I have recently had the pleasure of negotiating with various lenders on behalf of a couple who four years ago entered into an agreement to pay lenders through a "proposal" under the Bankruptcy Act. They did not go bankrupt! They have lived up to their end of the bargain over the last four years. They have paid what the Trustee told them was their obligation. They have a house with lousy financing but assumed it was part of the punishment for getting into financial trouble, albeit not because they were negligent but because they believed various other people (real estate agent & lawyer) four year ago.

Their house (house "A") was up for sale back then with an offer pending on it, conditional on financing. They put in an offer on the house they presently occupy (house "B"), conditional on their old house selling. Their real estate agent told them at the time that the vendors of the new property would not accept a conditional offer, therefore, if they really wanted the new house (house "B"), they would have to buy it unconditionally. They checked with their lawyer who explained that the conditional offer on their house(house "A") was normal and traditionally these conditions get waived and the house sells. Having listened to the lawyer and the agent, and wanting this new home, they offer to buy unconditionally. To everyone's surprise, the offer on their house (house "A") falls through and now they are the owners of two houses. The lending institution that agreed to finance the new purchase (house "B") backed out of the deal because our couple had not sold their old home, and they could not afford two first mortgages (one on the old house and one on the new house). Their lawyer did them a questionable favour by getting them expensive private financing for the new house. Their old house sat empty for four months while our couple tried to make ends meet. They ended up losing their old house. The lender of the old house sold the property for much less than the asking price, and much less than the offer our couple had originally accepted. Basically, the lender sold the house for what was owing. Our couple had counted on deriving at least $20,000 from its sale to paydown other debt. That did not happen!

In any case, I felt they had paid enough, but other lending institutions looked at their computer profile and continued to turn them down. I worked for four days straight, explaining to lenders that they had paid the price for lack of judgement. Not only had they paid very expensive private financing, but they also paid the Trustee every month for the last four years.

The fact that they honoured their obligations seem to have little or no effect on the judgement of most lending institutions. As soon as the lender saw the "Bankruptcy Act' connotation, the lenders were very quick on their decision to turn down the file, because the settlement time period (often called the discharge date) was so recent. I told our couple at the onset, that this was going to be a test case for me. I had not experienced a similar case because the changes to the Bankruptcy Act, allowing the "proposal" had been within the last four years. They must have been one of the first cases.

We finally came up with a lending institution to see things my way. We were able to consolidate both mortgages into one, CMHC insured, thus saving our couple some $500 per month. With this windfall, they can now plan a much needed holiday, instead of living hand to mouth as they had for the last four years. The jury is still out on the advantage or disadvantage of the "proposal" versus a full bankruptcy.