personal finance,  personal bankruptcy,  student loans

Filing bankruptcy with gambling and substance abuse problems

A readers asks

First and foremost I’m a gambling addict and also have problems with substance abuse. I have accumulated so much debt that I have fallen into a deep depression and I just beat myself up daily because I did it to myself.

My debts: $3,000 of credit card debt, $11,000 line of credit, $11,000 in payday loans (the worst I know). I pay around $380 a month just on interest charges; pretty much my debts are not going away. I have personal loans from friends of $6.500 and a student loan of $5,000 – I haven’t made a payment since around 2008.

I also have a payday loan of $690 to currently pay back on my next payday.

I car lease a Nissan Rogue which is $325 a month.

I don’t have the best job – I take home between $1,200-1,500 bi-weekly. Slower season is approaching so it will be closer to only $1,000 bi-weekly come November.

Everyday I am depressed with the weight of the debt over my head. I need some solid advice on what I should do at this point as I am completely lost and just severely depressed daily. I have not filled my taxes in 3 years.

Our reply

I don’t know where in Canada you reside, but I’ll explain what would happen if you filed bankruptcy while residing in southern Ontario (which is under the jurisdiction of the Toronto Bankruptcy Court):

  1. Under normal circumstances, you’d be eligible for what is called an automatic discharge if you were filing bankruptcy for the first time. This means that you’d be discharged from your debts automatically 21 months after your bankruptcy filing date subject to you paying what is called a “surplus income” obligation. Assuming that you’re single without dependents, this obligation is calculated according to this formula: (average monthly net pay for first 9 months of your bankruptcy – $2,203) x 50% x 21.
  2. However, due to the fact that you appear to have accumulated some of this debt through gambling, you wouldn’t be eligible for an automatic discharge. You’d have to apply for your discharge at Bankruptcy Court. At your discharge hearing, it’s likely that the Court would issue an Order making your discharge conditional upon: (1) payment of your surplus income obligation – as described in Point 1; (2) additional payment of 10-15% of your debts accumulated through gambling; (3) evidence that you’re enrolled in or completed a gambling counselling program. You may also be required to address your substance abuse issues.
  3. Once you’ve fulfilled the conditions described in Point 2, your Trustee would go back to Bankruptcy Court and obtain an Order of Discharge from your bankruptcy.

Regarding your student loans, since you haven’t made a payment since 2008, should I assume that you’ve been out of school since that time? If so, then that loan would be discharged in your bankruptcy since it appears you’ve been out of school for at least 7 years.

Finally, you will need to get your tax returns file up to date. A Trustee can assist you with this if you’re willing to pay a fee as most Trustees are also CPAs.

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With over 20 years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. in 2007 so that he could dedicate his professional life to help people from all walks of life to deal with their debt.