What Happens To My House In A Bankruptcy?

| Category: Bankruptcy FAQ | What You Keep or Lose
Category: Bankruptcy FAQ | What You Keep or Lose | (18) comments

If you own a house when you file for bankruptcy in Ontario, your bankruptcy trustee will help you evaluate your situation to see if you can, and should, keep your home in a bankruptcy. They will talk with your about:

  1. Whether or not there is any equity in your home;
  2. Whether or not you can afford to keep up with your mortgage payments;
  3. What options  you have if you choose to keep you home.

Determining Equity

house and bankruptcyFirst your trustee will want to know whether or not there is any equity in your house. Equity is the amount of money you would get if you sold your house. Equity is generally calculated by taking the appraised value of your house, and subtracting the mortgage, property taxes, and selling costs.

If your principal residence has equity of $10,000 or less, your trustee does not have the authority to seize and sell your house, so it is possible to go bankrupt in Ontario and keep your house if the equity is $10,000 or less, and if you continue to pay all mortgages and property taxes.  Note that this rule only applies to your principal residence, and does not include cottages or investment or recreational property.

If you file for bankruptcy and your house has more than $10,000 in equity, all equity will be payable to your estate. If you have equity and would like to keep your home, your trustee can talk to you about filing a consumer proposal.

Can You Afford To Keep Your Home?

The first question to ask yourself is: “do I want to keep my house?” If your house is worth less than what is owing on the mortgage, or if you cannot keep up with the mortgage payments and other house expenses, it may be prudent to surrender your house and go bankrupt. The resulting shortfall would be included in the bankruptcy.

The next consideration is whether or not your mortgage is current. If you are behind on your mortgage payments that is a strong indication that you are not able to afford the house, and it is more likely that the lender will want to foreclose on your house if you go bankrupt.

In addition to your mortgage payments being current, it is important that property taxes and utility payments are also up to date, as arrears in property taxes and utilities can be added to the mortgage, which may cause the lender to foreclose on your house.

You must next ask yourself whether or not you truly can afford your house. Many people look only at the mortgage payment and say “I’m better off paying $1,000 per month in mortgage payments than paying $1,000 per month to rent”. Unfortunately it’s not just the mortgage payments that matter; you also must pay property taxes, utilities, condo fees, and maintenance costs on your home, which may mean you are actually paying closer to $1,500 or even $2,000 per month for your home. In that case it may be cheaper to rent. (We recommend that you review our page on budgets to determine whether or not you have the ability to pay for your house).

Your Options To Keep Your Home

If after a complete analysis you decide that you do want to keep your home and there is positive equity in your house, the final question is whether or not you can afford to pay the trustee the value of your home. The trustee will negotiate with you to determine the equity in your home, and you will be required to pay that amount in order to keep your house if you file for bankruptcy.

You should discuss the equity in your home and the required repayment terms with your trustee before you file your assignment in bankruptcy. Your creditors may object and require that you pay more, so it is important to understand the process before you file.

If there is significant equity in your house, or if you are unable to raise the amount of money required to purchase the equity in your house, you may want to consider a consumer proposal. In a consumer proposal you would still pay the equity in the house, but the payments can be structured over a longer period of time, making the process more affordable each month for you.

Your house is your most important investment, and your largest monthly expense, so it is essential that you contact a Licensed Ontario Bankruptcy Trustee to review your housing situation before you decide whether or not bankruptcy is the correct option for you and your family.

Leave A Comment

  1. Amanda

    My home is where my business is located. I included the maximum amount of bills in my mortgage I was legally allowed to in 2014. Would I still then be charged in bankruptcy the amount of equity the government regulations will not allow me to use in the consolidation? I used the maximum allowed, but that still leaves approximately 40 K equity if I were to sell, which I can’t because I would lose 50 percent of my self employed income from the facilities I have renovated in my home to run my business.

    1. J. Douglas Hoyes, Trustee

      The short answer is this: if you go bankrupt and your house is sold, how much would the trustee get, after paying real estate commissions and other selling costs. That’s a rough approximation of the equity in your house, and therefore that’s the amount you would “lose” in a bankruptcy. The fact that you use your house for business purposes has no bearing on the equity calculation.

      I would suggest you talk to a trustee to explain this in more detail, since there are many nuances that can’t be covered in a simple blog post. Second, an option would be to consider a consumer proposal, which may make it much easier to keep your house and also deal with your debts.

  2. Leslie A.

    I own property. Built a log home that is unfinished starting 2012. Very rural, and unorganized property. Taxes, are only 196 a year. The bank loan is Unsecured — $17,000, the car loan is secured — $18,000.

    The problem is the economy is diving downward, and as a trucker, I am now sitting on the road 30% of my time with no pay. Several times I got paid such a low pay check I had to use my small savings to eat while on the road. That savings is now gone.

    If I quit my job the be home due to ongoing family issues, there is no guarantee I’ll qualify for EI, and by the time they get their act together I will have missed several payments, due to huge unemployment right now.

    Value of home is approximately$ 80,000. Can I keep my home since the loan is unsecured? I figure by this time the bank will seize the vehicle and they will have no recourse, and bankruptcy may be unnecessary, if I ask my other lender to stretch out the payments.

    Just want a few clear answers, compared to false rumors. Been through divorce and bankruptcy over ten years ago, and Not necessarily wanting to go that route again.

    But, I do want to go Home and look for other possibilities!

    1. J. Douglas Hoyes, Trustee

      Hi Leslie. In Ontario your house is exempt from seizure if the equity in your home does not exceed $10,000. You can read more about this in our article on Ontario bankruptcy exemptions. So, if you have a home worth $80,000, if you went bankrupt you would be required to either surrender the home or pay your bankruptcy estate the realizable value of the home.

      In your case, if your unsecured debts are $17,000, a bankruptcy where you risk losing an $80,000 house makes no sense, since you are not technically insolvent. A refinancing may be an option. I suggest you talk to a licensed insolvency trustee for more information, or speak to your bank about options they may suggest.

  3. George

    Hi – my ex-wife declared bankruptcy while we were separated. We are now divorced and she has approximately 10 months left before she is eligible for discharged. Although we are both the registered owners, she has disclaimed all interest in what was the marital home. What is the effect of a “Trustee’s Deed” at this stage of the process? How does it affect her title both prior to and following discharge? In other words, if I were to obtain a Trustee’s Deed now, does that extinguish her interest in the title permanently?

    1. J. Douglas Hoyes, Trustee

      Hi George. I would suggest that you talk to her trustee to determine exactly what actions the trustee has taken to realize on her interest in the home. The answer will depend on the equity, so without that information it’s impossible to give you a more definitive answer.

  4. Missy

    we claimed bankruptcy.. oir home appraised at $57,000 and we owe the bank $69716.

    The trustee said we are exempt and put $10,000 on our paper.

    Can the bank seize our home ,…and sell it? What if ey can’t sell it for over the $10,000 exemption? should the title remain in our name.?

  5. Andrew

    When you declare, how long do you have to pay back any home equity before making a decision/having the decision made for you as to whether you’ll be able to keep your home?

    1. J. Douglas Hoyes, Trustee

      Hi Andrew. In general terms, once you file bankruptcy the equity in your house becomes the property of the trustee for your estate, so the equity is generally required to be paid quickly. If you have significant equity a consumer proposal is generally a better option, since payments can be extended over up to five years.

  6. Farrell

    Question. If you have joint ownership of you primary residence, and the property is mortgage free, how does that effect the home equity question in a personal bankruptcy? Is the other owners equity protected?

    1. J. Douglas Hoyes, Trustee

      If you have joint ownership and file bankruptcy, the trustee is required to “realize” on your share of the equity in the house, so either the house would be sold, or the other owner could buy out your interest from the trustee (perhaps by getting a mortgage). This is a complicated area, so you should review this with a licensed insolvency trustee before making a decision, as there may be other factors to consider.

  7. Barbara

    I believe a server came to my home this evening. He asked for me, my husband asked what it was about He said he had some papers to deliver. My husband said I wasn’t home and could he give them to me. The fellow said no and he would be back. I am in my 71st year…I am a pensioner and we had to walk away from our business just over a year ago. My husband went bankrupt, but I didn’t as I didn’t think there was anything left in my name. In searching through our files, I believe there is still an amount owing to Royal Bank in my name…..I was paying it off at $400 per month up until last March when my husband has a massive heart attack and I just forgot about anything that wasn’t urgent…they called me at the time and I told them what had happened and that I was a pensioner and would be willing to pay them an amount but it would have to be at the end of the month when my cheques arrived. They said they would send me something changing the date to the end of the month but then I never heard from them again and because I have since been paying off other debts incurred by my husband I let it go and never contacted them and they never contacted me til I think maybe now. The process server will come back I am sure….is there anything I can do? Thank you.

    1. J. Douglas Hoyes, Trustee

      Hi Barbara. You should consult with a licensed insolvency trustee. If you are on a pension and have no assets, there may be no way for the bank to recover anything from you, so not action by you may be required. However, if you have assets, a proposal or a bankruptcy may be an option.

  8. Sam S,

    Hi, I filed for bankruptcy in Oct 2017.. my business was failed and due to heavy debt, i was forced to go bankrupt. I left with my car value 4300 dollars, House value 3,30,000 (Me and my wife co-owners) and mortgage was 2,75,873.30. They put my home equity at 10,500.

    As per agreement signed for trustee, i was going to be cleared in July 2018 and my monthly payment was $200 a month. My debt consultant told me, i can increase payment to $300 a month to clear the dues fast, which i was paying every month.

    Now just two weeks before i receieved a notice fro trustee, as my trustee opposed my case, as i did not pay the full equity. and balace is around 8300 left.

    Can they change the agreement which was signed in Oct 2017 and take me to court and force me to pay of 8300 (home equity)?

    Please advice ?

    1. J. Douglas Hoyes, Trustee

      Hi Sam. I don’t know what you mean when you say your “debt consultant” told you? You should discuss these items directly with your trustee, and ask them to explain in detail where they are getting their numbers from, which I assume they did with you prior to signing the bankruptcy?

  9. Ann Haire

    My son is disabled and owns a home that he inherited two years ago. It has no mortgage and is just a small winterized cottage really but he needs to file for bankruptcy for debts he acquired before an accident made him disabled with a brain injury and other permanent damage. . Will they take the house from him? His only means of support is Ontario disability. The accident did not involve anyone else and the vehicle was not insured so there is no payout coming either now or in future.

    1. Ted Michalos, Bankruptcy Trustee

      Unfortunately, the house represents an “asset” that has value and if your son files for bankruptcy whatever equity your son has in the house will have to be paid to his creditors in order to keep the house. The expectation in the law is if your son has something with monetary value it will be sold to pay off (a portion) of his debts. Sorry.


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