John and Melissa’s Story

Earlier in the week I had a couple come into my office for a free consultation here in Barrie Ontario, their names were John and Melissa (not their real names of course). They explained to me that John had been out of work for a year and a half due after cut backs at work. Over the year and a half John was collecting EI and Melissa was working as a RN at the hospital. They were able to pay for their mortgage and living expenses, but have fallen behind on paying their credit cards and their line of credit from the bank.  John is now back to work full time and they are both very stressed out with collection agencies calling all the time and about a week ago they were served with a statement of claim from one of their creditors saying the creditor is going to garnishee John’s wages.

They were both very worried as they can’t afford to have John’s wages garnisheed and they said to me that they need to go bankrupt and get a fresh start. I told John and Melissa that a bankruptcy may be a good option, but there is another option that we have that could be a better option than a bankruptcy. They told me that their total debt was around $75,000 and that most of the debts are joint debts. Steve makes $2,500 per month and Jackie makes $3,200 and they have 3 young children.

I saw a look of surprise come over their faces when I mentioned that a consumer proposal may also be a good option for them. I told them that a consumer proposal is a deal that we can help them to pay off a portion of their debts over a period of up to 5 years, the amount that you offer has to be more than the creditors would receive in a bankruptcy and it also has to be a fair and reasonable amount.

After talking some more we determined that their assets are;

–          House –                                $ 10,000 equity

–          Vehicle #1                           $ 3,000 (in John’s name)

–          Vehicle #2                           $ 2,000 (in Melissa’s name)

–          Skidoo                                  $ 1,000 (in John’s name)

–          RESP                                      $ 5,600

Next we talked about what happens in bankruptcy. I explained that the cost of bankruptcy is determined by a couple of things, one being surplus income, I explained to them that a family of 5 is allowed to make a total of $4,059 net income per month and anything more than that they have to pay 50% of the amount that they go over the limit, this seemed to worry John as with his new job he is required to work overtime when asked. Based on their income they would have a total of $17,231 in surplus income which would have to be paid over 21 months. Also in a bankruptcy there are exemptions on assets that vary from province to province and in Ontario, there is no exemption on house equity, the 2 vehicles would be exempt but the skidoo and RESP would not be exempt in the bankruptcy. So with the total surplus, the house equity, the skidoo and the RESP, a bankruptcy would cost them a total of $38,831 over 21 months plus the trustee fee of $200 per month, for a total of $2,049 per month over 21 months to keep all of their assets.

Next we talked about a consumer proposal; I explained to them that in a consumer proposal they get to keep all of their assets and that the payments will also be a lot less then if they were to file a bankruptcy  as the consumer proposal can last up to 5 years. Based on the $33,831 that the creditors would receive in a bankruptcy, I said that we could offer around $600 per month for the next 60 months for a total of $36,000.

John and Melissa now seemed very excited as they feel that they can afford to pay the $600 per month, they can keep all of their assets and they don’t have to file for bankruptcy.

In John and Melissa’s situation a consumer proposal worked perfect for them and it was a much better option for them then a bankruptcy would be. If you want to know how a consumer proposal can be the better option for contact a trustee for a free online evaluation and someone will get right back to you.

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