I met with a married couple last week, with a very common story.
Ten years ago they bought a house. Like many newly married couples they used their credit cards to furnish the house, and to buy things for their growing family. Five years ago they owed $30,000 on their credit cards.
Fortunately for them, their house had increased in value, so they were able to refinance their mortgage, borrow an additional $30,000, and pay off their credit cards.
Unfortunately they continued to spend more than they were earning, and ended up with more credit card debt. Fortunately for them, two years ago their house had continued to increase in value, and they were able to refinance once again, and pay off their credit cards.
They were using their house as though it was an ATM machine, dispensing cash when they needed.
When I first met with them a few months ago, they were somewhat depressed. Over the last year their hours at work were cut back, and they were again using credit cards to survive. They approached their bank, again, and were shocked to learn that they could not borrow any more money against their house. Over the last few months their house had actually declined in value, and with their reduced incomes the bank would not lend them any more money.
What could they do? I suggested a number of options.
First, they could sell their house and rent. Their was still a small amount of equity in their house, and they could use that money to pay down some of their debt. They decided that it was best for their family to remain in their neighbourhood, and renting would cost almost as much as owning, and selling the house would not generate enough money to repay all of their debts, so they decided against selling.
Since we already knew they could not refinance, and since they did not want to go bankrupt, we decided that a consumer proposal was the correct option.
We worked out a budget so that we knew what they could afford to pay each month. We ended up filing a consumer proposal where they will be paying $400 per month for the next five years (although they can pay it off faster with no penalties if they want to). In total they will be paying $24,000, even though their total debts (not including the mortgage) were almost $50,000.
Their creditors are happy, because they know that in a bankruptcy they would only get about $10,000 from the house, and this couple is happy because they know they can afford one monthly payment of $400, and they can keep their house.
I am seeing an increasing number of people in Cambridge who have used the equity in their house to help with their debts in the past; as that becomes more difficult, a consumer proposal may be the answer. If you think a consumer proposal may work for you, please call my office in Cambridge at 519-622-3773, or e-mail me to set up a free initial consultation, and I’ll help you work out a solution that’s right for you.
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