In this guide
If you’re facing tough financial times and are at the point of considering bankruptcy, one of the biggest concerns you may have is what will happen to your house.
If you are making your mortgage payments, it’s unlikely you will lose your house in bankruptcy.
If you are concerned about how bankruptcy may affect your home, read on.
Do you lose your house in bankruptcy in Canada?
In most cases, you can file for bankruptcy and keep your house.
If you have no home equity, you can keep your home during bankruptcy if you pay your mortgage and property taxes. Since you have no equity, selling your home makes no sense because the creditors will not receive any money.
If you have equity in your home, your Licensed Insolvency Trustee will value the equity in your home, which is the amount you would receive if you sold your house.
Bankruptcy and home equity rules
Depending on where you live in Canada, you can keep some equity in your house when filing for bankruptcy. Where this is true, the equity must not exceed a certain amount.
The rules on home equity across provinces and territories vary. While most provinces protect some equity, some do not.
For example, if you live in Ontario and file for bankruptcy, and your home equity is less than $10,783, your home is safe from seizure as long as you pay your mortgage and property taxes.
If you have home equity exceeding the limit, you need to pay this surplus equity to your unsecured creditors through bankruptcy if you want to keep your home.
For example, when you declare bankruptcy in Alberta, you can keep $40,000 of equity in your principal residence. If you are the sole owner of your home and your home equity is $45,000, and you want to keep your home, you must pay the surplus equity of $5,000 into your bankruptcy estate.
If you cannot pay this surplus equity, your home could be seized by your Licensed Insolvency Trustee and sold, with the proceeds distributed to your creditors.
You could consider selling or remortgaging your home, but there is another way, through filing a consumer proposal.
Keep your house in a consumer proposal
A consumer proposal is an ideal alternative to bankruptcy if you cannot afford to pay surplus equity. You can keep your house in a consumer proposal by offering to pay more than the surplus equity in your home.
Although you will pay more than you would in bankruptcy, you can spread the payments over five years. A consumer proposal gives you more time to pay, meaning your monthly debt payments are lower than they would be if you declared bankruptcy.
Your creditors are happier because they will receive more than they would have if the trustee had sold your home through bankruptcy.
By reducing your other debt repayments in a consumer proposal, you can improve your financial situation, which makes it easier to keep up with your mortgage payments.
How much equity do I have in my home?
To calculate your home equity, you must establish your property’s current market value through a home appraisal.
Once you have this value, use a home equity calculator or calculate it yourself by subtracting the amount you owe on your mortgage and any property taxes from your home’s appraised value.
Example: you owe $150,000 on a mortgage and $5000 in property taxes. Your house was recently appraised at $350,000, so your approximate home equity is $195,000. You may need to account for selling costs depending on your situation.
Home equity and joint ownership
If your property is jointly owned, this will affect your home equity. If you jointly own your home and decide to file for bankruptcy, you will owe creditors a portion of the equity in the house.
The person who does not file will keep their share of the equity; it does not go to your creditors. This process may also apply to other assets, such as a vehicle.
Find out if you can keep your home if you file for bankruptcy
Most Canadians can file for bankruptcy without losing their home.
Personal bankruptcy could give you a fresh start if you have a lot of unsecured debt, such as credit cards, payday loans, and lines of credit.
But you can avoid bankruptcy and file a consumer proposal instead, allowing you to protect all of your assets.
If you’re behind on your mortgage payments, your mortgage lender can foreclose and sell your home. Discuss your debt relief options with a Licensed Insolvency Trustee immediately.
If any of these sound familiar, connect with one of our qualified and experienced Licensed Insolvency Trustees to find out if bankruptcy is right for you.
You don’t have to pay to talk with a Licensed Insolvency Trustee or to have documentation prepared in advance. Meeting with a trustee for the first time is completely free.
Moses Advisory Group Inc. is a Licensed Insolvency Trustee firm regulated by the Office of the Superintendent of Bankruptcy (OSB).
