Mortgage on home prior to bankruptcy?

September 22nd, 2014 by Questions

If I get my mother to put a mortgage on my home just prior to claiming bankruptcy so that I don’t have any equity in my home in order to keep it. Is that ok?

Posted from: Ontario


One Response to “Mortgage on home prior to bankruptcy?”

, Doug Stuive, CA | Trustee | CIRP said:

Whether this was allowable or not really depends on what happens to the mortgage funds. If your mother advances you mortgage funds which are turned over to the trustee or the administrator of your proposal than in general this would be allowable though would be subject to careful scrutiny.

The good news is that filing for bankruptcy does not mean that you will lose your home – even if there is equity in the property. Your trustee will help you consider options that would allow you to keep your home.

Based on your question though it seems that a consumer proposal would be your best option. A consumer proposal is an interest free settlement that you make with your creditors to pay them either through monthly payments or a lump sum contribution. With a consumer proposal the equity in your home can impact the amount you would need to contribute in your proposal but you would not need to worry about losing your home so long as you have the income to afford the expense.

If your mother is willing to co-sign on a mortgage or act as a private lender you may be able to use those funds to file a lump-sum consumer proposal. Provided you can afford the cost of carrying a the mortgage, this is a great option to help you eliminate your debt. Many people attempt to obtain a second mortgage to consolidate their debt, but often the amount they can access through a second mortgage is not enough to pay the debt in full. When that happens, you can file a consumer proposal offering your creditors the amount you can mortgage as a final settlement on your debt. The entire process would be complete within a few months of filing and your only remaining financial obligation would be to maintain your mortgage.

If this option seems like a good solution for you start by determining how much money the bank is willing to provide through a second mortgage. I would then recommend scheduling a free consultation with a licensed Trustee to talk more about whether filing a consumer proposal is right for you before you commit to obtaining a mortgage.

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