Foreclosure or Bankruptcy on Mortgage Debt?
When it comes to Foreclosure and Mortgage Bankruptcy, there are some key differences one should be aware of.
These differences include the process, timeline and most importantly, the ramifications.
To learn more, please continue reading.
Foreclosure
What is it?
When you can’t pay your mortgage, your lender may commence the foreclosure process, which is a legal process where they take ownership of your property.
Once possession has been taken, the lender will sell the property and use the proceeds.
Sometimes, if the proceeds from the property sale isn’t enough to pay the full balance of debt, the lender may take additional legal action.
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What is the timeline for this process?
Your lender will typically commence the foreclosure process after you’ve missed three payments, and the whole process can take between 6 – 10 months.
How to avoid mortgage foreclosure
The best way to avoid mortgage foreclosure, is to maintain your mortgage repayments.
If you find yourself in a situation where you can’t meet your debt obligations, contacting your lender to work out an alternative payment plan is usually the best course of action.
Many people assume that their lender will automatically proceed with foreclosure action, however, lenders prefer not to take this kind of action, as it’s costly and there can be delays with the court process.
Bankruptcy
What is it?
There are three different ways to go into bankruptcy:
- Voluntary assignment – You choose to make an assignment of your assets for the general benefit of all creditors;
- Involuntary assignment – A creditor files a petition in the courts for a receiving order against your assets;
- Deemed bankruptcy – A debtor has started the insolvency process, but they fail to meet specific requirements for filing a Division I proposal under the ‘Bankruptcy and Insolvency Act’.
Bankruptcy typically deals with unsecured debts, such as credit cards, and is a formal process guided by law.
It involves a trustee taking possession of your assets, liquidating them, and using the proceeds to pay off your unsecured debts.
What are the implications of going bankrupt?
There are four main implications of filing for bankruptcy
- You lose your “non-exempt” assets, such as unencumbered cars, or a house with equity in it;
- Your credit report will state that you filed for bankruptcy;
- You’ll have certain duties and payments, such as reporting your income each month;
- Your debts will be discharged.
If I go bankrupt, will the bank foreclose on my mortgage?
In Canada, declaring bankruptcy doesn’t automatically result in the foreclosure of your mortgage.
To learn more speak to a Licensed Insolvency Trustee in your local area.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?
