One of the most commonly asked questions we receive, our video explains that you don’t automatically lose your home when you file bankruptcy. Since the situation can become complicated, more information is available in our full article about how bankruptcy affects your home and your car.
One of the most common concerns people have when considering bankruptcy is whether or not they will lose their home.
In most cases you do not lose your house when you file for bankruptcy. To explain why, we will look at two case studies.
The Smith’s owe two hundred and fifty thousand dollars on their home and together they are considering bankruptcy. A real estate appraiser estimates that their home is worth about two hundred and sixty thousand dollars. However when you deduct real estate commissions, outstanding property taxes and other selling costs, it turns out there would be nothing left over if they sold their house today. That means that there would also be nothing left for the creditors if their trustee were to try to sell their home. In this case, the Smith’s won’t lose their home.
Because there is no equity in their home, as long as they are able to keep up with their mortgage payments, the Smith’s can continue to live in their home and build equity for their future even if they go bankrupt.
Mark Johnson also owns a home with a mortgage. The trustee estimates that if Mark sold his house, paid the commissions and selling costs, and paid off his mortgage, he would be left with eight thousand dollars. To keep his home if he goes bankrupt, all Mark has to do is pay the trustee eight thousand dollars.
But what if Mark doesn’t have eight thousand dollars, or can’t get it from his family, or a bank?
Not to worry. Mark could talk to his trustee about filing a consumer proposal. He could offer to pay his creditors a little more than eight thousand dollars and spread out his payments over a maximum of five years. If the creditors agree, Mark can keep his house and avoid bankruptcy.
The point of these stories is that you do not automatically have to lose your house just because you filed bankruptcy. You have options to keep your home as long as you are able to pay your mortgage payments on time.
When you meet with your Hoyes Michalos professional, we’ll help you determine if your house has equity and then we’ll help you explore your housing options.