by DanielBl » Mon May 07, 2012 05:56:50 PM
It's hard to believe they bought a house, given the desperate state of their finances. What were they thinking of? How did they even get a mortgage? One thing is certain: they should never pay a "counsellor" - a vulture in my opinion - an exhorbitant commission to settle a debt - or any at all because they can do it themselves for nothing. And no, they will not get a bettter deal with a counsellor or debt settler. Many of these characters are simply recycled collection agents wearing a different hat in order to get a bigger slice of the pie after seeing the bonuses their collection agency managers got.
MBNA, was known for being willing to settle debts for less than most other creditors, given their policy of selling bad debts soon after they were written off. I think they still might agree to 30%, 40%, or certainly 50% without much effort. It's been a while and internal policies change, so I'm only guessing. However, if real estate is owned, and there is substantial equity in it, one's negotiating position is far weaker. That's because many mainstream lenders hire legal firms to milk huge legal fees out of judgments and the liens which follow. Seizing and selling real estate to enforce liens is quite expensive, but the lawyers can be certain they will recover the debt along with interest and inflated legal fees.
Your relative should consult a bankruptcy trustee. After providing details of joint income and the ownership/equity of the house, they will be able to judge whether a consumer proposal, outright bankruptcy or debt settlement is best. One thing is for sure: if they can't meet their bills, their credit rating will slip, and it will be difficult to renew the mortgage when the term is up.
Trustees don't make any money from free consultations, so it's important to ensure whatever course of action they push (and they will push) is absolutely necessary. Again, if there's any way the debt can be settled on one's own, it should be done so. There's enough people out there profiting from human misery already. Regardless, even one credit card settlement will seriously impact a credit score for several years. And with a consumer proposal, while the interest will stop, their credit rating will be a miserable R7 for 3 years.