Jack and Brenda’s story
Jack and Brenda were both employed full time for many years and made their monthly mortgage payments and minimum credit card payments on time. Unfortunately, Jack ran into health issues and had to take time away from work which reduced his income. They fell several months behind on their mortgage payments and the bank took power of sale proceedings forcing them to move into an apartment.
Jack and Brenda had previously filed and completed a consumer proposal and felt their income could support some repayment to their creditors. They were concerned with making payments with the unknown shortfall of the mortgage hanging above them.
Bankruptcy option
Jack and Brenda’s assets (car and household furniture) were exempt and there would be no realization in a bankruptcy. Even with Jack’s lower income, they would be required to make surplus income payments of $800 per month for 21 months and would be eligible for an automatic discharge in 21 months. The first-time bankruptcy would be reported on their credit rating as an R9 for 7 years from discharge and would include the unknown shortfall on the mortgage.
Consumer proposal option
We then discussed offering a proposal to their creditors. Because the majority of the debt was joint, a joint consumer proposal could be filed as their debt was less than $500,000. We estimated the shortfall on the house at $250,000 and clearly noted in the proposal terms that the actual shortfall was to be included in the proposal and estimated the recovery to creditors to allow them to vote on the terms.
Jack and Brenda decided to offer a proposal of $42,000 payable at $700 per month for 60 months. This amount is considerably higher than what would be paid in a bankruptcy, but for personal reasons they felt this was the best solution for them and affordable. The proposal would be reported on the credit report as an R7 for three years from completion and they were hoping to be able to pay it off sooner if Jack could return to work.
Are you facing overwhelming debt and a potential shortfall on a mortgage? You don’t have to wait until the house is sold and the bank is pursuing you for the shortfall to come up with a solution. Reach out to me today and a take the first step to your fresh start now.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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