My name is Julie and I work in our 8 King St E and 2 Bloor St E offices. A common question we get asked when we meet with people who are struggling with debt: Will I lose my house if I declare bankruptcy?
If you own a house, it’s just your biggest, most expensive asset – it’s your home. So of course, if you think your home may be at risk, it can cause a huge amount of stress.
When talking about your debts and your home, you should consider whether you can really afford your home. If you didn’t have to worry about credit card, line of credit or other unsecured debt payments, can you comfortable pay your mortgage and other costs associated with your home?
If you believe that yes – once your unsecured/consumer debt is taken care of you CAN afford your home, you’re going to want to make sure that you can keep your home through the bankruptcy process. If you file for bankruptcy in Ontario, you can keep your home. However, your Trustee must address any equity that exists in your home.
Equity in your home is determined by comparing what your house would likely sell for tomorrow (its current fair market value) to what you still owe on your mortgage. A positive value is “equity”, whereas a negative value would be a “shortfall”). For example, if your house would sell for $300,000 tomorrow, and you owe $250,000 on the mortgage, you have $50,000 of equity in your home. If your house would sell for only $200,000 and you have that same $250,000 mortgage, you would have a $50,000 shortfall if you sold your home (you would still owe the bank $50,000).
Equity is an asset for your creditors. So in a bankruptcy, if you have equity in your home, you will either need to pay the Trustee the amount of the equity (which would be distributed to your creditors), or you would have to surrender your home and it would be sold to allow that equity to be distributed to your creditors. Surrendering your home to the Trustee may be a good option if you feel that even after your unsecured debts are gone that you wouldn’t be able to afford to pay your mortgage and all the costs associated with running the house. If there is no equity in the home, it will not be impacted by a bankruptcy (as long as you can afford to continue paying the mortgage payments).
If after reading this you realize that your home does have a fair amount of equity, but not enough to allow you to refinance your debts, I suggest you give us a call. There are options available to you aside from a bankruptcy, such as a consumer proposal, which may better suit your needs.
Here is a short video on your YouTube channel about how a bankruptcy impacts your home:
FAQs – House and Bankruptcy
As always, it’s free to come see us for a consultation on your personal debt situation. We’re happy to work with you to come up with a plan that will work best for you and get you on the road to your fresh start!