What Happens to My House After Filing Bankruptcy?

The following article addresses the commonly asked question: what will happen to my house after filing bankruptcy? We all dream of home ownership. But what happens when the Canadian dream of owning your own home does not work out as well as expected?

It costs a lot of money to own a home. You have mortgage payments and property taxes. Your gas and electricity bill will be higher than when you lived in an apartment, because your house is bigger.

Here’s a typical scenario. Of course, everyone wants furniture for their bigger house, and that costs money. Unfortunately, many Canadians buy a new home and then go to a furniture store that offers a “buy now, pay later” deal. It sounds great: you get your furniture today, and you don’t have to pay for it for a year. It’s fine until next year comes, and now you’re faced with a huge bill for furniture that you can’t afford.

If, when the furniture bill comes in, you have also lost your job, or perhaps had your hours cut at work, you now have a problem.

For many people the only solution may be a personal bankruptcy.

Will I Lose My House If I File Bankruptcy?

While the laws are slightly different in each province, the basic concept is the same: you can’t keep a house in bankruptcy if you have a lot of equity in it at the time of the bankruptcy. There are certain exceptions, as outlined below.

How do I know how much equity I have?

You can calculate your home’s equity by taking the value of your house, and subtracting the amount you owe on your mortgage and the currently owed property taxes from this value.

House value – amount owed on mortgage – currently owed property tax = Equity

In most personal bankruptcies, the home must be sold so that this equity value can go to your creditors.

What if I have very little equity?

If you have recently mortgaged or re-financed your home, you may have very little equity in it (less than 20% of its value). If this is the case, there is a chance you can keep your home, and continue your mortgage payments, if you can find a way to pay this amount into the bankruptcy through other means. This is a matter you can discuss with a Licensed Insolvency Trustee for clarification.

What Happens Next?

Obviously, if you have significant equity, it’s not fair to your creditors that you keep money while their debts are being discharged.

If your house has substantial equity, your Trustee will usually seize it and sell it.

Still, in certain cases, even if you have significant equity, you may be able to make arrangements to repay your equity – perhaps by borrowing from friends or family, or by getting a second mortgage to re-purchase the equity from the Trustee.

How Do I Find Out More About What Will Happen to My House in a Bankruptcy?

The rules regarding houses and bankruptcy are somewhat complicated, so to find out how they will apply in your specific situation, and for details on what will happen with your house after filing bankruptcy, we recommend that you contact a Licensed Insolvency Trustee.

Your first appointment with a Trustee is free, and you will learn more about your options. For instance, perhaps you can use consumer proposal as an alternative to bankruptcy. Knowledge is power: contact a Trustee today.

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