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Real Estate Bubble and Bankruptcies

September 5, 2017

The value of your real estate can impact what you must pay in a bankruptcy

In estimating the asset value of your home trustees had treated the value of real estate as if the value were fixed at the time of the bankruptcy filing until the decision of the Ontario Appeals Court in LePage of 2016.

This case was a game changer in that the court found that any increase in the value of the property between the time of filing the bankruptcy and the bankrupt being discharged was considered “after acquired property”. After acquired property is more typically things like lottery winnings, inheritances, or gifts that devolve on the bankrupt during the bankruptcy. After acquire property vests in the trustee for the benefit of the estate creditors.

Following the decision in LePage trustees must now review property values at the time of the bankrupt’s discharge to see if their real property has increased in value, creating equity, since the initial bankruptcy filing. If there is equity the bankrupt will be required to make settlement with the trustee for the increase in value.

In some markets, very little has changed because real estate values have not increased significantly. However, markets that have seen significant growth such as Toronto, Vancouver and Montreal will have a tremendous impact on bankrupts who had entered the process believing there was no equity in their homes and who find out afterwards they must make settlement for increased property values.