Bankruptcy in Ontario

[jayjd12]

I was going to suggest a relative to seek bankruptcy consultation, but I'm thinking against that given the rules around keeping your house. This person is now unemployed with little to no prospective of future employment (near retirement age). They have monthly income of around $1K and is supplemented every month by support from family. She has credit card debt close to $25K and a car worth less then $5K. The only asset is the house in which the final mortgage was paid off this year (house value close to $250K).

I was under the impression this person would be able to keep the house if they filed for bankruptcy as the debt was unsecured. But reading online it seems like that it's up to the trustee and if they have equity in their house, they make payments to creditors using this? This seems harsh for unsecured credit card debts. Is this the case or I'm reading this wrong?

[Mark77]

Yeah this clearly isn't a bankruptcy case. She should get a HELOC or a small mortgage against the house for $25k -- pay off the credit card debt (and tear up the credit cards). The payments should be small and manageable against the mortgage. And/or consider just selling the house.

If she has a $250k house paid off free and clear -- any bank or mortgage broker in the world would be glad to do business with her. Just shop around.

Just because the debts are general and not secured against a particular asset doesn't mean that the creditors, if she were to default, wouldn't be able to seek a liquidation of the house. If she doesn't pay off the credit card creditors, she will be sued eventually.

[Germack]

http://www.bankruptcy-ontario.org/0ntario_exemptions
Quote:
Will I lose my house?

Whether or not you will lose your house depends on the value of your house, and the amount owing on your mortgage. If you own a house with no mortgage and you go bankrupt in Ontario, you will either lose your house, or you must pay into your bankruptcy estate the value of your house. Most people that declare bankruptcy in Ontario and own a house will have a mortgage on the house. In that case you are required to pay the equity in your house if you go bankrupt. (Equity is the difference between the value of the house and the amount owing on the mortgage). This is a complicated area of bankruptcy law, so we suggest you contact a trustee for more information.

[starboy869]

How about a commsumer proprosal instead? If they can't pay this then they'll probably end up losing their house to pay the debt. It would easier to sell the house, pay the $ owing, and live somewhere else than can afford rent wise.

[wayne74]

The thought of Bankruptcy shouldn't even cross the mind of someone that owns assets, especially a 250k asset, and only a 25k debt. Sell the house, and pay the bills if they can't afford monthly payments on a HELOC or remortgage. Nothing in life is free!

[UrbanPoet]

All they gotta do is get a line of credit secure against the home for $25000... Theyll probably only pay prime+something low since its secure.
It'll be much more managable then 20% cc interest rates.

Or sell the house... Buy a smaller place since they're retired... Pay off the debt and invest whatever left over! Then stretch out whatever cpp/gis/oas they get!

[graniterock]

There are many good bankruptcy trustees that will do an initial consult for free and give good advice. Before your friend gets into it the trustee will be able to tell your friend how the house will be handled. I accompanied a friend to a trustee who talked her out of going through the process.