Keeping Your Home & Going Bankrupt
Let’s explore the often-asked question, “Can you file for bankruptcy and keep your house?” The answer isn’t straightforward, as it hinges on the amount of equity you have in your property, barring Quebec.
Understanding the Concept of Equity
To understand the process better, let’s first clarify what equity is. Equity, in the context of homeownership, refers to the amount of the property you officially own once you subtract any outstanding mortgages. For instance, if your property is worth $250,000, and you have a mortgage of $200,000, your equity stands at $50,000.
The Role of a Licensed Insolvency Trustee
When considering bankruptcy, your financial fate largely lies in the hands of a Licensed Insolvency Trustee. They are responsible for computing your net equity. This calculation involves subtracting what you owe and the potential selling costs from your property’s value. The net equity amount is then used to evaluate your financial standing.
Provincial Exemption Maximum and Its Implications
If your net equity surpasses the provincial exemption maximum, you are faced with a choice: you can either sell your property or “buy back” the amount exceeding the exemption limit.
The “Buy Back” Option
If you can afford it, you can choose to buy back the excess amount. This sum is paid to your trustee, alongside any surplus income amount, if applicable. The “buy back” amount then becomes part of your bankruptcy estate, which is eventually distributed to your creditors.
The Impact of Bankruptcy on Homeownership: A Deeper Dive
Let’s delve deeper into the circumstances that determine whether “you can file for bankruptcy and keep your house”.
The Value of Your Home
The value of your home plays a significant role in deciding whether you can retain it after filing for bankruptcy. If your property is of high value, and if selling it would result in significant funds, you might have to let go of it.
Your Outstanding Mortgage
The amount left on your mortgage is another crucial factor. If you have a substantial mortgage, the chances are that you can keep your home after filing for bankruptcy.
Your Equity
As explained earlier, your equity significantly influences this decision. If you have minimal equity in your home, you might be able to keep it.
Selling Costs
Selling your home involves various costs, including real estate commissions, legal fees, and more. These costs are deducted from your home’s value when calculating net equity.
Provincial Exemption Limits
Each province has a different exemption limit, which significantly impacts whether you can keep your house after filing for bankruptcy.
Conclusion
So, “Can you file for bankruptcy and keep your house?” This question doesn’t have a simple yes or no answer. It depends on various factors, including your home’s value, your mortgage, your equity, selling costs, and provincial exemption limits. It’s recommended to consult with a Licensed Insolvency Trustee to understand your unique situation better.
