I Cant Sell My House Because I Have Too Much Debt

A client recently came to me distraught and on the verge of tears. She had tried to sell her house, but couldn't close the sale. There was a lien registered against her property which prevented the transaction from moving forward. She was stuck in an upsetting and frustrating catch-22.: On the one hand, she needed the proceeds from the sale to pay her creditors. On the other hand, there was not enough equity in the house to cover the lien. She didn't know what to do.

Unfortunately, this is an exceedingly common scenario. If an individual fails to pay their debts, a creditor can obtain a judgement against them – up to and including liens against the debtor's real property. The property then cannot be sold without dealing with the liens.

Thankfully, I was ultimately able to help my client escape her dilemma. And if you've found yourself in a similar situation, you also have several options available. 

Option One: Delay the Sale

If possible, you may opt to delay the sale of your property. Doing this could offer two potential benefits: For one, it may give you the time you need to pay your debts sufficient to have the lien lifted from your property. Alternatively, it might allow you to secure a higher selling price from a prospective buyer.

Understandably, this is not always possible. If your outstanding debts are too large or if future legal or collections actions are imminent, you will want to carefully consider the following (potentially with the assistance of a Licensed Insolvency Trustee) to determine which route would be best for you.   

Option Two: Negotiate a Settlement

You may attempt to negotiate a settlement agreement with the lienholder to allow your sale to complete. This would usually take the form of a lump sum payment from the proceeds of your sale, along with ongoing payments on any remaining amount until the debt is paid off.

However, this will not always be reasonable. Creditors are under no obligation to negotiate with you, and because they have had difficulty collecting payment in the past, they are not likely to accept anything less than the full amount already due. Moreover, revealing the extent of your position could result in unintended consequences – such as triggering foreclosure proceedings. If the foreclosure and re-sale of your property results in a shortfall, your creditors can initiate legal action and obtain a judgement to cover their losses. This can cause significant damage to your credit and put you in an even worse financial position than you were originally.

Option Three: File for Bankruptcy

If you qualify as an insolvent person under the Bankruptcy and Insolvency Act of Canada, you may choose to file for bankruptcy. This would effectively convert the lien on your property into an unsecured debt. Your Licensed Insolvency Trustee could them complete the sale of your house and direct the net proceeds to the benefit of your creditors.

An added benefit of this option are the provincial and territorial asset exemptions, intended to allow you and your family to maintain a reasonable standard of living throughout the bankruptcy process. If any proceeds from the sale remain after paying selling costs and your mortgage company – you might be entitled to a portion before your unsecured creditors receive their share.

Option Four: File for Consumer Proposal

A Licensed Insolvency Trustee may also be able to convince your creditors to accept a Consumer Proposal – a legally binding agreement to restructure your payment amount and / or timeline within mutually agreeable terms. If so, your house could then be sold, and the net proceeds distributed amongst your creditors. Depending on the terms of your Consumer Proposal and the size of your unsecured debts, you may still be required to make monthly payment for a predetermined period.

Free Confidential Consultation

During this stressful period in your life, it can be difficult to understand your choices, let alone know which will be best for your short- and long-term financial wellbeing. Whether you decide to delay the sale or file for bankruptcy, a no obligation Free Confidential Consultation with a Licensed Insolvency Trustee offers the confidence you need to make the right decision given your unique situation and desired outcome. Call us today to discover how we can help you on the path toward a financial fresh start.