Declaring bankruptcy is often imagined as an extreme measure that leaves you destitute, homeless, and with no options left. However, the reality is quite different. The question often arises, especially for homeowners – can I keep my house and mortgage in bankruptcy? This article aims to dispel myths, provide clear insights, and offer alternatives when it comes to bankruptcy.
Introduction to Bankruptcy
Bankruptcy is a legal process where individuals or businesses unable to pay their debts can seek relief from some or all of their debts. In Canada, the bankruptcy process is governed by the Bankruptcy and Insolvency Act (BIA).
Understanding Mortgage Rules in Bankruptcy
In Canada, a secured creditor, such as a mortgage provider, cannot just cancel their loan because you have declared bankruptcy. If you maintain your payments, you can continue to pay your mortgage even during bankruptcy. However, if you are in arrears or lagging on your payments, the mortgage provider is not obligated to allow you to continue with the mortgage.
Dealing with Home Equity in Bankruptcy
One of the significant concerns for homeowners declaring bankruptcy is the equity in their home. Equity is the amount of money you would receive if you sold your house. The specific rules about how equity in your home is treated in a bankruptcy differ in each province, and you should consult a local bankruptcy trustee for an explanation of the law in your province.
Considering a Consumer Proposal
If you have a considerable amount of house equity and cannot afford to declare bankruptcy, a consumer proposal might be the better option. In a consumer proposal, you could offer your creditors an amount that is even greater than your house equity, but you can pay it over a longer period of time (up to 5 years), making the consumer proposal the most affordable option.
Bankruptcy and Other Assets
Besides your house, other assets can be affected when you declare bankruptcy. For instance, the value of your vehicle, savings, investments, and other valuables will be considered. However, each province has its exemptions, which means you may be able to keep some of these assets.
Post Bankruptcy: Credit Repair
Bankruptcy does affect your credit score, but it’s not an end-all situation. There are several strategies and steps that you can take to rebuild your credit after bankruptcy, and in some cases, you might even emerge with a better credit score than before.
Bankruptcy Alternatives
Bankruptcy should be a last resort. There are several alternatives to bankruptcy, including debt consolidation, debt settlement, and debt management. Each of these has its pros and cons and is suited to different financial situations.
The Role of a Bankruptcy Trustee
Licensed bankruptcy trustees play a vital role in the bankruptcy process. They provide advice, manage the bankruptcy process, and work as an intermediary between you and your creditors.
Conclusion
Bankruptcy is an often misunderstood process that scares many people. However, it is essential to remember that it is a legal process designed to provide relief to those in financial distress. With the right guidance and understanding, you can navigate through this process and come out on the other side with a fresh start.
In conclusion, declaring bankruptcy does not automatically mean that you will lose your house or your mortgage. It’s essential to understand the laws of your province and work with a licensed bankruptcy trustee to explore all your options. If you’re considering bankruptcy or any form of debt relief, it’s crucial to seek professional advice to understand all potential outcomes and make an informed decision.
