Question: My wife has over 60,000 in unsecured debt and has lost her job for medical reasons. All of her secured debt is joint with me (145,000 mortgage and 35,000 loan with 3 vehicles as collateral). We are considering bankruptcy for her but I have a question about the equity in our condo. We have an offer to purchase that will leave us with about 18,000 after selling costs. So far we have not missed any payments on anything and both have good credit scores.
Should we wait until the house sells before she files for bankruptcy? It would mean missing payments on her unsecured debt for the next couple of months. I would plan on using all of the proceeds from the sale to further pay down the 35,000 joint secured loan. Would the bankruptcy still want half of the proceeds from the sale even if it is used to pay down other joint debt?
Answer: You are asking some complicated technical questions; you should discuss this with an Ontario bankruptcy trustee before you make a decision.
In general terms, when you go bankrupt you must disclose all asset sales in the past year (or up to five years in some cases). So if you and your wife were to sell the condo, and you were each to receive $9,000, she would be required to disclose the $9,000, and what she did with it. If she uses the money to repay other debts, the creditors who did not get paid may be upset, and they may consider opposing her discharge from bankruptcy, which means she ends up paying more in her bankruptcy.
In addition, if she repaid some of her secured debt, that would increase the equity in those assets (such as a car), and she may then risk losing the car in the bankruptcy.
Another option may be to take the proceeds from the sale of the house and use that as the starting point in a consumer proposal, where the creditors are offered a lump sum of money at the start of the proposal, which increases the chances of acceptance.
This is an overly simplified answer to your question, so the professional advice of a trustee is required before you decide on a course of action.