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Jointly owned house and related mortgage

If one spouse files for bankruptcy (the other does not), is a jointly owned house and jointly signed mortgage at risk? Will creditors be able to force a sale of the house so that the 50/50 net equity (the 50% belonging to the bankrupt spouse) will be available for disbursement to creditors?

Posted from: Ontario

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One Response to “Jointly owned house and related mortgage”

A licensed trustee said...

The trustee is required by law to turn the bankrupt’s share of the equity in the house into cash for the benefit of the bankrupt’s creditors. There are a couple of ways to do this:
1) the bankrupt can agree to pay an amount equal to their share of the equity into the bankruptcy. This works if the equity number isn’t too large and if the bankrupt can afford to pay;
2) the trustee will ask the other spouse if they want to buy the bankrupt’s half of the house; if they aren’t willing or able to then
3) the house may be sold so that the money may be raised. If it is sold the non-bankrupt spouse will receive their portion of the equity from the sale.

Make sure a plan in in place to deal with the house equity BEFORE they file for bankruptcy. Once they file it becomes much harder to refinance if that’s what you need to do in order to keep the house.