How Declaring Bankruptcy Can Affect Your Mortgage

Impact of Bankruptcy On Your Mortgage: A Comprehensive Guide

Understanding the effects of bankruptcy declaration on your home mortgage can be a daunting task. This article aims to shed light on this complex issue and provide solutions for those in such a predicament.


Many Canadians harbor the dream of owning a home. But the journey towards this dream demands discipline due to the high costs involved. Once you own a home, expenses don’t end with the down-payment; you have to manage mortgage repayments, utility bills, property taxes, and upkeep. But what happens if your financial situation changes abruptly? If you lose your job or face a salary cut? What if you have to declare bankruptcy? This article will unravel the effects of bankruptcy on your home and mortgage.

Bankruptcy and Existing Mortgage

When you declare bankruptcy, not all debts are wiped clean. Secured debts, such as a mortgage, cannot be included in a bankruptcy. The laws surrounding bankruptcy vary slightly across provinces, but most often, you cannot keep your house during bankruptcy, especially if you have significant equity built in the property.

If you have built substantial equity in the house, a bankruptcy trustee would either seize the house and sell it or make arrangements with the owner to repay the equity. But, if you have little equity in the house, you can usually arrange with your lenders to continue paying your mortgage and retain the house after filing for bankruptcy.

Renewing Your Mortgage After Bankruptcy

Renewing a mortgage involves forging a new agreement with your current lender to extend the mortgage. If you declared bankruptcy and managed to keep your home, your existing lender might consider renewing your mortgage. However, some lenders may not renew a mortgage for someone who has declared bankruptcy.

In such cases, the bank allows you to keep the mortgage until it matures, but once it does, you must find a new lender. If you are up-to-date on your mortgage payments and declared bankruptcy, and were allowed to keep your property, under Canadian bankruptcy law, a mortgage lender cannot foreclose on your home.

Obtaining a New Mortgage Post Bankruptcy

Buying a new home usually means getting a mortgage. To do this, you need to have a good credit score. But after declaring bankruptcy, your credit score will likely be low. Traditional lenders might insist on a minimum score of 680 if they’re even willing to deal with you.

Some lenders may demand a larger down payment and make you pay a much higher interest rate due to the bankruptcy declaration. This makes it challenging to secure a new mortgage right after bankruptcy.

Timeframe Post Bankruptcy

The amount of time passed since you declared bankruptcy determines if you can get a new mortgage. Traditional lenders will typically only give you a new mortgage or loan if at least two years have passed since your bankruptcy was discharged.

During this period, you need to work on getting your finances in order and boosting your credit score. But bear in mind, even a single 30-day late payment on your credit history can mean the difference between getting a new mortgage and not getting one.

Alternative Mortgage Solutions

If you want to get a new mortgage and buy a home before the two years are up, traditional banks might not entertain your request. But there is another option for those who have declared bankruptcy and want to secure a new mortgage – independent mortgage specialists.

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