What If My House Has Equity And I Declare Bankruptcy?
House Equity in Bankruptcy
Before you declare bankruptcy, it’s important to understand all of the consequences associated with this form of debt resolution.
If you own any assets, for example, you’ll want to be sure that they aren’t going to be seized if you file for personal bankruptcy.
Although many people who file for bankruptcy don’t have any notable assets, a significant number do.
As non-exempt assets can be seized during a bankruptcy, you may need to ask, ‘what if my house has equity and I declare bankruptcy?’
Fortunately, you can access all the information you need before you decide whether or not to proceed with filing for bankruptcy.
Can a house be seized during a bankruptcy?
The bankruptcy process is governed by the Bankruptcy and Insolvency Act in Canada, but every province has slightly different rules.
Despite this, the gist of these rules is the same and most aspects of bankruptcy are dealt with in the same way across the country.
If you file for bankruptcy and you own assets, such as property, these will need to be assessed to determine if they are exempt from the bankruptcy or non-exempt.
Exempt assets are excluded from a bankruptcy and you are permitted to keep them, but non-exempt assets can be seized, which means you’ll lose them.
If your home is fully financed (i.e. you have no equity in it) and you are up to date with your mortgage repayments, it’s highly likely that it will be declared an exempt asset and you’ll be able to keep it.
However, if you have equity in your home, it may become a non-exempt asset and it could be seized.
This will depend on how much equity you have in your property.
Here, the rules of your province will apply, so be sure to check what the limits are in your area.
You can keep up to $10,000 in Ontario but up to $40,000 in Alberta, for example, but anything over this amount must be used to pay towards your debts.
Do you really have equity in your home?
You might assume that you have equity in your property but it’s important to do the calculations carefully.
Once you factor in the relevant sales costs and real estate commissions, for example, you might not have as much equity as you think.
If these expenses would bring you below the exemption limit threshold that applies in your province, you would be able to keep your home despite filing for bankruptcy.
Find the right debt solution now
If you would be likely to lose your home by filing for bankruptcy, there may be other options you want to explore.
You may prefer to remortgage the property and pay off your debts to avoid filing for bankruptcy, for example.
Alternatively, you may want to consider making a consumer proposal rather than being declared bankrupt.