Many Canadians think that it’s impossible to get a mortgage renewed after bankruptcy.
But luckily, that is not actually the case.
A home mortgage is a type of secured debt, and these kinds of debts are not included when you file for bankruptcy.
This means that you can keep your mortgage and continue making payments in the event of insolvency, as long as you don’t have significant equity in your home and are up-to-date on payments.
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However, the rules governing equity exemptions for insolvency vary between provinces, so you should check with a local Licensed Insolvency Trustee (LIT) to make sure that you will be able to keep your mortgage if you file for bankruptcy.
If you’ve made all of your payments on time and only have a small amount of equity in your property, you should be able to keep your mortgage.
Under Canada’s Bankruptcy and Insolvency Act (BIA), mortgage lenders cannot cancel your contract just because you have declared bankruptcy.
While a lender is not legally allowed to cancel your mortgage solely on the basis that you have filed for bankruptcy, becoming insolvent may affect your chances of getting your mortgage renewed in the future.
One factor to consider is the fact that your credit score will be affected when you are declared bankrupt.
This might not necessarily hurt your chances of getting your mortgage renewed, especially if you plan on renewing with the same provider.
Many renewals happen automatically, and even if your mortgage doesn’t auto-renew, your lender might not check your credit score again when processing your renewal.
However, mortgage providers can decide not to renew your mortgage if you have been declared insolvent in the past.
In this case, you would be required to find a new lender to refinance your mortgage, and this can be difficult if your credit rating has suffered due to bankruptcy.
One option could be to go through a private mortgage lender.
Some private mortgage lenders specialize in providing loans for people with a less-than-perfect credit history, so it is still possible to secure refinancing through one of these private lenders, even if your current lender refuses to renew your mortgage.
As you will likely be perceived as a greater risk because of your financial history, you will probably be offered loan terms which are less favourable than those on your initial mortgage if you are approved for refinancing by a private lender.
How can I find out if I’ll be able to renew my mortgage after bankruptcy?
You should speak to your current mortgage lender before initiating bankruptcy proceedings to check that they will allow you to renew your mortgage when the time comes.
Many lenders would prefer to have you keep making interest payments on the loan, rather than incur the costs associated with foreclosing on the property, but it’s important to confirm this with your lender first.
You should also contact a Licensed Insolvency Trustee for more information on how you can renew your mortgage after bankruptcy.
Your local LIT will be able to explain the relevant rules and exemptions in your province, assess your specific financial situation, and help you decide the best way to deal with your mortgage during bankruptcy.