Personal Finance

Will banks cooperate once payments are missed?

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  • Feb 24th, 2020 9:31 pm
[OP]
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Jul 5, 2004
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Will banks cooperate once payments are missed?

Been helping out a close family member for a while now. They are in a financial mess. It's been ongoing for a while now, and although they listened to a lot of what I said (such as get MBNA 0% cards, lower interest rates on CC's, etc), they never made the financial sacrifices to actually pay down the debt. They've just added more and more debt over the years and now they're barely keeping their head above water. They just don't have any financial sense at all

Anyway, they are on the verge of missing payments. They have maybe 6 months left at most and they will be missing payments. There's about $100k in debt. They make a lot too, so paying it off is possible, just not with the current rates, terms, etc.

They put me on the phone with a couple of their banks to try to figure something out. I tried converting a LOC and CC into a loan (all from the same bank) which would have resulted in much lower interest rate. The bank wouldn't approve it, even though that bank isn't taking on any extra risk, as they are not giving out any extra credit.

Another bank I spoke to wouldn't lower the interest rate of the CC. They said they had no products available (they don't on their website).

Another bank wouldn't lower the rate on their LOC. They had increased it several times recently due to his poor credit score.

In the end, I had no luck. None of them would budge. I explained he's going to start missing payments, but they didn't seem to care.
So my question is, once he starts missing payments, which he will in time, will the banks work with him to pay off the debt? I'm struggling to understand this mentality. If they shut down his revolving credit and give him a loan at a decent rate, they get their money. If they don't, he misses payments and likely ends up in bankruptcy or consumer protection. I am trying really hard to help him save his credit, but it's to the point where his income isn't high enough anymore. He needs lower rates, but the banks won't budge.

Should I tell him to just go see a bankruptcy trustee now or is there a chance the banks will be more willing to worth with him once he falls behind? I don't know what other options he would have available to him.
45 replies
Deal Fanatic
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Jan 31, 2006
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10% chance of a bank will cooperate with you once you start missing payment. applying a 0% balance credit card might be an option. A bankruptcy or consumer proposal will not do you anything good ( you have to live with no credit card, no loan, etc...) for sometimes.
Deal Fanatic
Nov 22, 2015
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It would probably be best to arrange a meeting with you and your family member to sit down with a representative or manager at their main FI.

Yes, bank reps are sales-oriented, but this is one scenario where a good bank rep can be your best advocate.

I worked at a bank for 5 years; I'm relatively confident that I could get your family member approved for a consolidation loan. It may require an initial decline / resubmission / exception request / additional loan notes, etc.

Something along the lines of: "Shaner is seeking $X funds to consolidate debts X,Y,Z. Shaner has been a client for over X years with no previous history of delinquency. Debt has been accumulated as a result of _____, and client is now working to pay off the debt within 4 years. Client has excellent credit and sufficient income to support the loan application. Beacon score xxx, TDSR xx%, GDSR xx%. Client also has $XX in liquid assets and $XX worth of securities to fall back on. Please note that client is not seeking new funds and solely looking to consolidate the existing debts. Should an approval not be possible, please recommend other avenues to recover this debt. Recommend to approve. Thank you."
Deal Fanatic
Dec 5, 2006
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Markham
I think scotiabank can do it. I think it's called restructure (?). But you have to go to branch

But go to delinquent and ask them to provide relief rate might be a good idea.
Deal Addict
Jan 15, 2017
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Shaner wrote: ... they never made the financial sacrifices to actually pay down the debt.

... They make a lot too...

...his poor credit score...

...He needs lower rates, but the banks won't budge....
The banks won't budge as this is not a problem that is solved by lowering interest rates. This is a spending problem. Your family member has all the tools that they need to solve this problem - they must cut back on their spending. Lower interest rates will help you pay less, but they won't help you get out of debt one little bit if you keep over spending - they just help you accumulate the debt a little slower.

The people you spoke with at the banks are sales people. They have sales goals to meet every week, so if they were unable to help, you can be sure, things are really tight for your family member. Speaking with a bankruptcy trustee is certainly an option and one I would strongly recommend. Just to discover their options and have another opinion on their situation. Who knows, perhaps it will be the wake up call they need to reign in their spending and avoid bankruptcy.
[OP]
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skeet50 wrote: The banks won't budge as this is not a problem that is solved by lowering interest rates. This is a spending problem. Your family member has all the tools that they need to solve this problem - they must cut back on their spending. Lower interest rates will help you pay less, but they won't help you get out of debt one little bit if you keep over spending - they just help you accumulate the debt a little slower.

The people you spoke with at the banks are sales people. They have sales goals to meet every week, so if they were unable to help, you can be sure, things are really tight for your family member. Speaking with a bankruptcy trustee is certainly an option and one I would strongly recommend. Just to discover their options and have another opinion on their situation. Who knows, perhaps it will be the wake up call they need to reign in their spending and avoid bankruptcy.
It was a spending problem. It is beyond that now. I've sat down with them and compared their income vs expenses. After paying bills, there's nothing left. Other than a vehicle he's upside down on, there's nothing to even sell, other than furniture, clothing, etc.

It's to the point where the interest rates on his credit cards are resulting in interest charges that are making it impossible for him to pay it down. It was a spending problem and 100% his fault despite me trying to help. In fact, my advice to use MBNA 0% balance transfers just seems to have made the problem worse. Now he has 2 maxed out MBNA cards as well.

Anyway, the point of this thread was to find out from those more experienced/knowledgeable than me if the banks would work with him once he falls behind on payments. I would rather him be 60 days late on a couple payments than go through bankruptcy or a consumer proposal. At least a few late payments won't destroy his credit completely. But if the banks will never budge, then I'll just tell him to go see a bankruptcy trustee. No sense delaying the inevitable.

Seems odd to me though. If they worked with him, they get all their money, just at a slightly lower interest rate. If they don't, he declares bankruptcy and they don't get their money, at least not all of it.
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Jul 29, 2013
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Shaner, I do not get the friends lack of understanding of his financial situation. As in when in financial trouble he maxes out his low interest credit cards. There must be a load of denial.

You have been trying to help but still he is not seeing the full picture. I think he is a lost cause because he is not going to change and you are wasting time taking to help him. He has done nothing to help himself. Get him out of this mess then he will be in another.

Please think about your sanity and cut ties with him.
You can only do so much and you have done it.
Deal Guru
Feb 9, 2006
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Brampton
Depending on the situation they're better off refinancing/consolidating.

Banks would just sell off the loans to collections if they need to drop the rate beyond a certain point
[OP]
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Jul 5, 2004
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profile wrote: Shaner, I do not get the friends lack of understanding of his financial situation. As in when in financial trouble he maxes out his low interest credit cards. There must be a load of denial.

You have been trying to help but still he is not seeing the full picture. I think he is a lost cause because he is not going to change and you are wasting time taking to help him. He has done nothing to help himself. Get him out of this mess then he will be in another.

Please think about your sanity and cut ties with him.
You can only do so much and you have done it.
If it was a friend I wouldn't be doing what I'm doing. It's family. You don't cut ties with family over CC debt.

There's just 2 options at this point. Bankruptcy or lower interest rates. He has zero money. He can barely afford to put gas in his car. He realizes the situation he is in. The only question now is the best way to get him out of it and hopefully minimize damage to his credit.

Was just hoping the banks will cooperate once they realize they aren't going to get their money if they don't.
Deal Addict
Jan 15, 2017
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Shaner wrote: It was a spending problem. It is beyond that now. I've sat down with them and compared their income vs expenses. After paying bills, there's nothing left. Other than a vehicle he's upside down on, there's nothing to even sell, other than furniture, clothing, etc.

It's to the point where the interest rates on his credit cards are resulting in interest charges that are making it impossible for him to pay it down. It was a spending problem and 100% his fault despite me trying to help. In fact, my advice to use MBNA 0% balance transfers just seems to have made the problem worse. Now he has 2 maxed out MBNA cards as well.

Anyway, the point of this thread was to find out from those more experienced/knowledgeable than me if the banks would work with him once he falls behind on payments. I would rather him be 60 days late on a couple payments than go through bankruptcy or a consumer proposal. At least a few late payments won't destroy his credit completely. But if the banks will never budge, then I'll just tell him to go see a bankruptcy trustee. No sense delaying the inevitable.

Seems odd to me though. If they worked with him, they get all their money, just at a slightly lower interest rate. If they don't, he declares bankruptcy and they don't get their money, at least not all of it.
If you are asking whether some bank employee will voluntarily lower interest rates when he starts missing payments - generally no - the only time they generally do that is when a third party is involved like a bankruptcy trustee or debt counsellor. You have to keep in mind that debt is priced based on risk and right now any new debt for your family member will be considered very high risk and will have high interest rates.

The challenge is there is no guarantee that if the interest rates were lowered that your family member will completely repay what is owed. Based on the fact that your suggestion of a balance transfer did not work, lowering interest rates would more than likely simply increase the total debt and increase the eventual loss for the lender. As let's face it, it sounds like bankruptcy is eventual for this guy.

There are always areas where expenses can be cut, just as there are always areas where income can be increased. Just depends on what your family member is willing to do. Right now it doesn't sound like he is willing to do anything. A meeting with a bankruptcy trustee might be enough to motivate him as you mentioned that the income is high and this will mean that his payments to the trustee will also be high - aka - he's going to have to make the cuts to his expenses even in bankruptcy. Bankruptcy is a life line that he may actually need at this point.
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Dec 5, 2006
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Can we just discuss OP's question here?
[OP]
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Jul 5, 2004
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smartie wrote: Can we just discuss OP's question here?
It's been discussed. Seems like only option is to go through bankruptcy. Sounds like the banks won't work with him to avoid that process. Seems odd to me but I don't make the rules.

I'll just tell him to go meet with a bankruptcy trustee and he can go from there. Will be a lesson learned for him I hope.
Deal Addict
Jan 1, 2013
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Durham
If he has the resource I wouldn't go as far as bankruptcy. What about Consumer Proposal? Or there are companies that will negotiate debt. It reflects on their credit but not as severe as the latter. I think its called a debt management plan.
[OP]
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Kkhan15 wrote: If he has the resource I wouldn't go as far as bankruptcy. What about Consumer Proposal? Or there are companies that will negotiate debt. It reflects on their credit but not as severe as the latter. I think its called a debt management plan.
My understanding is a bankruptcy trustee can do all of that stuff. I don't know much about it though, but that's just what I got from limited reading. I was hoping to help him avoid that altogether, but what's done is done. It doesn't appear the banks will ever budge, even if he falls behind, so I'll just recommend he see a trustee and he'll be on his own from there.
Deal Expert
Aug 22, 2011
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Does he own a home with some equity?
A HELOC would be a good starting point.

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