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How do I know if we are insolvent?

How do I calculate whether we qualify as insolvent? Together our gross annual income is $118K, and our take-home pay of $5677 monthly. Our mortgage is $195K with $181K remaining. We each have separate credit cards and lines of credit, but all together our debt totals about $85K. Monthly debt payments are $1400 – this is just us making the minimum payments on credit cards and paying the interest on the lines of credit. We are struggling to meet all our monthly household bills and debt payments and have no savings. Any emergencies or unexpected expenses have to go on our credit cards.

Posted from: Nova Scotia

One Response to “How do I know if we are insolvent?”

Doug Stuive, CA | Trustee | CIRP said...

Based on what you have described about your situation it appears that you would qualify as ‘insolvent’ under the Bankruptcy Act. You are considered to be insolvent when debts exceed the value of your assets and when you are unable to meet your payments as they fall due. You do appear to have some equity in your home but the debt that the household is carrying far exceeds any equity in the home. Based on current lending practices you would not be in a position to borrow against your home to contribute to your debts either.

With your income level you may be in a good position to consider a consumer proposal. This option allows you to make one monthly payment to your creditors that is based on your ability to pay. The consumer proposal also stops the high interest charges and will allow you to eliminate the debt in no more than five years. As the monthly payment is based on your budget it should also free up some cash flow and allow you to put aside money for those unexpected expenses so you can end your reliance on credit.

Contact a licensed Trustee in your area to talk more about this option.