“You know that I invested the $80,000 inheritance I got when my mother passed on, in a rental condo. Well there are big problems. It was discovered about a year ago that the whole building is contaminated with asbestos. It’s in all the walls. When my tenants found out they moved out. I was also assessed $40,000 by the condo association as my part of the cost to rip open the walls and remove the asbestos insulation and replace it with safe insulation.”
“I can’t believe it.” Alice said. “I thought you had the building inspected for that, amongst other things.”
“I did!” Sam said, “But the inspector missed it and now that company is out of business.”
“Oh, my God!” Alice said, “What’s going to happen? Will we lose our house? How much do you owe?”
Sam told Alice that he had to use his credit cards to make the mortgage payments on the condo, since he had no tenant. The credit cards were “maxed out” to the tune of $30,000.
But that’s not the worst Sam said, “The building is now stigmatized and the condo that I paid $250,000 for is now probably only worth $150,000 and that doesn’t include the $40,000 condo assessment that I still owe!”
Sam and Alice talked over the problem that evening. They decided that they needed professional help. Alice mentioned that her friend Betty and her husband had a financial problem about a year ago and they consulted a trustee in bankruptcy.
“I’ll ask Betty tomorrow if they felt comfortable in dealing with that trustee and if so I’ll arrange for a meeting.” Alice said, “Don’t worry Sam. We’ll get through this.”
Sam said, “Thanks Alice. I feel better already. I know I have let you down but your support is fantastic. You’re the best!”
Sam and Alice were now in the waiting room of the trustee’s office. The receptionist had got them coffee and made them feel welcome. In a few minutes the trustee came into the waiting room and introduced himself as Bob Jones and asked them to come with him so they could talk privately.
Sam gave Bob Jones the information form that he and Alice had filled out the evening before.
“Please give me a few minutes to read and absorb this information.” he said.
After a few minutes Bob asked Sam a few questions:
- Who was putting the most pressure on him?
- Have you listed all your debts and assets?
- Have you made any extraordinary payments to any creditors including family in the past year?
The trustee asked them if they knew how bankruptcy and consumer proposals worked.
Sam and Alice said they had read information on Bankruptcy Canada about bankruptcy and consumer proposals. Bob discussed the rules regarding bankruptcy and consumer proposals with Sam and Alice to confirm that their understanding was sound.
Sam asked how the trustee was paid. Bob said that his fees were set by the government and came out of the payments Sam would be making.
The trustee told them that he felt a consumer proposal would allow them to keep their home and make payments to their creditors that Sam could afford and that the creditors would accept. The trustee also informed them that the consumer proposal would only pertain to Sam and not Alice since Alice had not guarantee any of Sam’s debt.
The trustee summarized Sam’s debts and assets as follows:
- Sam’s car – Value $5,000 with no debt against the car. Sam would keep the car since it was less than Ontario’s vehicle exemption of $5,650;
- Sam’s RRSPs – Value $30,000. Sam would keep the RRSPs in accordance with Ontario’s exemptions. Sam had made no contributions in the previous 12 months so there was nothing to repay.
- Sam’s tools of the trade consisting of a laptop computer, an iPhone, an iPad, a printer/scanner and various computer accessories all would be retained by Sam since they were within the Ontario exemption of $11,300.
- Household goods and clothing – would be retained by Sam since their garage sale value was within Ontario’s exemptions of $11,300 and $5,600 respectively.
- Family home Value $300,000 less Mortgages, and hypothized real estate commission, and property taxes of $280,000 = $20,000 @50% for only Sam’s portion = $10,000.
- Sam’s debts:
- Credit cards = $30,000;
- Condo Investment: Value=$150,000 less mortgage of $150,000 less condo assessment of $40,000 for a shortfall of $40,000.
- Sam’s monthly take-home pay was $5,000 which with 4 dependents, including Sam meant that the payment Sam was required to make (2014/2015 Superintendent of Bankruptcy Standards) was $629.00/month.
The trustee asked if Sam could afford to make payments $500.00 a month for 5 years. The trustee reminded Sam that he would not be making any payments on the credit card debt nor on the investment condo since he would give that up. Sam and Alice said they could afford that. The trustee also told Sam that the consumer proposal could be paid off sooner than the 60 months.
The trustee said that a consumer proposal, to be accepted by the creditors, had to offer them more than they would receive in a bankruptcy. He said the comparison would be as follows:
|Income payments||$13,209.00. ($629 @ 21 months).||$30,000.00. ($500 @ 60 months).|
|Sale of home||$10,000.00||N/A|
|% payment is of $70,000 debt||33.2%||42.9%|
Bob, the trustee, asked Alice what she thought.
Alice said she was really ambivalent on whether the consumer proposal was accepted or not, since if Sam went bankrupt Alice’s parents would pay $10,000 for Sam’s portion of the home and have it all in Alice’s name. She also pointed out that the family would save approximately $7,000 if Sam went bankrupt and in 21 months when Sam was discharged he could start to rebuild his credit. Alice noted that this would be 39 months sooner than in a consumer proposal.
Bob said that Alice was spot on in her analysis.
Bob ask Sam what he thought.
Sam said he would like the consumer proposal accepted as he wanted to be able to say he had never filed bankruptcy.
Sam and Alice told Bob to go ahead and file the consumer proposal.
Sam made the required payments and at the end of 60 months was issued a Certificate of Full Performance and had all eligible debts erased.