What Happens To My House if I go Bankrupt?
A common question about bankruptcy is “what happens to my house if I go bankrupt?”
Our Licensed Insolvency Trustee wrote this article to explain how filing for bankruptcy impacts your home and mortgage.
Many people considering bankruptcy are worried about losing their home, especially if they have significant equity.
Fortunately, in many cases, a debtor is able to keep their home, along with their other assets. Just as certain debts cannot be erased in bankruptcy (such as secured debts and court fines) there is certain property that cannot be seized from a bankrupt debtor.
Will I be Able to Keep my House?
Yes, in many cases you will be able to keep your home. The law differs in each province, but each province has an exemptions list of property that a debtor going bankrupt is able to keep.
The exemption value refers to the equity in the property. For example, the homestead exemption in Alberta is $40,000. This means you will be able to keep your home if your equity is $40,000 or less.
To calculate your home’s equity simply subtract the mortgage amount and property taxes owed from the value of the house.
If you keep your house you will have to continue paying your mortgage, utility bills and property taxes as before.
If you go bankrupt, you won’t have to pay on your unsecured debts, and will have more funds available to pay these expenses, but be sure you can afford to continue making your mortgage payment and other house related costs.
What if My Equity is Over the Exemption Limit?
Debtors with equity in their home over the exemption limit may still keep their home. If you have the ability to pay the difference in your equity and the exemption value, you can “buyback” the difference from your Trustee.
For example, if you live in Alberta (where the equity exemption in a house is $40,000) and you have equity of $60,000 in your house and you would like to keep it you can pay your Trustee $20,000 and you will be able to keep the house.
If you are unable to “buyback” the equity in your home and you are over the exemption value you can keep your house with a consumer proposal.
The rules surrounding a home in bankruptcy can be complex so we suggest speaking with a Licensed Insolvency Trustee to learn your options and whether you will be able to keep your home.