This & That: Recovering from Debt Hell Edition

Sandra wrote: My husband and I watch your show everyday. You are my favorite "reality" person on TV! I love your no non-sense approach. In the last year we have taken the advice and tips that you gave other couples and dug ourselves out of $34,000 of debt. We set aside the cash jars (we used envelopes) and put a huge amount towards killing our debt. On Dec 31st, 2010 we made our last debt payment!!!! So this is my question: Because we were late on some payments for several months before we clued in and made our plan, our credit rating is really bad, how can we re-build or credit?

Gail says:  M'love it's going to take time and the consistent positive use of credit. While you may love living on cash, to get a better credit history you must use and repay your credit card consistently. So instead of shopping with cash at the grocery store, set the amount you would have taken in cash in stone. Then put it on a credit card. When you get home, pay it off online. If you have two cards, use one for groceries and one for gas. In a few months, your new record will push your old mistakes further into history.

J wrote: We have a $23,000 credit line debt at a variable 4.75% beside our $57,000 mortgage at 3.44% fixed rate. We have $6000 invested in non-RSSP that we usually turn into RRSP at the end of February. We have already $5200 in a RRSP for this year. My husband thinks that we should repay the credit line instead of putting the $6000 in a RRSP. I am not sure. This RRSP would give us an extra $2742 in Tax refund which would bring the amount to $7846. We will put the tax refund toward the Credit Line. What is the smarter move?

Gail Says:  You already know what I'm gonna say: save and use the tax refund to pay down the line. That way you're covering all your bases.

Jodi wrote: I wanted to write to let you know that I love your shows and that your advice made a big difference in my life. Watching you on TV really cheered me up and made me believe in myself.

I will try and make a long story short. A few years ago, in Sept 2007 I went to a bankruptcy trustee. I had been struggling to make ends meet and make minimum payments on credit card balances that just kept getting bigger and bigger every year. I thought I would be in debt forever and was very unhappy because no matter how hard I tried the debt just loomed larger. Even though bankruptcy was a painful decision to make and live with, I never looked back because ultimately it was a fresh start. I could finally sleep at night and not ponder my debt every waking minute of the day (and night).

About a year later, after my bankruptcy was discharged in December 2008, I started a wonderful job that changed my life financially forever. All employees were granted stock options in the company which became enormously successful. I now have in excess of 100k in stocks, cash and mutual funds, paid off my car loan and have a credit card I pay in full every month.  I also still hold stock options valued at 100k + which I have not cashed in yet.

My problem is that even with a significant down payment and assets, not one bank will grant me a mortgage, high interest or otherwise. One trust company offered a fixed rate mortgage at 4.99%, with 25% down (I wanted to put 20%). I declined. Obviously.

I also learned that even though I have the document from the court stating my discharge was in December 2008, Equifax did not post it until March 2010. I presented this document to my mortgage broker, and was smugly informed that it was not helpful to my cause. I have been snubbed, insulted and patronized by everyone from banks to my own real estate agent that "someone in my position" should be grateful for a lousy 4.99% mortgage.

I am not sure what I can do or if you can offer any advice to me. I am not arrogant to think that I will get off scott-free, but I have certainly busted my butt to get where I am and been prudent with the money I was gifted by my employer. I really turned my life around in the last 4 years and just want to buy a home…how can I make this happen?

*I also am writing this to let anyone else who is considering or in the bankruptcy process know that it is not that easy to rebuild your credit afterwards. Even with the money I have in the bank, TD laughed in my face when I asked for a SECURED card (Capital One is pretty good)….don't forget, the bank is NOT your friend!

Gail Says:  Jennifer, I am happy and sad to hear your story. I'm happy because you've done such a great job of turning things around. You should be very proud of yourself. I'm sad because things are going to be a bit difficult for you for a while. That's the reality of having declared bankruptcy. In today's much tighter credit market, you're catching the brunt of the blowback from all those bad lending decisions.

Equifax should post the date of your discharge so make sure that the relevant date shows up. Write to them and send them a copy of your discharge papers, and get the record clear. As for a 5% fixed rate mortgage, I wouldn't turn my nose up at it honey. A quick check at RateSupermarket.com shows [at the time I responded to this letter] the 5-year rate ranging from late 3's to early 5's so your offer isn't really terrible. Perhaps not the best, but you have to expect some consequence for the bankruptcy. I recommend you go and see a mortgage broker who has some experience working with bankrupts. If you're in the Toronto area, try www.mortgages4women.ca .

As for TD's refusal to give you a secured credit card, that's ridiculous, unless they were one of the companies who had to bite it when you declared bankruptcy. Whomever you were dealing with will likely never extend credit to you again. That's the usual policy.

Stay positive. You've come a long way and you're going to be fine. You should be very proud of what you've accomplished. You're strong and able, and you're going to have a great life. The stumble was just that. Walk tall now.

L wrote: We declared bankruptcy in Sept 2009.  We were told by our trustee in June 2010 (9 month mark) that we were through.  I asked her twice, are we done?  I don't have to send any more financial statements in?  She stated yes, however, after the fact we were told we were not finished and we were not out of bankruptcy and that we would not be until June 2011.  (21 month mark). They said: the rules changed in the fall of 2009 and that we fell under the new rules.  Can you please elaborate concerning this?  It feels to me like we have been misled. This is a reputable company, but I still feel uneasy.

Gail Says:  The bankruptcy rules did change, but your trustee should have known that and have told you about it before telling you you'd be discharged at the 9 month mark. There is a calculation that determines whether you'll be discharged at 9 or 21 months, and your trustee should have done this calculation before telling you in June 2010 that you were in the clear. However, that's moot, since you weren't informed and you haven't been discharged. I'm afraid you're just going to have to proceed through the bankruptcy under the new rules. But I'd kick up a big stink at the trustee office and see what they're prepared to do to help fix this problem. Go for a refund of at least 50% of your trustee fees as compensation for the misinformation.

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