especially in a context where interest rates are very high.

Her financial situation

active:

Toyota Corolla 2020

Debts:

Credit Cards: $5,000

· Line of Credit: $350,000

· Student Loan: $25,000

Total debt: $380,000

Monthly income:

· Resident Salary: $3,150

· Scholarship: $800

Total Revenue: $3,950

Monthly expenses:

· $3550 (including rent, phone, electricity, gas, groceries, license, registration, insurance, gas, etc.)