What Will Happen To My House After I File For Bankruptcy?

What Will Happen To My House After I File For Bankruptcy?

Written by Veronica Ott
Fact-checked by Caitlin Wood
Last Updated March 13, 2020

Your home is probably one of the most valuable investments you’ll make in your lifetime. Not only that, if you have a house, you’ve probably become attached to it and comfortable with your lifestyle there.

If you’re going through a bankruptcy, it is likely that you’ll want to do whatever is in your power to keep your home. Fortunately, it is entirely possible to keep your home when going through a bankruptcy, so long as you are aware of the legislation involved.

Every province and territory in Canada handles mortgages during bankruptcies in varying ways, the general process is discussed in this article. To get detailed information about your province or territory regulations, reach out to a Licensed Insolvency Trustee (LIT) in your area.

Check out this article to learn how other secured debt is treated during bankruptcy.

Are You Up to Date on Your Mortgage Payments?

If you are up to date on all your mortgage payments, you can continue to hold your mortgage despite going bankrupt. It is not required to cancel your mortgage under Canadian bankruptcy law if you have declared bankruptcy. In fact, a mortgage lender cannot foreclose your home because you went bankrupt, given that you haven’t broken any rules of the mortgage agreement.

On the other hand, if you are behind on mortgage payments, your lender is not required to continue forward with the agreement. Regardless of your bankruptcy status, the lender can proceed with foreclosure of your mortgaged asset and sell your home.

Can You Continue to Afford Your Mortgage Payments?

During a bankruptcy, ask yourself if you can afford your mortgage and other essential loan payments, such as car lease payments, without the burden of your other debt. If your other debt is what’s holding you back financially, make sure to keep up to date on your mortgage and other loan payments to ensure that you don’t risk losing the secured assets when filing for bankruptcy.

However, if you feel you’re struggling to pay your mortgage in addition to your other debt, you may need to consider other options, including selling your home. Selling your home can help you get out of debt, particularly if you have acquired equity since the inception of your mortgage.

The True Cost of BorrowingDo you know what the cost of buying a house in your area is? Check this out.

Have You Accumulated a Significant Amount of Equity?

In the event of a bankruptcy, there are specific guidelines related to your home’s equity. Equity is the difference between what an asset is worth and how much you owe for that asset, including mandatory fees such as property taxes and selling expenses (click here to learn more about home equity).

If your home has acquired equity that is worth $10,000 or less, you don’t need to worry about losing your home. All you need to do is keep up with your mortgage payments.

If your home equity is worth $10,000 or more, you are required to pay the LIT the equivalent equity value of your home. You can pay your home equity amount by selling the home and using the equity money to pay the LIT. Alternatively, you can keep your home and find another way to pay the equity value to the LIT.

Accumulated equity is considered to be part of your total assets which is why you are required to pay out the equity amount as a part of the bankruptcy process. The portion of your home equity you are required to pay varies based on your province or territory, be sure to consult a LIT for provincail and territorial regulation details.

Equity is technically money that an individual has, it is merely locked up in an asset. If you’re struggling to pay creditors, selling your home is something to consider because the equity can help you pay off creditors. Although, the equity accumulated in homes is often a big part of people’s life savings which is why people are reluctant to sell their homes unless it’s a dire situation.

Home Equity Could Mean a Consumer Proposal is a Better Option

A consumer proposal is a better option than bankruptcy if your home has accumulated an immense amount of equity. Part of a consumer proposal is paying out the equity value of your home, the same as with a bankruptcy. However, with a proposal, the payments will be spread out over a longer period of time when compared to a bankruptcy. In addition, to make a consumer proposal more attractive, you can offer to pay more than the home equity value but still pay it back over a longer period of time.

Is filing for bankruptcy different in Quebec? Find out here.

What Happens When It’s Time to Renew Your Mortgage?

A mortgage renewal is a new agreement made with your existing lender to extend the mortgage or renew the terms. If you are going through bankruptcy and manage to keep your home, you may want to renew your mortgage to better your terms and conditions. You might find that it is difficult to renew your mortgage because of your bankruptcy and current financial state.

As a result of the real estate market condition, some lenders are no longer renewing mortgages in relation to bankruptcy. There are policies which state that if an individual has filed for bankruptcy, the financial institution will allow you to keep the mortgage until it matures. Once the mortgage matures, you will have to find a new lender.

Some lenders have expressed that they are leaving the mortgage business entirely and will not renew any mortgages regardless of whether you are going through a bankruptcy process. This is because certain lenders have found that the current real estate market conditions are too risky.

All of that being said, if you have been diligent about making mortgage payments despite your bankruptcy, you should have no issues renewing your mortgage with your current lender. Banks prefer that you renew your mortgage if you’re a good customer because they don’t want to risk losing future profits in exchange for selling an asset at foreclosure price, losing the interest payments and principal repayment.

Applying for a Mortgage After Bankruptcy

If you are in the process of filing for bankruptcy, or already filed in the past, but you’re also looking to apply for a mortgage in the near future, here’s what you need to know.

Be sure to attain a discharge after your bankruptcy, a discharge means that lenders can no longer take action to collect the debts you owe. In addition, be sure to actively work toward improving your credit. It is possible to get a mortgage after bankruptcy as long as you re-establish yourself financially.

Learn how bankruptcy payments are calculated, click here.

Need Help With Your Bankruptcy?

Debt of any kind can be overwhelming for anyone, bankruptcies especially. If you are in the process of going through a bankruptcy, re-establishing your credit after a bankruptcy or applying for a mortgage after bankruptcy, Loans Canada can help you manage your debt.

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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