Declaring Bankruptcy in Canada: How Can I go Bankrupt Without Losing my House?
Can I Keep My House if I go Bankrupt?
Often one of the first questions people ask a Trustee is what will happen to their homes if they proceed with a bankruptcy.
Although it seems like a simple enough question, it is in fact one of the biggest concerns people have when considering the prospect of personal bankruptcy.
After all, a house represents a person’s comfort and security. The very idea of losing it could make anyone feel like they are losing everything.
The reality, however, is that under many circumstances, it is possible to declare bankruptcy in Ontario without losing your house.
Mortgages are Secured Debts
Secured debts are debts that are secured by a physical asset. Secured lenders’ rights cannot usually be frustrated by a bankruptcy or a proposal. Your mortgage is typically a secured debt.
Secured debts can be included in your bankruptcy if you wish to surrender the security held in favour of the debt. In this situation, any resulting deficiency would become an unsecured claim in your bankruptcy. This may be common with loans that involve certain assets, such as vehicles, since often the value of vehicles is far less than what is owed on them.
Secured debts can also be excluded from bankruptcy if you can continue to make the payments to the secured lender, and the value of the security (of the asset) is greater than the amount owed. This is often the case with mortgages held on properties. Unlike vehicles, which depreciate over time, properties tend to appreciate over time.
What About my Spouse?
Filing for personal bankruptcy is an individual process. It does not affect your spouse’s assets unless they are jointly held with you. In that case, your trustee would be entitled to your 50% interest. Your spouse can also be affected if he or she has co-signed or guaranteed any of your debts. In this case, the creditor can pursue your spouse for the payment of your debts.
The Equity in Your Home
In Canada, each province has specific exemptions for the assets which cannot be seized either by a creditor or by a Trustee in bankruptcy. These are the exemptions in Ontario:
● Motor vehicle up to $6,600.00
● Household furnishings and appliances up to $13,150.00
● Necessary clothing, no limit
● Farming tools up to $29,100.00
● Principal residence maximum $10,000.00
● Trade Tools up to $11,300.00
If your house has equity in it (above the allotted $10,000.00 exemption), then the Trustee must realize on the equity. This can be done in two ways: either the trustee sells the property and realizes on the equity directly, or you (the bankrupt) can repurchase the equity in your house from the Trustee in order to avoid the sale of the property.
The Bankruptcy Process
The process for filing for bankruptcy in Canada will be outlined to you by your licensed insolvency trustee when you meet for a consultation. The bankruptcy is done through the Office of the Superintendent of Bankruptcy (OSB). Only a trustee can do this.
The administration of your estate is overseen by the trustee. The trustee is overseen and governed by both the OSB and the Court.
Crawford, Smith & Swallow Will Get You the Help You Need
The Licensed Insolvency Trustees atCrawford, Smith & Swallowcan help you get back on track and take control over your finances. Whether you need to consolidate your debt, file a consumer proposal, or declare bankruptcy, we will help you every step of the way.
We have over 70 years of experience in the Niagara Region helping our clients get the fresh start they deserve.
Book a consultation today to talk to one of our professionals.