Question: |
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A couple has 110K in high interest (Credit card type) debt as well as other personal debt totaling ~ 50K with different family members. Their assets include a house worth 185 - 190K with a mortgage of 160K, and shares in a small business which they self operate, from which they draw salaries of ~ 18K/year gross. They have no RRSP's, nor any personal items of significant value. The business after paying their salaries has net income of ~ nil - bascially is just enough to pay their wages. The questions I have are: What are the differences between filing a bankruptcy, and making a proposal and what would you recommend in this case? If a proposal is made, how is that proposal financed, considering they have no other means to pay? Is there a risk that they could be forced to sell their shares in the business? (This is their only source of income). Would they be at risk of having to sell their home based on either the net equity in the home? Is there a maximum that a person in bankruptcy can spend on a monthly basis on their living (house) expense?
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Answer: |
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What are the differences between filing a bankruptcy, and making a proposal and what would you recommend in this case?
At the income level you are at, it would likely not be possible to make a meaningful proposal. Also, it would appear that you do not have large equity in your home which could be refinanced. Unless there are assets in your business which you could lever off, or you know an angel (i.e. friend etc who would give you some money to fund a proposal) I do not see how you would make a proposal
If a proposal is made, how is that proposal financed, considering they have no other means to pay?
Is there a risk that they could be forced to sell their shares in the business? (This is their only source of income)
Not likely but it would depend on what net assets, if any are in the business. A trustee would need to do an analysis of the financial information to let you know exactly what would happen.
Would they be at risk of having to sell their home based on either the net equity in the home? Is there a maximum that a person in bankruptcy can spend on a monthly basis on their living (house) expense?
Not if they live in Alberta where the exemption is $40,000 per home for a principal residence. Part b - no, it really depends on what your resources are. However, in bankruptcy, a debtor is expected to contribute a portion of their income over a threshold amount, to their creditors while in bankruptcy.
Bruce Alger
phone: (403) 296-2970
balger@alger.ca
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