Effect Of Bankruptcy And Proposal On Our Mortgage

Understanding the Impact of Bankruptcy and Proposals on Your Mortgage

Bankruptcy and proposals are significant financial decisions that can drastically affect your life, especially when it comes to your mortgage. This article aims to provide a comprehensive understanding of how these processes work and their effect on your mortgage, helping you make well-informed decisions.

What Does Bankruptcy Mean?

Bankruptcy is a legal process that provides relief to individuals who are unable to pay their outstanding debts. When you declare bankruptcy, you essentially surrender your assets in exchange for the discharge of your debts.

The Role of Secured Creditors in Bankruptcy

In the context of bankruptcy, secured creditors like a mortgage lender operate outside the scope of bankruptcy. This means that if you’re not compliant with the terms of your loan agreement, they can enforce the conditions of their loan documents.

When Can the Mortgage Company Call Your Mortgage?

In Alberta, if your mortgage payments are up-to-date when you file for bankruptcy, your mortgage company cannot call your mortgage. However, if you are behind on your payments or have breached any other terms of your mortgage (e.g., insurance), the lender can call the mortgage. In such a case, you would have to bring the mortgage back to current status.

The Link Between Mortgage Renewal and Bankruptcy

One potential issue that could arise is when your mortgage is due for renewal. If your mortgage renewal date coincides with your bankruptcy period, you may face difficulties renewing it. It’s vital to discuss your mortgage renewal date and the date you will finish your bankruptcy with a Trustee or counselor.


Note: Always consult with a financial advisor or counselor before making any decisions related to bankruptcy and mortgage renewal.


Inclusion of Property and Mortgage in Bankruptcy

You have the option to include your property and the mortgage in the bankruptcy if the fair market value of the property is significantly lower than the mortgage. This is particularly relevant if your mortgage is insured with institutions like CMHC, Genworth, etc.

The Proposal Option

If you file a proposal to your creditors, you have the option to either keep the mortgage current or include the insured shortfall in the proposal. This provides you with an alternative to mitigate the effects of bankruptcy and proposal on your mortgage.

How Proposals Work


  1. You submit a proposal to your creditors.
  2. The creditors review the proposal.
  3. The creditors either accept or reject the proposal.



The effect of bankruptcy and proposal on your mortgage can be complex and challenging to navigate. However, with the right understanding and guidance, you can make decisions that are in your best interest.

Remember, every situation is unique. What works for one person may not work for another. Always consult with a licensed insolvency trustee or counselor to discuss your options and understand the best course of action.

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