You can keep your house if you go bankrupt if you pay the equity in your house to the trustee, and if the mortgage company agrees. Your house equity is the difference between what the house is worth and what you owe on it. A rough guide to your home’s equity is the current market value of your home, less the mortgage, real estate fees, legal fees, mortgage penalties, back property taxes and utilities. If you have questions about calculating your equity call us and we will help you.
Keeping your house may not be your best option if:
When deciding if you can keep your house, you should know that when you file Ontario bankruptcy you no longer have to make payments towards your unsecured debts and therefore you may actually have more money available to pay your mortgage, property taxes and utilities. If you haven't already done so, flip to our page on personal budget planning to determine whether or not you have the ability to keep paying for your house after bankruptcy.
Even if you decide to keep your house, your mortgage company could cancel your mortgage contract if you file bankruptcy - legally they can demand full payment. Even if you've never missed a payment in the past, your mortgage company may cancel your contract, forcing you to refinance or sell your home. It’s unlikely that they will. The mortgage company makes their money off the interest that you pay (not by selling houses). If you have been a good customer and you have the ability to continue making payments, then it is in the best interests of the mortgage company for you to keep paying them. You should confirm this with your mortgage company before filing bankruptcy.
It’s very important that you know your rights and responsibilities in regards to your secured creditors, including your mortgage, before you file bankruptcy. Your trustee will be able to answer all your questions.
The following example demonstrates how a trustee determines if you have any equity in your home.
NOTE: This is just an example. The trustee is required to negotiate a settlement with you. It is not just a mathematical exercise. Even if you and the trustee agree on the calculation, any creditor can object to the settlement, and request that you make larger payments during your bankruptcy, as discussed below.
"A real estate agent appraises your house at $115,000 and you owe the mortgage company $100,000. I've got $15,000 in equity, right?"
Not necessarily. The amount of equity in this house could be calculated as follows:
| Fair market value | $115,000 | |
| Less: Selling costs @ 6% | -6,900 | |
| Legal fees | -1,000 | |
| Mortgage penalty | -2,500 | |
| Mortgage | -100,000 | |
| Tax arrears | -500 | |
| Utility arrears | -300 | |
| Equity in the home: | $ 3,800 |
In this particular example, you would offer to pay the trustee $3,800 before your bankruptcy was completed, as full settlement for the equity in your home.
However, one or more of the creditors may object, arguing that it's not fair that selling costs and a penalty to break the mortgage are included in the calculation, since you are not planning to sell your house. Based on that the trustee may negotiate a larger settlement with you, so the actual amount you pay may be a number between $3,800 and $15,000. Each case is different, so it is critical that you discuss this with your trustee before filing bankruptcy.
Another option would be selling house after filing bankruptcy. Your trustee can help you plan your bankruptcy and explain the costs involved.
If you have equity in your house, and if you want to keep your house, the best option may be to file a consumer proposal. By filing a proposal you can spread out the payment for the equity in your house over an extended period (up to five years) which may be more affordable.
Licensed bankruptcy trustees at Hoyes Michalos & Associates Inc. will be happy to advise you on your different options, and decide which option is best for you. Call one of our Ontario bankruptcy offices, or contact a bankruptcy trustee by email today.