Home ownership is part of the Canadian dream. But a job loss, divorce, health crisis or other unexpected emergency can turn that dream into a nightmare if you find yourself unable to keep up with the bills.
If that situation sounds familiar, you may be asking yourself: What happens to my home if I file for bankruptcy?
The short answer is: that depends.
Bankruptcy and Assets: What Happens to My House After Bankruptcy?
When you file for bankruptcy, most of your assets will be surrendered to your Licensed Insolvency Trustee who will liquidate (sell) them to pay off your creditors. In Canada, your house is one of the assets subject to liquidation, although the laws differ from province to province.
If you have a mortgage, the equity in your home is subject to seizure. When you declare bankruptcy, your home may be sold and the equity will be used to help settle your debts.
You can calculate the equity in your home by subtracting the amount owing on your mortgage, any outstanding property taxes, and the costs associated with selling your home, from the current value of your house:
Home Equity = House value – outstanding mortgage – property taxes owed – total costs associated with selling your home
A Licenced Bankruptcy Trustee can help you determine the equity in your home.
What If I Have Very Little Equity in My Home?
If your home has significant equity, it will usually be seized and sold when you file for bankruptcy. But most people in this situation try to re-mortgage, sell the property to pay down their debts first or make a consumer proposal to their creditors.
If you already have a large mortgage, your home may have very little net equity. If that’s the case, you may be able to hold on to your home and still go bankrupt.
That’s because Canadian bankruptcy laws are designed to leave you will some essential assets in order to make a new start. In Ontario you are allowed to have up to $10,000 equity in your principal residence and not lose your home while making an assignment in bankruptcy.
The specific laws about how equity in your home is treated if you go bankrupt are complicated. If you have low or no equity in your home, a Licenced Bankruptcy Trustee can explain your options and help you decide what to do.
How Can I Keep My House After Bankruptcy?
Whether your home has significant equity or no equity, you may be able to keep it if you declare bankruptcy – as long as you are up-to-date with your mortgage payments and don’t fall into arrears.
For homeowners who don’t want to declare bankruptcy and risk losing their house, a consumer proposal may be a better option. So, if you own your home and find yourself in financial trouble, discuss your situation with the Licenced Insolvency Trustee before making any decisions.
At Dana MacRae, we’ll take the time to review the specifics of your personal situation, explain your options, and help you determine the best way forward for you and your family.
Dana MacRae Licenced Insolvency Trustee has been helping people manage their debt since 2000. With 10 offices across Southwestern Ontario, it’s easy to schedule an appointment. Just go to www.danatrustee.ca and book your appointment online. We offer video conferencing, or book a home consultation and have the trustee will come to you (when allowed by COVID-19 protocols). Contact us today at 1.800.665.9965 or [email protected] to learn more about our services and find the financial solution that’s right for you.