Personal Finance

Will banks cooperate once payments are missed?

  • Last Updated:
  • Feb 24th, 2020 9:31 pm
[OP]
Deal Expert
User avatar
Jul 5, 2004
26884 posts
6104 upvotes

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
User avatar
Jan 31, 2006
8025 posts
2355 upvotes
Toronto
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
6809 posts
6962 upvotes
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 Guru
Dec 5, 2006
13411 posts
8773 upvotes
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 Fanatic
Jan 15, 2017
5309 posts
5424 upvotes
Ottawa
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]
Deal Expert
User avatar
Jul 5, 2004
26884 posts
6104 upvotes
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.
Deal Addict
User avatar
Jul 29, 2013
1783 posts
1530 upvotes
Ontario
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
12991 posts
7772 upvotes
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]
Deal Expert
User avatar
Jul 5, 2004
26884 posts
6104 upvotes
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 Fanatic
Jan 15, 2017
5309 posts
5424 upvotes
Ottawa
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.
Deal Guru
Dec 5, 2006
13411 posts
8773 upvotes
Markham
Can we just discuss OP's question here?
[OP]
Deal Expert
User avatar
Jul 5, 2004
26884 posts
6104 upvotes
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
2078 posts
1378 upvotes
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]
Deal Expert
User avatar
Jul 5, 2004
26884 posts
6104 upvotes
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
38179 posts
24364 upvotes
Center of Universe
Does he own a home with some equity?
A HELOC would be a good starting point.
Deal Fanatic
Apr 16, 2007
8132 posts
3476 upvotes
Financial District B…
Shaner wrote: 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.
The real issue here is the closing of a potentially troubled account with credit history/payment history(maybe some min payments missed in the past and maybe not) and then opening another 'new' account with no 'yet established' history that can be internally evaluated and scored.
Shaner wrote: 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.
Consolidation is a concept that rarely works and/or is rarely offered. Everyone talks about them and that they are an option but the truth of the matter is those who need it most are usually to always already in financial trouble when applying for them.
High tdsr, maxed credit cards, tardiness, over-extended, are all terms well known for denial and rejection of any new credit.

The facts are, yes a consolidation loan is most logical to combine all debts into one for one easy or easier payment option but banks in general dont look at it that way.
We look it as here's a person who is over-extended with high tdsr and is applying for a new credit product.
It does not matter if one or multiple credit accounts will be closed for this new one - the main issue is a client that does not qualify due to the points I made just won't get approved. That's the main mindset at all if not most of the main banks. But, subprime lenders may offer consideration because they operate differently.
Another point is consolidation loans are usually unsecured. There is a thing called a secured consolidation loan. If he owns property then that may be an option.

What your friend really needs is credit counselling. https://creditcounsellingcanada.ca/onta ... unselling/
I am not affiliated to them whatsoever.
They need some professional advice to help with debt relief and money management.
There's a truth to some people who are poor money managers/over-spenders that they need to seriously lose something before they wise up about debt issues.

Based on your postings stating they are soon going to be missing payments, that to me means that they can barely even make the minimal payments on each card?
The banks will work with them to a certain point. They will try to communicate with him/her about how they can catch up. But after R3/R4 rating legal options by the banks will be forthcoming.

My only and best suggestion is for them to seek out an RRSP Loan to settle their financial burden. - That's predicated they have RRSP's

One very last thing you should keep in mind is what does he/she do for employment? Does declaring bankruptcy pose a security risk for his employer?
You may need to find that out before going down that route.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Member
User avatar
Jan 7, 2019
368 posts
373 upvotes
Can you provide some more information? It will help determine the best course of action.

1. Employment + salary
2. Age
3. Renting? Or owns his own home?
4. Any dependents?
5. Breakdown of debt with interest rates
6. Any other information that might be relevant

Getting a full holistic picture is a good start for people to think creatively.
Remember to always Thumbs Up good responses! Spread positively.
Sr. Member
Aug 17, 2013
696 posts
604 upvotes
Toronto
Shaner wrote: 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 make "a lot too, so paying it off is possible" and "just not with the current rates, terms, ect" does not make sense.

So it's not possible to pay it off..... If they could, they wouldn't have have a problem.

Lower rates will only help so much. It's the spending habits. The rates isn't the reason why the debt is $100k, it's buying all the materialist crap in this world (assuming consumer debt).

Just declare bankruptcy and start over.
Deal Guru
Dec 5, 2006
13411 posts
8773 upvotes
Markham
orianna wrote: They make "a lot too, so paying it off is possible" and "just not with the current rates, terms, ect" does not make sense.

So it's not possible to pay it off..... If they could, they wouldn't have have a problem.

Lower rates will only help so much. It's the spending habits. The rates isn't the reason why the debt is $100k, it's buying all the materialist crap in this world (assuming consumer debt).

Just declare bankruptcy and start over.
File bankruptcy doesn't mean you don't need pay. It also impacts next 7 years financial life.

You can't take it lightly
Deal Fanatic
Apr 5, 2016
5975 posts
4422 upvotes
Calgary/Vancouver
superfresh89 wrote: 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."
Omg, LOL! Exactly how I structure my deals but for refinances and HOLCs.

Back when I was working at branch level, I think I only ever had one or two unsecured debt consolidation loans approved and that was really because they were known to my branch manager. Hearing from others, debt consolidation loans require a hefty net worth to even qualify in the first place. May have to talk to a branch manager and see if you can get a hold of a credit risk analyst to help back up your loan. This is why it's good to maintain a good relationship with a branch manager or relationship manager if possible.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)