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