If You Declare Bankruptcy What Happens to Your House?

Bankruptcy declaration is a crucial decision that impacts various aspects of one’s life, including their housing situation. This article delves deep into the question, “If you declare bankruptcy what happens to your house?”


Declaring bankruptcy is often seen as a last resort for individuals overwhelmed with debt. While it can provide a fresh start, it’s essential to understand how it affects various aspects of your life, including your house. This article will help answer the question, “If you declare bankruptcy what happens to your house?” and provide insight into the financial implications and potential outcomes.

Bankruptcy and Its Implications

Before we delve into the specifics of how bankruptcy affects home ownership, it’s crucial to understand what bankruptcy is. Bankruptcy is a legal process that provides relief to individuals or businesses who can no longer meet their financial obligations. It involves the liquidation of assets to repay creditors and can have a significant impact on one’s credit rating.

Bankruptcy and Its Effects on Home Ownership

One of the most common concerns about declaring bankruptcy is the fate of one’s house. The answer is not straightforward, as it depends on several factors, including the amount of equity in the home and the province’s bankruptcy laws.

How to Calculate Home Equity

Home equity is the difference between the current market value of your house and the amount you owe on your mortgage and property taxes. Calculating home equity involves subtracting the owed amount from your property’s current market value. If the resulting equity is substantial, it’s likely that the house will have to be sold to repay creditors.

Possibility of Keeping the House

If your home’s equity is minimal, there’s a chance you might keep it even after declaring bankruptcy. This scenario is more likely if you recently mortgaged or refinanced your home, resulting in equity that’s less than 20% of the property’s value. However, you must continue making mortgage payments and find a way to pay the calculated equity into the bankruptcy estate.

What Happens When the House Has Significant Equity

If your house has considerable equity, the Licensed Insolvency Trustee (LIT) will likely seize and sell it. The proceeds from the sale will then be distributed among your creditors, following the bankruptcy rules.

Repaying Your Equity

In some cases, even with significant equity, you might be able to keep the house by making arrangements to repay your equity. This could be possible by borrowing from friends or family or by taking a second mortgage to repurchase the equity from the LIT.

Understanding Your Options

Understanding your options is critical before making any decision. It’s recommended to consult with a Licensed Insolvency Trustee (LIT) who can provide guidance based on your specific situation. They can help you explore alternatives to bankruptcy, such as a consumer proposal, which may allow you to keep your house.

Finding a Licensed Insolvency Trustee

Finding a trustworthy LIT is vital. They will guide you through the process and provide recommendations based on your unique situation. LITs are available across Canada, from Alberta to British Columbia, and they offer free initial consultations.

Final Thoughts

Declaring bankruptcy is a significant decision that can have lasting effects on your financial life. If you’re considering this step and wondering, “If you declare bankruptcy what happens to your house?”, it’s essential to seek professional advice. Understanding the implications and exploring all your options can help you make an informed decision and navigate the process smoothly.

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.