Do You Lose Your House in Bankruptcy in Canada?

Do I Have to Surrender My House When Going Bankrupt?

As you traverse the path to financial solvency, you may find yourself asking the question: “Do you lose your house in bankruptcy in Canada?” Navigating the complexities of bankruptcy is no easy task, but understanding the repercussions on your assets, particularly your house, can make the journey less daunting.

Understanding Bankruptcy

To answer the question, “Do you lose your house in bankruptcy in Canada?”, we must first understand what bankruptcy is. Simply put, bankruptcy is a legal act that you undertake when you are unable to pay off your debts. It offers an opportunity to eliminate debts and make a fresh financial start. However, it is not a decision to be taken lightly, as it can significantly impact your assets – primarily your house, and your overall financial standing.

Eligibility for Bankruptcy

The first step towards bankruptcy is determining your eligibility. You must be deemed insolvent, meaning your debts exceed your assets, or you are unable to meet your debt obligations. A Licensed Insolvency Trustee (LIT) can help assess your financial situation, review your income, debts, and assets, including your house, to determine insolvency. Depending on your situation, they may present you with alternative legal debt relief options such as a consumer proposal or bankruptcy.

The Impact of Bankruptcy on Your House

Now, let’s tackle the primary concern: “Do you lose your house in bankruptcy in Canada?” The answer largely depends on the equity you have in your home.

Understanding Home Equity

Your home equity is the difference between the market value of your house and the total amount you owe on your mortgage and property taxes.

Home Equity = Market Value of Your House – Mortgage – Unpaid Property Taxes

For instance, if your house is worth $350,000, you owe $310,000 on your mortgage, and have $2,500 in outstanding property taxes, your equity is $37,500 ($350,000 – $310,000 – $2,500).

Keeping Your House in Bankruptcy

If your home equity is relatively small and your debts are significantly larger, you may be able to retain your house, provided you can continue making mortgage payments. In such a scenario, you are required to pay your LIT the amount equivalent to your home equity, after accounting for any provincial exemptions.

Provincial exemptions allow you to retain a certain amount of equity in your home during bankruptcy. As these exemptions vary by province, it’s advisable to consult an LIT to understand your specific circumstances.

Losing Your House in Bankruptcy

On the flip side, if your home equity is substantial and you are unable to pay your LIT the non-exempt equity, you may have to forfeit your house. In such a case, your house may be sold, and the proceeds used to repay your creditors.

Managing Your Mortgage after Bankruptcy

If you manage to keep your house after filing for bankruptcy, you may wonder how you’ll manage your mortgage payments. Bankruptcy eliminates most, if not all, of your unsecured debts, making it easier to meet your mortgage, property tax, and utility obligations.

During bankruptcy, you’ll undergo credit counselling sessions. These will equip you with strategies for effective budgeting, credit and debt management, and rebuilding your credit post-bankruptcy.

Alternatives to Bankruptcy

Bankruptcy isn’t the only solution when dealing with debt. In fact, it’s often considered as the last resort. Alternatives such as a consumer proposal allow you to retain your assets, including your house, while significantly reducing your unsecured debt. It’s worth exploring these alternatives with your LIT to find the best solution for your situation.

Confronting the Fear of Bankruptcy

Filing for bankruptcy can seem overwhelming, but remember, everyone’s financial situation is unique. If you’re struggling with debt and fear losing your home, a Licensed Insolvency Trustee can help you determine if bankruptcy is the right solution.

Seek Advice from a Licensed Insolvency Trustee

If you’re concerned about how bankruptcy will impact your home, consult a Licensed Insolvency Trustee. They can help you understand the various debt relief options and exemptions available to you.

In conclusion, the answer to “Do you lose your house in bankruptcy in Canada?” depends on various factors, including your home equity and provincial exemptions. Consulting a financial professional can help you understand your situation and decide the best course of action.

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