Bankruptcy, Consumer Proposal and Foreclosure

If you are currently facing severe financial stress due to a high debt load, you may be able to avoid bankruptcy or consumer proposal by refinancing your mortgage. This will depend on your credit, job situation and your equity in your home. Most lenders will require at least 25% equity in the property. There are some lenders that will go as low as 15% equity provided the property is easily marketable.

Refinancing could allow you to save your credit and reduce monthly payments to a more manageable level. You need to act NOW so that fees and penalties do not erode your equity in your property.

There are many so called "real estate investors" that will offer to purchase your property so you can pay off your debts. While this is another option for you, you should talk to us first since you may not be getting the best deal from your purchaser.

What should you do after a Bankruptcy or Consumer Proposal

You need to re-establish credit as soon as you can.  This is the process of obtaining credit and ensuring that you pay your debts religiously.  At the start, it will be hard to obtain credit.  You can start by obtaining a secured credit card or purchasing a vehicle with a larger down payment.  What ever type of credit you chose to get, be sure that the creditor reports this debt to the credit bureaus.  Some car loans are not reported to the credit bureau.  We also recommend that you take out more than one debt since lenders will want to see your diligence in paying several trade credit lines.

You should know that the credit bureau will purge your record of bankruptcy after 6 years from date of discharge in the case of single bankruptcy.  A consumer proposal will purge after 3 years from date paid.  This means that it is in your best interest to pay off your consumer proposal as soon as feasible.

Can you still get a Mortgage after declaring Bankruptcy or Consumer Proposal?

In general, lenders will want to see you develop a strong track record of repaying debts on time after bankruptcy. You may need to have at least 2-3 years solid track record of repaying your debts on time before your application can be considered for a mortgage.  Even at that, obtaining a mortgage is still an uphill battle and you cannot expect to get the best interest rate.

There will also be some mortgage programmes which you will not be eligible for such as zero down payment programmes, stated income programmes, and rental investment programmes.  We realize that declaring bankruptcy or consumer proposal can be unavoidable, however, you need to realize that there is a significant impact on your ability to purchase property with a mortgage. 

Your duties as a bankrupt include: (1) returning all credit cards to the trustee; (2) attending creditor meetings, if requested; (3) Inform the trustee of any material change in financial status including any windfalls, family additions.

After bankruptcy, you will make payments to the trustee who will pay your creditors. The amount you pay to your creditors depends on your financial situation and your income. You will be allowed to keep a minimum income set by the Office of the Superintendent of Bankruptcy (OSB).

If you are a first time bankrupt, you are automatically discharged within 9 months after filing bankruptcy unless a creditor, trustee or the OSB objects.

After you are discharged, you may not qualify for traditional financing until after 2 years after discharge. There are exceptions such as if you have a significant down payment. There are non-traditional lenders that will provide financing after discharge.

Consumer proposal

After reviewing your situation, the Trustee prepares a proposal to your creditors. Creditors need to accept your proposal before you can proceed with this avenue.

Consumer proposals generally last from a period from 3-5 years. During this time, the debtor makes payments to the trustee based on the agreed proposal. After all debts are paid, traditional mortgage lenders generally require 2 years before they provide mortgage financing.

Foreclosure

Lenders will not begin foreclosure proceedings unless the borrower has defaulted on payments. If a lender is demanding repayment, you need to act quickly. Let us evaluate your situation to determine whether we can refinance your debts. This may involved taking out a second mortgage to bring your payments up-to-date. If you've let some time pass since you've make your payments, we may need to take out a new mortgage to repay your current mortgage.            

Legal

Resources:

• Equifax's website  - credit bureau
• Transunion's website - credit bureau
• Credit Counselors of BC - BC's non-profit credit counseling service
• Office of the Superintendent of Bankruptcy, Government of Canada

"My job is done when you know your options"