Confused
September 26th, 2012 by Questions
In debt for $70,000. House has no equity, put 2 children thru University & college used equity in house. Have an income of 6,000. met with a trustee and told us just to keep going, one trustee told us to do a consumer proposal. and the credit counseling told us to claim bankruptcy. Went with a Debt firm and paid them $1,200. for 2 mos. then lost my job. Now am behind in payments on credit cards by 3 mos. personal loan behind 2 mos. Overdraft is $5,000. What a mess. My question is why are we having 3 different answers. My husband and I are 55 yrs old and went to the banks they said no for consolidation, we have been trying to get on our feet but still can’t get off the ground. This has been going on now for over a year and it is not getting any better
Posted from: Ontario
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September 26, 2012 at 7:10 pm, A licensed trustee said:
It sounds like everyone told you “part of the answer”, perhaps the part that made them the most money…
Here’s what you should have been told:
1) Debt consolidation – a new loan or line of credit to pay off your existing debt. Unfortunately, with no equity or other collateral no one is likley to approve you for such a loan. The crime is that you could likely handle the payments if someone would let you…
2) Credit Counseliing – or your debt firm: a 5 year plan with no new interest to repay the $70K in full. This sounds like what you did – $1200 a month for 60 months works out to $72,000. Once you lost your job and stopped paying the plan died…
3) Consumer proposal: this is a plan were you offer to repay part of your debt – it needs to be more than your creditors would get if you filed for bankruptcy and/or at least 1/3 of your debt. We’ll come back to this one…
4) Bankruptcy: the cost is based on household size and income. While you were working with takehome of $6,000 per month and assuming there are only two of you left at home, your bankruptcy payment would have been roughly $1800 per month and it would have run 21 months for a total estimated cost of $37,800. If your spouse has income or if you have any assets that can be turned into cash, this numbner will go up. Of course once you lost your job and your income dropped this number would go down.
Back to the proposal – if my bankruptcy estimate is accurate, you’d need to offer about $42,000 in your proposal, say $700 per month times 60m months. I have to assume since this wasn’t suggested that your spouse must have income and/or you have assets that could be sold which would have made this number equal to your debt. Otherwise some of the people you spoke with really screwed up…
If you had filed the proposal and then lost your job and been unable to make the payments then the deal would have died just like what you did do.
So – go and speak to a trustee about the cost of bankruptcy vs a proposal. Depending on how low your income is now, one of these may make sense…