Can You File for Bankruptcy and Keep Your House?
By Jordan Evans
A lot of people ask us the question, “Can you file for bankruptcy and keep your house?” The answer depends on how much equity you have in your home (except for Quebec). Most of the time, we think of equity as how much of our house we own after our mortgage(s) is subtracted. For example, if your home is valued at $250,000 and your mortgage is $200,000, then you have $50,000 of equity in your home.
The amount of equity a licensed insolvency trustee (bankruptcy trustee) will work with when determining if you can go bankrupt and still keep your home or not, is a net equity calculation. They will take the value of your home, subtract what you owe, deduct all of the costs that would come with selling your home, and then use that net equity amount to determine where you stand.
If the net equity amount is above the provincial exemption maximum, you have the choice of either selling your home or ‘buying back’ the amount above the exemption limit. If you can afford to buy back the excess amount, you pay it to your trustee in addition to any surplus income amount (if applicable). Your buy back amount becomes part of your bankruptcy estate and it is eventually distributed to your creditors.
The Provincial Exemption Limits for Keeping Your House When Going Bankrupt
The amount of net equity you’re allowed to have to keep your home and still go bankrupt depends on which province you live in. Here’s what the exemption limits are:
Alberta
You’re permitted to have up to $40,000 in equity if you completely own your home. If you are a co-owner, then the equity you’re permitted is reduced proportionately by the percentage of the home that you own. So if you’re 50% owner, your equity exemption would be $20,000. If you’re a 33.3% owner, then your equity exemption would be $13,320.
British Columbia
You’re allowed to have $12,000 in equity in Vancouver and Victoria, but only $9,000 all other areas of the province.
Manitoba
You can have up to $1,500 in equity if you jointly own the home with someone else. If you are the sole owner of the home, you’re allowed to have up to $2,500 in equity.
Ontario
You’re permitted to have up to $10,000 equity in your principal residence.
Saskatchewan
You’re allowed up to $50,000 equity in your active residence per owner on title (and this could even be a trailer). Unsecured creditors also cannot force the sale of your home.
Quebec
Unlike in other provinces, there is no amount of equity in your home that is exempt from bankruptcy. However, your main residence is considered unseizeable if the claim against you is for less than $20,000 (with some exceptions).
How Provincial Exemptions Can Impact Your Home in Bankruptcy
Example Calculations
So using Ontario as an example calculation, if you live in Ontario with a house worth $250,000 and your mortgage is $245,000, then you get to keep your home because you only have $5,000 in equity ($250,000 home value – $245,000 mortgage value = $5,000 in equity) and the province allows you have up to $10,000 in net home equity and still keep your home. The $5,000 of equity would become even less once potential selling costs are subtracted.
However, if your home is worth $250,000 and your mortgage is at $200,000, then you would have to either buy out the surplus or sell your home to pay your creditors with the proceeds because your net equity would still be over the $10,000 limit ($50,000 less costs associated with selling, which vary).
There are Good Alternatives to Bankruptcy
A lot of people don’t realize that there are good alternatives to bankruptcy. From different kinds of debt consolidation to debt repayment plans, debt management programs, debt settlements, and consumer proposals – regardless of how bad your situation may seem, it is worth considering all of the ways you can deal with your debts before you make a decision. For many people, bankruptcy is not a viable first option. To help you understand all of your options and alternatives, one of our professional credit counsellors would be happy to take an objective look your financial situation and provide you with information about what could work for you.
Get Help to Consider Debt Relief Options and If You Can Keep Your House in Bankruptcy
Between financial trouble and declaring bankruptcy, there are debt relief options that most Canadians have never heard of. Finding ways to keep your house, if at all possible, is important. It’s your home and having to move makes a difficult situation that much harder. Our credit counsellors specialize in helping you explore all of the options to figure out what will work best for you to get you back on track as quickly as possible, while not jeopardizing your long-term goals entirely.
If you’d like to explore your debt relief options, get some guidance and information, and see what’s available to you, get in touch with us today by toll free phone at 1-888-527-8999, email, or anonymous online chat. Our help is free, completely confidential, and judgement free. We’re here for you and ready to help.
Just a quick question, im in new brunswick and co own a house with my sister. i have about 30k in credit card and loan debts and 55k on a truck loan all in which i can no longer afford. was thinking about going bankruput and we have about 50k in equity in the house. how would i be affected if i went bankrupt and can me and her keep the house and still live in it. thanks for your time.
Hi Matthew, Thanks for asking your question. To fully answer it, someone needs to also take a look at your income, your budget, and consider the rest of your financial picture along with your goals. Even the type of work you do should be considered as filing for insolvency can impact this in some cases. A licensed insolvency trustee could directly answer your question about bankruptcy. However, to look at the bigger picture and consider all your options first (many times there are others), our best suggestion would be to speak with a non-profit credit counsellor first. In New Brunswick, there is a good non-profit credit counselling organization called SolveYourDebts.com (1-888-753-2227). We would suggest speaking with them first and seeing what they have to say. If they believe that filing for bankruptcy or a consumer proposal (a lighter version of bankruptcy) is in your best interest, then they’ll refer you to a reputable licensed insolvency trustee (bankruptcy trustee) near you.