Case History: Avoiding a Second Bankruptcy
‘Yvette & Georges’ (not their real names) filed and successfully completed bankruptcy in Quebec in 1992. In 1995, they moved to Toronto where they were able to find jobs that matched their professional training.
Through careful planning and effort, they rebuilt their credit rating and established a good life for themselves and their three children. However, their lifestyle was dependent upon them both working.
In 2009, Georges lost his job due to downsizing. Several months after losing his job, Georges had a heart attack that made it impossible for him to continue looking for work for over a year and a half. Now in his late 50’s, Georges was unable to find work in his profession, and physically unable to take on labour-intensive employment.
Yvette was able to keep working during Georges’ illness – however she could not pay all the bills and once their savings were used up, the family fell further and further into debt.
During Georges’ recovery, two of their children entered university and the third moved back to Quebec to work in his chosen career. As both Yvette and Georges believed that their heavy student loans had greatly contributed to their first bankruptcy, they tried to help their children out as much as possible, by having them live at home while they went to university.
By mid 2011, the stress of unpaid bills became unbearable. In desperation, Yvette was taking out payday loans – (one of the worst forms of borrowing) and no one was answering the phone for fear of collection calls.
Reluctantly, Yvette & Georges decided that they had to file for bankruptcy, again.
During their first meeting at David Sklar & Associates, they spoke with Richard Sklar, Estate Administrator, and reviewed their financial situation in detail.
Fortunately, since they had filed bankruptcy in 1992, the Bankruptcy and Insolvency Act had been expanded to include Consumer Proposals. Richard reviewed both options.
At the time of their first meeting, their finances were as follows:
- Yvette Net Per Month $4,500
- Georges Net Per Month $0
- 2007 Car – valued at $10,000 with a secured (encumbered) $11,150 loan
- Canada Savings Bond $1,000
Unsecured Debts Owing:
- Credit Cards $7,000
- Unsecured Bank Loans $35,000
- Payday Loans $3,250
- Rent Arrears $6,000
- *Unsecured Co-signed Loan $3,500
Total Unsecured Owing $54,750
*Yvette co-signed a loan for her sister, who had since defaulted on the loan.
With the exception of the co-signed loan debt, all of the family’s debt was held jointly by Georges and Yvette.
At the time of their meeting with Richard Sklar in 2011, the Office of the Superintendent of Bankruptcy (OSB) had set the level for Surplus Income for a family of four at $3,579 per month. Since Yvette was earning $4,500 net per month, that meant they would be making monthly Surplus payments of $460.50. Note: Bankrupts pay 50% of the income they earn over the level set by the OSB therefore: $4,500 – $3,579 = $921, $921 x 50% = $460.50.
Since this would be Yvette and Georges’ second bankruptcy, they would be looking at a bankruptcy period of 36 months, during which time they would make monthly payments of $460.50 into their bankruptcy estate for disbursal to their creditors by their Bankruptcy Trustee. $460.50 x 36 months = $16,578. In addition, the $1,000 Canada Savings Bond would also be paid into their bankruptcy estate for a total of $17,578.
A Consumer Proposal. A good idea with Avoiding a Second Bankruptcy
However, they had the option of making a Consumer Proposal to their unsecured creditors, which would enable them to avoid bankruptcy. In order for most Consumer Proposals to be accepted by creditors, debtors need to offer the unsecured creditors more money that they would receive in a bankruptcy.
Neither Yvette nor Georges wanted to go into bankruptcy, so the idea of a Consumer Proposal was very appealing. They decided to make a joint Consumer Proposal of $27,000 – which would be paid monthly at the rate of $450 per month, over a 60-month period.
Working with Richard and the trustee, they prepared and submitted a Consumer Proposal to their creditors, who accepted the proposal.
Yvette and Georges have begun making their proposal payments. They remain optimistic that Georges will find suitable employment – however, they are now able to live on Yvette’s income.
Should Georges find employment, it will not affect the amount owing on the Consumer Proposal, and should enable them to pay off the proposal sooner, if they which.
Having a second chance at a fresh start, without having to go into bankruptcy a second time, has removed much of the stress that both Yvette and Georges were under.
To protect our clients’ privacy, details of this case have been altered.