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Debt Priority in Bankruptcy

If a debtor goes bankrupt and their house is sold as part of the proceedings, I understand that the mortgage company has first right to those proceeds to pay off the outstanding mortgage balance. If there is remaining funds after that resulting from the sale of the home, does the mortgage prepayment penalty that would be applicable have priority over other unsecured lenders?

Posted from: Ontario

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One Response to “Debt Priority in Bankruptcy”

A licensed trustee said...

The mortgage company is entitled to repayment based on the terms of the mortgage – if the terms say they can charge a prepayment penalty in the result of a default then they will. I don’t recall ever seeing it happen, but in most cases when a house is lost there is a shortfall so the issue doesn’t come up.