Can I file for bankruptcy without losing my house?

Although technically, a house is an asset on which your creditors may have rights, it is possible, in certain circumstances, to file for  bankruptcy without losing your home.

Here are 3 essential conditions to keep your house:

1) Avoid defaults on your mortgage

In the context of bankruptcy or a consumer proposal, your mortgage creditor cannot invoke the fact that you have filed for bankruptcy or are in financial difficulties to repossess your home (except at your mortgage renewal) if:

• Your monthly payments are up to date
• Your home is insured
• Municipal and school taxes are paid AND
• All other conditions of your mortgage contract are met.

2) “Buying Back” the equity in your home

First of all, what is equity? You have equity in your home if it can be sold in a bankruptcy situation (i.e., quickly and without any guarantee) for a net amount that exceeds the balance of your mortgage debt, after deducting the selling costs (real estate broker’s commission, notary fees, etc.).

If you only own 50% of the house, this equity will be divided by 2, and sometimes even more since it is prohibited for a creditor or trustee to force the sale of a family home held in co-ownership with someone who is not bankrupt.

In all cases, if there is an amount to be paid, the agreement will be negotiated by your trustee and can be paid in cash or in monthly installments, with or without interest, depending on the circumstances.

3) Creditors have the final say

If you wish to keep your home, the trustee will be able to explain the process and the different possible options to you.

Although there are tools to help calculate the equity in your home, it is not an exact science, and creditors will always have the final say on the amount that is offered and the proposed terms of payment you propose.

If the equity in your home is too significant to “buy back” in a short period of time, a consumer proposal could be an alternative. It offers the possibility to spread the buyback over a more extended period and gives you more control on the settlement offer.

Your financial reorganization advisor at Jean Fortin will take the time to analyze your case and advise you on the best option for you. This meeting can be held in person or remotely, depending on your preference. It is free, confidential, and without any obligation.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee