Bankruptcy and Homeownership: Is It Possible to Retain Your House?
Filing for bankruptcy can be a daunting process. It often raises a multitude of questions, and one of the most common concerns is, Can you file for bankruptcy and keep your house? This article aims to provide comprehensive insights into this crucial matter.
Filing for Bankruptcy: Understanding the Basics
Before diving into the core question, it’s essential to have a basic understanding of what bankruptcy means. Bankruptcy is a legal status where a person or entity cannot repay the debts owed to creditors. In most jurisdictions, bankruptcy is often initiated by the debtor and is designed to allow the debtor to start afresh.
The Predicament: Bankruptcy and Home Ownership
One of the most common concerns related to bankruptcy is whether a debtor can retain their home. This circumstance can be complex as the answer largely depends on several variables such as the amount of equity in your home and the bankruptcy exemptions in your province.
The Equity Factor
The term “equity” refers to the portion of your property that you truly own. To calculate it, subtract the outstanding mortgage amount from the market value of your house. For instance, if your home’s market value is $250,000, and your mortgage is $200,000, your equity is $50,000.
The Role of Licensed Insolvency Trustee
A Licensed Insolvency Trustee (LIT) plays a crucial role in determining whether you can retain your home while filing for bankruptcy. They calculate the net equity by subtracting the selling costs from your home’s value and then deducting the mortgage amount. The resulting net equity is used to determine your position.
Provincial Exemption Limits
The exemption limits, which determine how much net equity you can have to keep your house while going bankrupt, vary from province to province. Here is a quick glimpse of the exemption limits in some provinces:
- Alberta: If you completely own your home, you’re granted up to $40,000 in equity. If you co-own your home, the equity reduces proportionately.
- British Columbia: You’re permitted to have $12,000 in equity in Vancouver and Victoria, and $9,000 in other regions.
- Manitoba: For joint ownership, the limit is $1,500. For sole ownership, it’s $2,500.
- Ontario: The limit for your principal residence is $10,000.
- Saskatchewan: You can have up to $50,000 equity per owner on the title.
Understanding the Impact of Provincial Exemptions
To better understand the provincial exemptions, let’s consider an example. If you live in Ontario and your house is worth $250,000 with a mortgage of $245,000, you get to keep your home since your equity ($5,000) is within the $10,000 limit.
However, if your home is worth $250,000 with a mortgage of $200,000, you would have to either sell your home or buy out the surplus, as the net equity would exceed the $10,000 limit.
Exploring Alternatives to Bankruptcy
Bankruptcy should be considered a last resort. There exist several alternatives such as debt consolidation, debt management programs, debt settlements, and consumer proposals. It’s advisable to explore these options thoroughly before making a decision.
Seeking Professional Help
Navigating through financial troubles and understanding bankruptcy laws can be challenging. Professional credit counsellors can provide objective insights into your financial situation and guide you through your options.
Conclusion
The question, Can you file for bankruptcy and keep your house? doesn’t have a straightforward answer. It depends on several variables, including the amount of equity in your home and the provincial exemption limits. However, with the right guidance and assistance, you can navigate through this complex process and make an informed decision.
