If you are in financial difficulties, one of the first things you will do is look for ways to reduce your expenses. If you have a mortgage or a car payment that is costing you more than you think you can afford, you may consider getting rid of one, or both, of them.
If you can sell your house or car and make money, or at least not owe money, you might consider selling your assets before filing bankruptcy. If you do, make sure that the sale is made at fair market value and you can sell it for enough money to pay off the bank along with any fees and other expenses as well. If getting rid of a home or car that has high monthly payments solves your financial problems great. However this is not always the case.
If you cannot sell your house or car for enough money to pay off the loan then you need to look at other ways to get out from under the obligation to continue with making these payments.
Surrendering Your House
If you are several months behind on your mortgage payments, the bank or mortgage company may have already started legal proceedings to take your house back. If they have, contact the bank working on your file. They will let you know the time frame you have and can make arrangements to have someone come out and get the keys or check on the house.
Even if you are not behind on your payments, you can still choose to surrender your home to your mortgage holder as part of your bankruptcy proceedings. Arrangement will need to be made with your mortgage holder to hand over keys and vacate the property. In general, we advise that you should find a new place to live, move out of your house and notify your lender that you have vacated the property. After moving out you can declare bankruptcy and your mortgage lender will file a claim for any shortfall.
If there is some equity in your home the answer is a bit different. In this case your trustee will need to realize on the equity for the benefit of your creditors. Rather than making arrangements with your mortgage lender, talk with your trustee about surrendering your home to the trustee to sell.
Surrendering Your Car
The method is the same for surrendering your car. In most cases we can assume the car is worth less than the remaining loan amount. You can just call the lender and let them know you are giving it back. They will then tell you where to drop the car off, or arrange to have someone come and pick it up.
Filing For The Unsecured Balance
Once surrendered, the lender will sell the house or car. From the sale proceeds the lender will pay themselves the loan balance and any fees and expenses they incurred to sell the house or car. You will be responsible for the balance owing if there is not enough money from the sale. This ‘shortfall’ will be included as an unsecured claim in the bankruptcy.
Timing of Your Bankruptcy is Important
If you are thinking of filing a bankruptcy or consumer proposal it is important to make the decision on whether or not to keep or surrender your house or car before you file. If you file for bankruptcy and keep your house and car, continue to make payments and then decide to give your house and car back after you file, you will now be responsible for the balance owing; it won’t be part of the bankruptcy. You could then be in a situation where you get out of bankruptcy owing even more than you did when you started it. This could mean that you have to file bankruptcy a second time, just to get rid of the house and car debt.
If you are experiencing financial difficulties and are not sure whether you should keep your house or your car, contact a bankruptcy trustee for a free consultation.