When you file for bankruptcy, the trustee will meet with you to learn what debts you owe and what assets or things of value you have.
Your home for many of us has value that may have increased from your original purchase price. This increase in the value of your home is called the “equity”.
The equity in your home is considered an asset in a bankruptcy.
The equity in your home is an asset that creditors in a bankruptcy will want to share in.
In a bankruptcy the equity in your home is determined by taking the current value of the home minus certain costs and the amount owed on the mortgage.
For example, if your home is valued at $500,000 and your mortgage is $400,000, you have $100,000 in equity that must be considered in a bankruptcy application. However, there are certain costs that can be deducted to significantly reduce the amount of this equity.
The formula is (Value of Home) minus (costs) minus (Value of Outstanding Debt on Home) = Equity
When a bankruptcy is filed all non-exempt assets are included in the bankruptcy. Your home’s equity must also be included.
Where a bankrupt has more than $10,000 in equity in the home, the amount of equity will be considered an asset.
Where there is equity the bankrupt can either surrender the home to the trustees or pay the amount of the equity into the bankruptcy and keep the home.
For example, where the Trustee has determined that after deducting costs and mortgages that the equity in a bankrupt’s home is valued at $20,000, the bankrupt can either pay $20,000 into the bankruptcy or surrender the home to the trustee.
Where there is no equity in the home, the home will not be considered an asset when you file for bankruptcy.
In order to keep your home in a bankruptcy you will need to continue to pay your mortgage payments.
Your home mortgage is called a secured debt, meaning the money owed on the debt is secured by the value of your home. If you don’t pay the mortgage eventually the bank will seize your home for payment.
Where your mortgage payments are being made, even if you’re insolvent, the bank will not foreclose on the home.
Filing for bankruptcy may make it easier to manage your mortgage payments as you will be relieved of all other unsecured debt.
Where there is equity in the home and your considering bankruptcy you may want to consider a consumer proposal.
In a consumer proposal homes are not considered a seizable asset unlike in a bankruptcy.
Consumer proposals take your total unsecured debt versus your ability to pay. A trustee then negotiates with your creditors to pay them a fraction of the amount owed.
The savings can be dramatic, up to 70% or more, and you do not lose or risk your home as you would in bankruptcy.
Questions about insolvency and bankruptcy? I invite you to call our office to speak to myself or one of our insolvency trustees.
We’re happy to speak over the phone or in-person at one of our offices.
Where you have questions or need some advice, please feel free to give us a call without cost or obligation.
Call us today at 905-721-7506.
R. Mitchell
6 days ago
★★★★★ Kelly and her staff made the bankruptcy process very easy. It was a relief to my wife and I to have professionals such as these, very supportive. Thanks again
D. Ganguli
2 weeks ago
★★★★★ Some bad financial decisions including being laid off resulted in huge credit cards bills that we were never going to be able to pay off. When we finally got fed up with the collection calls, my husband and I decided to get some help. We decided on bankruptcy giving up many things we didn’t really need, and the counseling was great for us at our age. It wasn’t easy, but we are much happier and debt free. Thanks Again, would recommend.
Jo-anne Lee
1 month ago
★★★★★ I had a student loans of $14,000, and a balance on my credit card, then I received a letter of garnishment. A credit counselor recommended I look into filing for bankruptcy. The bankruptcy trustee was easy to speak with and listened to me. Together we discussed the pros and cons and options available. The bankruptcy will pass, but I’m much happier without the burden of debt in my life. I should have gotten the financial counseling years ago.
Christia McIntyre
4 weeks ago
★★★★★ Professional and friendly, on their advice I did a consumer proposal vs bankruptcy and will be completely out of debt in 2.5 years!! Many thanks
S. Lee
1 month ago
★★★★★ They were completely upfront about what my options were, and gave me a clear cut plan about how I could stop the calls, bill collectors and bills that just kept getting bigger and bigger. Filing for bankruptcy was not an easy decision but the trustee was there for me all the way. Thanks Again!
Canadian Association of Insolvency and Restructuring Professionals
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