Mortgages and Bankruptcy in Ontario

How an Ontario Bankruptcy Impacts Mortgage Debt

As you navigate the world of financial management, you may find yourself facing questions about mortgages and bankruptcy. This comprehensive guide aims to demystify these complex topics. Specifically, we will focus on Ontario’s laws and regulations about mortgages and bankruptcy and how to navigate these waters.

Understanding the Basics

A mortgage is a type of loan used to purchase or maintain property. When you get a mortgage, your lender has a claim on your property until the loan is fully paid off.

On the other hand, bankruptcy is a legal process where you declare that you cannot pay your debts. It can help you get a fresh start by discharging debts, but it can also have serious negative impacts on your credit and future ability to borrow money.

Consumer Proposal and Personal Bankruptcy

In Ontario, if an individual is struggling with debt, they may consider either a consumer proposal or personal bankruptcy. These are legal proceedings, managed by a Licensed Insolvency Trustee, which can provide relief from crippling debt.

A consumer proposal is a formal offer to your creditors to pay back a percentage of what is owed to them or extend the time you have to pay off the debts, or both. The payments are made through the Trustee, and the total debt is capped at $250,000 (not including mortgages).

A personal bankruptcy, on the other hand, involves surrendering certain assets to a trustee in bankruptcy, in exchange for the elimination of debts. It can be a more drastic measure than a consumer proposal, but sometimes it’s the best option available.

 

Note: Current laws do not allow a mortgage lender to cancel a mortgage just because you filed for bankruptcy or a proposal, as long as your payments are up-to-date. However, if you’re late on payments, the lender has the right to foreclose on the property to recover their loan.

 

The Role of Mortgage Lenders

Mortgage lenders play a crucial role in both the maintenance of a mortgage and in the event of a consumer proposal or bankruptcy. They are the entities that provide the loan for the mortgage and hold the decision-making power should you default on your payments.

The Impact of Home Equity

Equity is the difference between the market value of your home and the amount you owe on the mortgage. It’s an important factor when considering a consumer proposal or personal bankruptcy.

In a bankruptcy, if your home equity exceeds $10,000, you must either pay an amount equal to the equity to keep your home or give up your house to the trustee. If you want to keep your home and your equity is over $10,000, a consumer proposal might be a better option. The value of your home can be included in your proposal payments, which can be extended over five years to make the monthly payments more manageable.

Additional Fees

It’s important to be aware that many mortgage lenders will charge a fee when you file a consumer proposal or go bankrupt. This fee is for processing a claim with the trustee. Even though you’ll keep your house and continue making payments, the mortgage company may charge a fee of between $150 and $400 to process the paperwork.

Renewing Mortgages

When economic conditions are unfavorable, some lenders may make it challenging to renew mortgages. Some lenders may even have a policy that if you file a consumer proposal or bankruptcy, they’ll let you keep the mortgage until it matures, and then require you to find a new lender.

Finding a New Lender

Finding a new lender can be a challenge, especially if you’ve filed a consumer proposal or bankruptcy. However, it’s not impossible. There are lenders who specialize in helping those with less-than-perfect credit histories.

Selling Your House

If you’re unable to find a new lender, or if your lender refuses to renew your mortgage, one option is to sell your house. This can be a difficult decision to make, but it might be a better alternative than having the bank foreclose or refuse to renew the mortgage.

Seeking Professional Advice

Given the complexities and potential risks associated with mortgages and bankruptcy, it’s wise to seek professional advice. A licensed professional can review your options and help you find solutions that best suit your situation.

 

Tip: Remember, you have options. Be proactive and start exploring your debt relief options today.

 

Conclusion

Understanding mortgages and bankruptcy in Ontario can be confusing, but with the right information and professional advice, you can make informed decisions about your financial future. Remember, the goal is to find a solution that allows you to manage your debt in a way that’s manageable for you and fair to your creditors.

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