How Bankruptcy works if I am a homeowner?

There is a common misconception that an individual will lose everything they own if they have to file Bankruptcy.  There are a number of assets which are exempt from seizure meaning they can be kept in the event a person needs to file Bankruptcy.  Exemptions exist for household furniture and appliances, clothing, medical aids, pets, pensions, RRSPs, RRIFs, DPSPs, a motor vehicle required for work and tools of trade.  For more information regarding how these exemptions work, as well as any conditions, please do not hesitate to contact our office.

If you are a homeowner, you may keep your home in the event you file Bankruptcy provided you keep mortgage, property tax and insurance payments in good standing.  However, your creditors are entitled to the equity in the property; if applicable.  Equity is calculated by taking the fair market value of the home and deducting mortgage(s) outstanding, as well as reasonable selling and closing costs (if the home were to be sold). These costs could include real estate commission, legal fees, GST/HST on commission and legal fees as well as penalties charged if the mortgage were to be paid out early.

If this calculation results in a negative number, it essentially means there is no equity in the property and if sold, there would be no money remaining after mortgage(s) and selling costs were deducted.  In this situation, the home could be kept provided mortgage, property tax and insurance payments continue and are kept up to date.

If this calculation results in a positive number, there is equity available or in other words, if the home were sold, there would be funds leftover after mortgage(s) and costs of selling were deducted.  A person with equity in their home can still file Bankruptcy provided mortgage, property tax and insurance payments continue, are kept up to date, and the calculated equity is paid to their bankrupt estate for the general benefit of creditors. Generally, equity in a home is paid over a period of time during the course of Bankruptcy, rather than all at once.

If a substantial amount of equity is calculated to be available, options to refinance the existing mortgage to pay debt would be explored prior to a bankruptcy filing.  If an individual does not qualify for mortgage refinance and has substantial equity in a home, the merits of a Consumer Proposal instead of Bankruptcy would be worth exploring.

In summary, the filing of a Bankruptcy or Consumer Proposal does not mean you will lose your home.  For many people, a Bankruptcy or Consumer Proposal filing is instrumental in keeping a home.  By filing, non-mortgage debt is restructured or eliminated to free up much needed cash-flow to ensure they can afford to keep their home, long-term.

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options.  Every financial situation is unique and viable options can differ from person to person.  A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you.  For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.