Bankruptcy and mortgage refinance not the answer
Recently I received an email from someone complaining she could not get out of debt.This perked my curiosity, but if you read on, you will also understand why.
“Dear Ross I am a hard working immigrant living in my own home with my mother and my sister’s family. They pay me rent, but it’s not enough to cover the bills. Over the past few years I have accumulated some debts, and refinanced my house a couple of times, trying to make ends meet, but I am still short by $2,000 to $3,000 each month.
Recently I have been to see a couple of trustees in bankruptcy, and they have both warned me my bankruptcy would be opposed. Is this right? How am I going to get out from under $230,000 in unsecured debt??”
Dear lady, yes it is very likely your bankruptcy would be opposed – if not by your trustee, then almost assuredly by the Office of the Superintendent of Bankruptcy – who would likely invite you to an examination hearing sometime during the first 8 months of your bankruptcy.
And if they are not satisfied with your answers to their questions, they would instruct your trustee to oppose your discharge, and you would be ordered to appear before a Registrar in bankruptcy court. At that time, the Registrar would determine whether or not to grant you a discharge, and under what terms.
Your mortgage payment is $1,900 per month; you are leasing a brand new car at $428 per month, and your take home pay is around $1,500 per month !! Without credit repayment, your monthly nut is around $4,000. And minimum payments on $230,000 of unsecured debt are at least $6,000. This is fire engine red alert time!
The main question on everyone’s mind is “how could she possibly have qualified for all that credit? Sure, some of it fell into your lap, but not this much!”
Sure, some of it fell into your lap; and there were some automated increases of your credit limits – but with your income, you should never legitimately have accumulated so much available credit. The conclusion is your application information must have been falsified in some way. Even your mortgage (over $400,000) should never have been approved.
Secondly, available credit is NOT supposed to be used as income to cover your daily living expenses. Yes, it is true that in most insolvency cases, there is often evidence the insolvent began to dip into their credit in order to survive, but your case seems like a systematic abuse of your credit privileges. You should not be surprised if some of your creditors oppose your discharge, and you are eventually ordered to repay some of the credit you have used over the past few years.
If you want to avoid an unpleasant experience over the next year, you might want to consider some drastic changes in your life. Repent your sins. Sell your home, and offer all the net proceeds to your creditors (through a trustee) as a lump sum consumer proposal.
If this works, you would have a fresh start, and be able to get on with your life without any more debts, and without the costly burden of home ownership and supporting your relatives.
There is a reasonable chance your proposal would be accepted, since creditors do appreciate a return, however modest, on their bad debts. And you would not have to go through the potentially excruciating and embarrassing process of a protracted, contested bankruptcy.
So stop feeling sorry for yourself, and understand you have abused the system, and it’s time to make amends and start afresh.