If you’re facing tough financial times and at the point of considering bankruptcy, one of the biggest concerns you may have is what will happen to your house.

If you are making your mortgage payments, it’s unlikely you will lose your house in bankruptcy.

If you are concerned about how bankruptcy may affect your home, read on.

Do you lose your house in bankruptcy in Canada?

In most cases, you can file for bankruptcy and keep your house.

If you have no home equity, you can keep your home during bankruptcy if you pay your mortgage and property taxes. As you have no equity, it makes no sense to sell your home because the creditors will not receive any money.

If you have equity in your home, your Licensed Insolvency Trustee will consider the equity in your home, which is the amount you would receive if you sold your house.

Bankruptcy and home equity rules

Depending on where you live in Canada, you can keep some equity in your house when filing for bankruptcy. Where this is true, the equity must not exceed a certain amount.

The rules on home equity across provinces and territories vary; while most provinces protect some equity, some do not.

For example, if you live in Ontario and file for bankruptcy, and your home equity is less than $10,000, your home is safe as long as you pay your mortgage and property taxes.

If you have home equity exceeding the limit, you will need to pay this surplus equity to your unsecured creditors through bankruptcy if you want to keep your home.

For example, when you declare bankruptcy in Alberta, you can keep $40,000 of equity in your principal residence. If your home equity is $45,000, and you want to keep your home, you must pay the surplus equity of $5,000 into your bankruptcy estate.

If you cannot pay this surplus equity, your home could be seized by your Licensed Insolvency Trustee to be sold, with the funds distributed to your creditors.

You could consider selling or remortgaging your home, but there is another way, through filing a consumer proposal.

Keep your house in a consumer proposal

A consumer proposal is an ideal alternative to bankruptcy if you cannot afford to pay surplus equity. You can keep your house in a consumer proposal by offering to pay more than the surplus equity in your home.

Although you will pay more than you would in bankruptcy, you can spread the payments over five years. This gives you more time to pay, meaning your monthly debt payments are lower than they would be if you declared bankruptcy.

Your creditors are happier because they will receive more than they would have if the trustee had sold your home through bankruptcy.

By reducing your other debt repayments in a consumer proposal, you can improve your financial situation, which makes it easier to keep up with your mortgage payments.

How much equity do I have in my home?

To calculate your home equity, you must establish your property’s current market value through a home appraisal.

Once you have this value, use a home equity calculator or calculate it yourself by subtracting the amount you owe on your mortgage and any property taxes from your home’s appraised value.

Example: you owe $150,000 on a mortgage and £5000 in property taxes. Your house was recently appraised at $350,000, so your home equity is $195,000.

Home equity and joint ownership

If your property is joint-owned, this will affect your home equity. If you jointly own your home and decide to file for bankruptcy, you will owe creditors a portion of the equity in the house.

The person not filing will keep their share of the equity; it does not go to your creditors. This process may also apply to other assets, such as a vehicle.

Wrapping up

Personal bankruptcy could give you a fresh start if you have lots of unsecured debt, like credit cards, payday loans and lines of credit. Most Canadians can file for bankruptcy without losing their home.

But the truth is that most Canadians can avoid bankruptcy and file a consumer proposal instead, allowing them to protect all of their assets.

If you’re behind on your mortgage payments, your mortgage lender can foreclose and sell your home, so it’s important to discuss your debt relief options with a Licensed Insolvency Trustee immediately.

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