Filing Bankruptcy With a Mortgage

Filing Bankruptcy With a Mortgage

Are you grappling with overwhelming debt and considering bankruptcy, but worried about what will happen to your house? This article will shed light on the intricacies of filing bankruptcy with a mortgage.

Introduction

One of the most significant worries when contemplating bankruptcy is the fate of your house, especially if you have a mortgage. Indeed, the prospect of losing a home can be a daunting one. However, there may be ways to navigate the bankruptcy process while still keeping your home.

Understanding Bankruptcy

Bankruptcy is a legal process designed to provide relief to individuals and businesses that cannot repay their debts. When you are insolvent, i.e., you owe more to your creditors than your assets’ value, you are eligible to file for bankruptcy in Canada. It provides an opportunity for a fresh start, free from unmanageable debt.

Effects of Bankruptcy on Your House

Contrary to popular belief, filing bankruptcy doesn’t necessarily mean losing your house. In fact, under the right circumstances, declaring bankruptcy can actually help you save your home. The key lies in understanding how bankruptcy affects your property.

About one in four people who file bankruptcy in Canada own a house. And in many cases, they can retain their property even after declaring bankruptcy. However, the best approach depends on the house’s value, the outstanding mortgage amount, and your household budget.

Claiming Bankruptcy and Retaining Your House

If the equity in your house does not exceed a certain level (known as an exemption), you can maintain your home simply by keeping up with the mortgage payments. The law prohibits mortgage lenders from foreclosing on your house solely based on your bankruptcy. But what if the equity in your house exceeds the exemption level? In that case, if you want to keep your house, you would need to pay the bankruptcy trustee the equivalent of any equity value in your home.

Alternative Solutions: Filing a Consumer Proposal

A consumer proposal is another option to consider. It is a legal agreement set up by a Licensed Insolvency Trustee where you agree to pay creditors a percentage of what you owe or extend the time you have to pay off the debts, or both. It’s a popular way to retain a home with significant equity value when you’re facing financial difficulties. You can propose a payout plan for the equity value in your home, which you can spread over a longer period than with bankruptcy.

Consideration: Selling Your Home

Although bankruptcy can lower your monthly debt payments, making it easier to meet mortgage payments, if you’re already behind on your mortgage payments and still can’t afford your house even after filing bankruptcy, you might consider selling your home as part of your personal bankruptcy process.

Consulting with Bankruptcy Trustees

The bankruptcy process is complex, and making the decision to file for bankruptcy should not be taken lightly. It’s crucial to consult with a Licensed Insolvency Trustee who can guide you through the process and help you understand your options.

Making the Right Decision

Remember, the goal is not just to get out of debt but also to start building a stable financial future. Therefore, it’s crucial to consider all your options and their long-term effects before making a decision.

Conclusion

Filing bankruptcy with a mortgage can be a complex process, but it doesn’t necessarily mean losing your home. By understanding the implications, exploring your options, and working with a Licensed Insolvency Trustee, you can navigate the process while keeping your interests at heart.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.