519-646-2222WHAT HAPPENS TO MY HOUSE IN A BANKRUPTCY?
Without knowing the specifics of your situation the answer is not entirely clear but let us lay out some possible scenarios for you.
First of all the underlying purpose of the Bankruptcy & Insolvency Act is to help an honest person find relief from the burden of debt so that they may continue to be a productive member of society. Given that position it would counter intuitive for trustees to be tossing people out of their homes just because they filed for bankruptcy. For many people renting is far more expensive than paying their mortgage(s).
Little or no equity in the house:
The trustee needs to understand your entire financial position to help you determine if you might be able to come up with some money to fund a proposal to your creditors or simply to pay them off. Having said that an increasing number of people have little or no equity in their homes because they have already leveraged (mortgaged) them fully.
How do we calculate equity?
There may other considerations that will affect the value so this is for the purposes of example only.
House value: $200,000
Less disposition (sale) costs:
Real Estate Commissions $12,000
HST on Commissions $1,560
Legal Fees $1,200
Property Taxes $2,000
1st Mortgage $140,000
2nd Mortgage $35,000
Total: $191,760
NET Equity (house value less disposition costs) $8,240
After we have completed our calculations we have determined that should your house sell it would return an estimated amount of $8,240 for your creditors. Now again keep in mind that everyone’s situation is different and there is no precise formula for the estimation of home equity and there may some variances even between trustees. This estimate is for discussion purposes only.
In this case the home owner has some money that would be available to his/her creditors in a sale of the home. Since the Bankruptcy & Insolvency Act is based on principles of equity it is only fair and “equitable” that the creditors should receive that amount of money ($8,240) to be shared out amongst them even if you are keeping the house.
Given the governments stringent mortgage rules that amount would not be available in a refinancing as it would require the placement of a mortgage that exceeds 80% of the house value. Your trustee will work some form of payment arrangement for you pay that amount into your estate in order that your creditors may receive the benefit of the equity (money). In any event the filing of either a bankruptcy or a consumer proposal does not mean that you have to vacate your home. You may need to make some form of settlement for the value as in the above example or you may choose to sell the house to access some funds to make a settlement through a consumer proposal with your creditors.
To learn more about what happens to property in insolvency proceedings contact our office for more information.