How Is A House Affected By A Bankruptcy

In Alberta, you are allowed to keep $40,000 equity in a principal residence when you file for bankruptcy.  And this if $40,000 per household, so if 2 of you are on title, then the exemption is $20,000 per person. What happens when you file for bankruptcy is that you provide us with proof of the value of your house, and proof of the mortgage, secured line of credit, or other security against your house.  From that, we calculate the net equity.  If the final amount is less than $40,000 you do not lose the house because of the bankruptcy.  This is so long as you continue to pay the mortgage, etc. as this security still survives the bankruptcy.  If the final equity amount is over $40,000 then we have to look at how to deal with this excess.  So for example, if you have $50,000 net equity in your principal residence, we have to deal together on realizing on the $10,000.  The answer as to how this is done depends on your situation and on the actual amount.  Sometimes it means payments by the bankruptcy to their trustee, sometimes it means refinancing, sometimes family help.  It's a rare situation that the house is sold to pay in this equity. Now if you are behind on your mortgage, the lender still has the right to take the house, even if the trustee isn't. The other thing you have to be careful of is the secured debts against your house other than your mortgage.  If you have a secured line of credit, this is not a conventional mortgage and the lender can call the loan.  Also be careful of secured credit cards or other debts that may be secured on the house.  This don't necessarily have terms for repayment and may be called in full or have to be re-written upon your bankruptcy. If you would like to discuss the specifics of your house and your creditors, give us a call. Donna Carson, CGA, CIRP, Trustee 1.877.500.0792     donna.carson@mnp.ca