Can I file for bankruptcy without losing my house?

Yes, in some cases, it is possible to go bankrupt while keeping your home. Personal bankruptcy does not automatically mean losing your primary residence. However, your property will need to be assessed to determine whether it has equity that could be used to repay your creditors.

In practice, three elements are generally analyzed:

• Your ability to keep up with your mortgage payments;

• The available equity in your home;

• The acceptability of the arrangement proposed to creditors.

1. Continue to Honour Your Mortgage Agreement

Your mortgage is considered a debt secured by your home. This means your mortgage lender has specific rights over the property. However, filing for bankruptcy or making a proposal does not necessarily mean that the bank or mortgage lender will automatically repossess your home.

To keep your property, you must continue to comply with the terms of your mortgage agreement. This includes:

• Making your mortgage payments on time;

• Maintaining valid home insurance;

• Paying your municipal and school taxes;

• Complying with the other obligations set out in your loan agreement.

If your payments are up to date and you are able to continue covering the costs related to the property, it may be possible to keep your residence. On the other hand, if you have already accumulated significant mortgage arrears, the risk of losing your home may be higher.

2. Assess the Available Equity in Your Home

One of the most important factors in determining whether you can keep your home in the event of bankruptcy is the equity in your property.

The equity in your home, also called net value, is the portion of the property that truly belongs to you. It is calculated by subtracting the balance of your mortgage from the current market value of your property.

For example, if your home is worth $400,000 and you still owe $370,000 on your mortgage, the gross equity is $30,000.

How Is Equity Calculated?

The calculation may vary depending on your situation, but it generally takes into account the following elements:

• The current market value of the property;

• The balance of the mortgage;

• Any unpaid taxes or amounts related to the home;

• Estimated selling costs, such as brokerage fees;

• Your ownership percentage if the home is also owned by another person.

If the home has little or no equity, it may represent limited value for creditors. In that case, it may be easier to consider a solution that allows you to keep it.

If the equity is more significant, a proposal may need to be filed in order to compensate creditors for the value they could have received in a bankruptcy.

What Happens If the Home Is Also Owned by My Spouse?

If you own the home with your spouse, partner, or another person who is not filing for bankruptcy, only your share of the property will generally be analyzed in your file.

For example, if you own 50% of the property, the equity attributed to your share may be different from the total equity in the home. However, the situation must be assessed carefully, as several elements can influence the calculation: the title deed, the mortgage, each person’s contributions, the real value of the home, and the remedies available.

In some cases, the non-bankrupt spouse may also participate in an equity buyout arrangement to help keep the home.

3. Find an Acceptable Arrangement With the Trustee and Creditors

When equity is available for unsecured creditors, it may be possible to keep the home by filing a proposal. This generally aims to provide creditors with an amount that is equivalent to, or acceptable in relation to, the net value of your share in the property.

Depending on the file, this amount may sometimes be paid:

• In a lump sum;

• Through monthly payments;

• As part of a bankruptcy;

• As part of a proposal.

A Licensed Insolvency Trustee such as Mallette will explain the realistic options available based on your payment capacity and the value of your property.

Have Your Situation Analyzed Before Making a Decision

Before concluding that you will lose your home, or conversely, that you will automatically be able to keep it, it is best to consult a Licensed Insolvency Trustee.

At Mallette, our advisors take the time to analyze your financial situation, your mortgage, the value of your property, and the solutions available, at no cost.

Book an appointment to discuss your situation in complete confidentiality.