Keeping your House and Going Bankrupt
Filing for bankruptcy is often seen as the last-ditch solution for anyone in debt.
When all other options have been exhausted, this can help you become debt-free and have a fresh financial start.
It’s not for everyone, and there are some concerns that many people have.
Namely, can you keep your house if you file bankruptcy?
Nobody wants to live in debt, but you equally want to have a roof over your head.
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The confusion comes from the idea that bankruptcy means you have to hand over your assets.
In truth, many of your assets are added up and used to help pay your creditors as much as possible.
Does this mean that someone is going to come and repossess your home?
In the majority of cases, you can and will keep your house when filing for bankruptcy.
Your home is excluded from the bankruptcy
In Canada, there are rules in each province that stipulate certain assets are excluded from the bankruptcy terms.
These are called exemption allowances, and they differ between the provinces.
However, a house will always fall into this category.
The reason for this is quite obvious.
Yes, you need to repay your debts as best as you can.
But, you can’t be expected to live on the streets.
Keeping your home lets you continue with life as best as you can after bankruptcy.
It’s worth noting that each province also has an exemption allowance limit.
This refers to the amount of equity you’re allowed to keep.
Again, it changes from place to place.
To understand this, let’s look at an example.
Imagine the exemption allowance for home equity is $15,000 in your province.
Effectively, this means you can keep home equity up to that value.
What happens if your home is over the allowance?
Most exemption allowances are around the $10-15,000 mark.
As you’re aware, houses in Canada are worth a lot more than that.
Does this mean that you will have to relinquish your home if it’s above this threshold?
You still get to keep your home if it is above the exemption allowance.
It just means that you only retain equity up to the limit.
What happens to the rest of it? Well, there are typically two options:
Repurchasing home equity means that the remaining value of your home is bought by someone else.
They effectively use that money to pay your creditors.
This is usually done by banks or credit unions.
However, you still get to live in the home.
For all intents and purposes, it is still your home, just a large chunk of equity has gone from it.
Filing a consumer proposal is an alternative to bankruptcy where you reach an agreement with creditors on how you will pay them.
This can sometimes reduce your overall debt payments and ensures you keep all of your home and as much of the equity as possible.
Will I lose my home if I file bankruptcy and have a mortgage to pay?
The majority of Canadians in debt will have a mortgage to pay.
A mortgage is a secured debt, which means that you have an asset secured against it.
In the case of a mortgage, your home is that asset.
If you’re unable to pay your mortgage, the lender can seize your house to make up for this.
However, if you have been making mortgage payments and they’re up-to-date, then there’s no reason to be worried.
Provided you can keep making the monthly payments, nothing will change.
You’ll still have the house, you just carry on paying the mortgage.
In fact, you can try to negotiate with your mortgage provider to adjust the loan terms.
This may help you spread the payments out over a longer period, reducing the monthly costs and making it easier to pay.
What if I don’t want to keep my house?
Of course, not everyone sees their home as a benefit.
If you’d rather get rid of it and find another place to live, then you can.
This choice is up to you, in most scenarios, you can keep your home unless you don’t want it.
Need help with bankruptcy?
Are you thinking about filing for bankruptcy?
If so, then you need the help of a Licensed Insolvency Trustee.
Contact us now, and we will arrange an appointment to go through your financial situation in great depth.
Our team will help you figure out if bankruptcy is the right path, and how to retain your home if you choose to file for it.
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