Melisa: Co-signing Loan Dangers & Bankruptcy in Mississauga

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Bankruptcy Mississauga – Family Stress

The following Mississauga bankruptcy case history is an excellent example of some of the problems that can be caused by co-signing loans.

‘Melisa’ (not her real name) was a hard-working, bright woman in her early 20s. Ambitious to have a successful career, she had returned to school and taken a two-year business course. Unable to get student loans to finance her education, she had taken out a student line of credit with her bank – which her mother co-signed.

Although she had done extremely well with her studies, when she graduated, she was unable to find a job in her new field for over a year. She was able to get some temporary work while looking for full-time employment, but it was not enough to enable her to keep her payments to the bank up to date.

Collection Calls & Possible Garnisheed Wages

Shortly after she found a job in her new field, while she was still in the 3-month probationary period, her bank began to make collection calls, threatening to place a garnishee on her wages. In addition, her bank began to call her mother ‘Joanne’ (not her real name) , who as the co-signer, was also responsible for repaying the debt.

Melisa was panic stricken, she realized that her employer would take a very dim view of a garnishee, and it could result in her being let go before her 3-month probationary period was up. She also was concerned about the damage this stressful situation was taking on her relationship with her mother and her mother’s fragile health.

Taking the next Step

On the advice of a friend, Melisa set up an appointment with David Sklar & Associates at their Mississauga office – to see what could be done.

During her initial meeting with Rhoda Lewis, Estate Manager – Melisa laid out her finances:

  • Income: $2000/month
  • No assets beyond those exempted from bankruptcy by the Ontario Execution Act
  • Total Credit Card Debt $1,200
  • Co-signed Loan – $8,000

After Rhoda and the Trustee explained all of her options to her, Melisa decided to file for bankruptcy rather than file a consumer proposal – as she was concerned about her ability to pay a proposal if she was unable to keep her new job.

Since Melisa did not have any Surplus Income, as per the guidelines from the Superintendent of Bankruptcy, she qualified for a 9 month bankruptcy.

Before filing for a bankruptcy, Rhoda recommended Melisa open a bank account at a different bank, and have her paycheques deposited to the new bank account. Since Melisa did all of her banking with the bank she had her line of credit with, it would be prudent to start using a different bank.

Once David Sklar & Associates filed her bankruptcy, Melisa’s bank had to stop all collection efforts against her.

Fallout for Melisa’s Mother

After Melisa filed for bankruptcy, her bank continued to aggressively pursue her mother, Joanne, for repayment of the line of credit loan. As a co-signer, Joanne was 100% responsible for repaying the entire loan.

Unfortunately, Joanne’s financial situation was already precarious due to a recent illness, and she was experiencing difficulty meeting her own outstanding debts. With no other viable option, Joanne filed a Consumer Proposal – which stopped the collection efforts of the bank, and eased her financial stress.

Aftermath

Although the relationship between Melisa and her mother improved with time, the stress they both experienced has not been forgotten.

To protect our clients’ privacy, aspects of this case study have been altered

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