What Happens To My House after Filing Bankruptcy?

House in Bankruptcy

We are commonly asked “what happens to my house after filing  bankruptcy” because  people are very concerned about what will happen to their home if they go bankrupt, because they have heard the myth that you will lose everything if you go bankrupt.

What Happens To My House after Filing Bankruptcy?

The answer depends on the province in which you live and how much equity that you have in your house. Equity is the value of the money you own in your house (the value of your property minus your mortgage and properties taxes owed). If you have significant equity in your home you likely won’t be able to keep your home. The only exception is if you are able to afford to “buy back” the equity from your trustee or can file a consumer proposal.

Equity in a Home & Bankruptcy

For example, if you live in Greater Vancouver and have $20,000 in equity, which is greater than the $12,000 home exemption in Greater Vancouver you must pay your trustee the difference ($8,000) to be able to keep your house. You can get the money to pay the trustee for your equity by borrowing from family or friends or by getting a second mortgage. The bankruptcy process must be fair for you as well as your creditors so it is not fair for you to be able to keep significant equity if you are getting a discharge from all of your debts. If you have significant equity you have other options to explore with your trustee to help solve your debt problems. If you cannot afford to pay this difference you will have to surrender your home to the bankruptcy trustee or you will have to seek a bankruptcy alternative such as a consumer proposal, which allows you to keep all of your assets, as a way to get out of debt. If you have no equity, or even negative equity in your home, you will be able to keep your home when going bankrupt. You must keep paying your regular mortgage payments if you would like to keep living in your home after filing bankruptcy. If you have equity that is less than the exemption in your province you will also be able to keep your home. You can find the bankruptcy exemptions here. What will happen to your house can be quite confusing so if you are worried about this aspect of going bankrupt you should seek the help of a bankruptcy expert from Bankruptcy Canada. If you have equity in your house you will have to surrender your home to your bankruptcy estate, or pay off the equity with your own money if you wish to keep the home. If you cannot afford to “buy back” the equity from your bankruptcy estate you will lose your home if you go bankrupt, so you should seek an alternative way to get out of debt as your equity will be distributed to your creditors in a bankruptcy filing. If you cannot afford to pay your mortgage, declaring bankruptcy could still be helpful for some homeowners, as it will lower your monthly payments to your unsecured creditors. Debtors with surplus income will have to pay more and be bankrupt for a longer period of time although it can help you save your home in some cases. Depending on your credit score you might be able to refinance and keep your home.