What Happens To My House In A Bankruptcy?

| Category: Bankruptcy FAQ | What You Keep or Lose
Category: Bankruptcy FAQ | What You Keep or Lose | (8) 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.

    Reply
    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.

      Reply
  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!

    Reply
    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.

      Reply
  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?
    Thanks

    Reply
    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.

      Reply
  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.?

    Reply

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