Mortgages and Bankruptcy in Ontario: What You Need to Know

Posted in Personal Bankruptcy
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

mortgages-and-bankruptcyWhat happens to your mortgage if you file a consumer proposal, or a personal bankruptcy in Ontario? Under current laws a mortgage lender is not permitted to cancel a mortgage simply because you filed a bankruptcy or a proposal, if your payments are up to date. If you are behind on your payments, the mortgage holder has the right to foreclose on the property to recover their loan.

Here’s how it works: If you own a home, prior to filing a consumer proposal or personal bankruptcy with Hoyes, Michalos & Associates, we will request that you obtain an appraisal on your home, and a recent mortgage statement so that we can determine whether or not you have equity in your home. (Equity is the difference between what your home is worth, and what is owing on the mortgage). In a bankruptcy, if the equity in your home exceeds $10,000, you are required to either pay an amount equal to the equity to keep your home, or surrender your house to the trustee. If you have equity over $10,000 and you want to keep your home, a consumer proposal is often the best option, since the value of your home can be incorporated into your proposal payments, which can be extended over up to five years to make the monthly payments manageable.

For more information, please see our article on What Happens to My House if I File Bankruptcy?

Two further points:

First, many mortgage lenders will charge you a fee when you file a consumer proposal or go bankrupt. They charge a fee for processing a claim with the trustee. So, even though you will be keeping your house and making payments, the mortgage company may charge a fee of between $150 and $400 to process the paperwork. Please contact us and we can advise you on whether or not you are likely to be charged a fee by your mortgage company.

Second, due to the credit crisis, the recession, and declining real estate values in parts of Ontario, and throughout North America, some lenders are no longer renewing mortgages. Some lenders now have a policy that if you file a consumer proposal or bankruptcy they will allow you to keep the mortgage until it matures, and then they will require you to find a new lender. In fact, there are even some lenders who are advising their clients that they are getting out of the mortgage business, and will not renew any mortgages, even if you are not filing a bankruptcy or proposal

How can your protect yourself? Again, we recommend you contact one of our professionals for a free initial consultation, so that we can review your options and help you find solutions. Some people may be able to find a new lender. Others may decide that they will sell their house before the bank can foreclose or refuse to renew a mortgage.

There are options, so be proactive and start exploring your options today.