Government Employees Settle $214,000 of Debt Before Retirement

Government Employees Settle $214,000 of Debt Before Retirement

H.D. and S.D. approached us with a combined total of more than $214,000 in consumer debt. We’ll call them H.D. and S.D. to protect their privacy.

The married couple both worked for the government, although they were employed by different government agencies. They each earned a reasonable income and each had debts in their own name.

Their financial difficulties hadn’t resulted from one major event.

Instead, their debt had accumulated gradually.

Credit card and other consumer debt balances weren’t being paid off in full each month. As interest accumulated and the couple continued making primarily minimum payments, the balances slowly became larger.

Then their circumstances changed.

An Illness Made a Difficult Situation Worse

S.D. became ill and needed to take an extended period away from work.

During that time, she was only receiving a portion of her normal employment income.

The couple still had their existing debts to service, but they now had less household income available to make the payments.

With high-interest balances continuing to accrue interest while they made primarily minimum payments, their debt began growing even faster.

By the time H.D. and S.D. came to see us, their separate debts totalled more than $214,000 combined.

They wanted to deal with the problem, but there was something they particularly wanted to avoid:

Bankruptcy.

There was also another important consideration.

Both H.D. and S.D. were planning to retire in approximately three years.

The Standard Five-Year Proposal Didn’t Fit Their Retirement Plans

Consumer proposals are often structured with monthly payments extending for as long as five years.

For H.D. and S.D., that created a problem.

Their current employment incomes allowed them to make reasonable monthly payments. But approximately three years later, they expected to retire and their regular incomes would decrease.

Designing proposals based entirely on their current incomes and stretching those payments over five years wouldn’t necessarily fit their future financial circumstances.

Fortunately, consumer proposals can offer considerable flexibility in how payments are structured.

A proposal can involve monthly payments, a lump-sum payment, or a combination of the two, provided the proposal is accepted by the creditors and meets the applicable legal requirements.

H.D. and S.D. were both expecting to receive lump-sum payments as part of their retirements.

That created another option.

Structuring the Proposals Around Their Retirement

Rather than requiring the couple to maintain the same monthly payments after retirement, separate consumer proposals were designed around their expected change in circumstances.

Each proposal included:

Monthly payments for approximately three years, followed by a final lump-sum payment.

The monthly portion corresponded with the period when H.D. and S.D. expected to continue receiving their employment incomes.

The final lump-sum payments could then be funded from the amounts they expected to receive upon retirement.

This gave them a repayment structure designed around how their finances were actually expected to change.

How Their Options Compared

Bankruptcy and proposal outcomes depend on individual income, assets, family circumstances, creditor claims and other factors. The figures above reflect H.D. and S.D.’s circumstances at the time.

Turning $214,000 of Debt Into $70,700 of Proposal Payments

The final result was significant.

H.D. and S.D. had more than $214,000 of combined consumer debt.

Under their consumer proposals, they agreed to pay a combined total of $70,700 to settle those debts.

That represents approximately 33% of the original combined debt, meaning roughly $143,300 of debt would not have to be repaid upon successful completion of the proposals.

Just as importantly, interest on the unsecured debts included in the proposals stopped accruing.

Instead of continuing to make minimum payments on growing high-interest balances, H.D. and S.D. now had a defined repayment plan.

The Outcome

For H.D. and S.D., the solution wasn’t simply about reducing $214,000 of debt to $70,700.

It was about creating a debt solution that worked with a major life transition that was already approaching.

They wanted to avoid bankruptcy.

They also didn’t want to enter retirement carrying the same burden of high-interest consumer debt or commit themselves to monthly payments designed around employment incomes they would soon no longer receive.

Their proposals were therefore structured around their actual timeline.

They would make monthly payments while they continued working and earning their regular incomes. When they retired, the remaining agreed amounts would be paid using the lump sums they expected to receive.

Rather than allowing their debt to dictate their retirement plans, H.D. and S.D. were able to create a defined path toward resolving the debt as they entered the next stage of their lives.

Consumer proposal outcomes depend on individual circumstances and creditor approval. The results described here reflect H.D. and S.D.’s particular circumstances and should not be interpreted as a guarantee of similar results for other individuals.