If you’re reading this article, the chances are you’ve been struggling with debt for a while.
That can be a lonely place.
It’s easy for things to get out of control.
Your stresses can stack up just as quickly as your creditors – but you do have some options available.
Bankruptcy is one of those options, but there are some pretty popular misconceptions surrounding bankruptcy.
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In this article, we’re going to try to set the record straight. You’ll learn how it’s possible to regain some control over your debts and day-to-day life.
We’ll also examine how it’s possible to keep your house during bankruptcy in Canada.
Bankruptcy can be a scary word – but the fact is, it exists to help those in financial trouble.
One of the most popular misconceptions associated with bankruptcy is that it’s a punishment.
That couldn’t be further from the truth.
While in many, the word invokes visions of something final; the reality is bankruptcy provides a fresh financial start.
If you have lots of unsecured debt and few assets, or little equity in your home, bankruptcy can give you some breathing space.
Debt is difficult to escape because once you get behind, the creditors just keep coming.
When much of your debt is unsecured, you’re more likely to be paying higher rates of interest.
Credit card bills and loan payment arrears just build up.
The result is you get further and further behind.
Bankruptcy is a way to hit reset – a device that allows you some time to get back on track.
Keeping your House in Bankruptcy – Time to free yourself of unsecured debts
All of us deserve a roof over our heads.
A stable, secure home environment is a necessity – especially when times are stressful.
Yet, many people worry that bankruptcy isn’t an option if they’ve got equity in their house.
The reality is that you’re insolvent when your total debt outstrips the full value of your assets – including any positive equity in your home.
Not only can you file for bankruptcy in Canada when you’re considered insolvent – but it’s also possible to keep your house when you file for bankruptcy – if you can stay on top of your mortgage payments.
In Canada, mortgage lenders aren’t allowed to terminate a secured loan simply because you’ve filed for bankruptcy.
However, it’s essential you act before you end up getting behind with your mortgage payments.
That’s because secured lenders are permitted to foreclose once you’re in arrears – whether or not you’re bankrupt.
Often, the thing that’s threatening your ability to make those mortgage payments is your unsecured debt.
It’s almost impossible to imagine life without those burdens, but it’s important you try and do so.
Step back, and imagine yourself in a situation where all your additional debts were no longer a factor.
Would you be better able to pay off your mortgage and regain some control over your life?
If the answer to that question is yes, then it’s time to talk to a licensed insolvency trustee.
Asset Exemptions, Regional Differences, and Talking to a Licensed Insolvency Trustee
Bankruptcy asset exemptions in Canada vary from province to province.
Whether you’re in Quebec or Ontario licensed bankruptcy trustees can help you figure out what applies to your circumstances.
Contact a licensed bankruptcy trustee, and you’ll receive a free consultation.
That will give you a chance to figure out what’s best for you.
During the bankruptcy process, trustees look out for the rights of both creditors and debtors.
They ensure that your bankruptcy is fair to all parties, and they’ll also answer any questions you have.
Where your home is concerned, you’ll receive guidance about how to go forward, based on your locality and financial status.
Bankruptcy or Consumer Proposal – Navigating your way out of debt with the help of a licensed insolvency trustee
When it comes to equity rules, provincial differences dictate that it’s always best to consult a local licensed bankruptcy trustee.
That’s because depending on where you live, you may or may not be allowed to keep differing amounts of home equity.
Some provinces deem all equity an asset of your bankruptcy estate.
That means you’ll need to surrender it to the trustee.
However, that doesn’t mean you automatically lose your home.
Option 1: Filing for Bankruptcy in Canada and Keeping your Home
For example, during bankruptcy in Alberta, you’re permitted to keep $40,000 worth of equity in your principal residence.
So, let’s say your positive equity in the property is $55,000, and you want to keep your home – what can you do?
Well, in this scenario, there is $15,000 of seizable equity.
That means the trustee needs to take $15,000 and distribute it to your creditors, via your bankruptcy estate.
The trustee will not automatically go ahead and sell your house.
You’ll have the option to pay the $15,000 into the estate yourself.
While it’s a lot of money to find, you’ll get the duration of your bankruptcy to pay into the estate (usually nine months).
Finding the money to buy out seizable equity isn’t going to be an affordable option for everyone.
So, how else can you keep your house in bankruptcy?
Option 2: Keeping Your House With A Consumer Proposal
Consumer proposals can be the ideal solution when you can’t afford to buy out the seizable equity in your home.
Here’s how a consumer proposal works.
Let’s say you’re back in Alberta.
You want to keep your home, but you need to find that $15,000 to pay your creditors – and you can’t afford to do it over nine months.
With a consumer proposal, you can offer your creditors a better deal.
Let’s say you agree to pay them $18,000 over five years, at $300 per month.
A consumer proposal may mean you’re paying $3,000 more, but you’ve also bought some time.
You now get five years to buy out the seizable equity – at an affordable monthly rate.
Your creditors also receive $3,000 more than they stood to gain if the trustee sold your home – and many creditors will accept such a proposal.
Most importantly, you get to keep your home.
Keeping your house in bankruptcy is possible – you can tackle debt if you act now
Debt can become a trap that’s impossible to escape on your own.
Life becomes a constant cycle of paying off interest and penalties and struggling to keep a roof over your head.
It’s an unsustainable situation, and if it sounds all too familiar to you, it’s time to figure out your options.
The number one thing to remember is that you’re not alone.
Many Canadians experience problems with debt.
At Bankruptcy Canada, we’ve helped hundreds of thousands of Canadians – there is a way out.
How to File for Bankruptcy
What is Bankruptcy?
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?