Preparing for Bankruptcy

I plan to declare personal bankruptcy in the next few months. My husband will not be involved however, we have a personal joint loan (not a cosigner). If I declare bankruptcy, what happens to this personal loan? I have my old clunker as collatteral. If I declare and the loan is combined in the bankruptcy, will I lose my car?

Also, can I switch the RESP’s for my son to my husband’s name so I don’t lose them?

One Response to “Preparing for Bankruptcy”

Barton Goth, GCO Inc. Bankruptcy Trustees said...

If you file bankruptcy this will essentially remove you from the loan but your husband will be responsible that the loan is paid in full. If you have given the right to any collateral this right operates in advance to the bankruptcy, so the only way you can retain that property is to ensure the loan is paid in full. If this is the same loan as your husband has signed, he will be doing this anyway so you won’t have to worry. I don’t understand what you mean by if the loan is combined in the bankruptcy, but a bankruptcy doesn’t have the ability to combine loans, all contracts remain in place, you are simply discharged from the debt.

As for the RESP’s, switching these into your husbands name is not a good idea as the trustee will be required to obtain a court order to void the transaction and have the funds paid into your estate. Also, having taken part in this type of reviewable transaction there is a very good likelihood that your discharge would be opposed as you were not acting in an honest and appropriate fashion and the court would impose some sort of penalty for your involvement in this.

However, an alternative may be for you to agree to pay an amount equal to the “cash-out” value of the RESPs to your trustee in addition to whatever other amounts you may be required to pay. The advantage of this approach is that you won’t lose the benefit of the government money that has been added to the plan. If you are going to make monthly payments to create a new plan, you might want to discuss this alternate approach with your trustee first.