As stressful as the decision to file bankruptcy is, it’s even more so if you own a home. Consumers who are having trouble meeting their monthly financial obligations may also start missing mortgage payments and then worry about losing their home.  The advice they keep getting is to NOT file for bankruptcy because they will lose everything. They may hesitate to contact a Trustee for fear their home will be taken away from them.  While bankruptcy is the quickest way for consumers to eliminate unsecured debt and start fresh, there are downsides.  The number one downside is the loss of assets.

However, in a bankruptcy you don’t lose everything. Most personal belongings are exempt.  In Ontario the bankruptcy exemptions include:

  • $5,650 worth of personal possessions (clothing, jewelry, sports equipment, etc.);
  • $5,650 worth of motor vehicles (cars, trucks, etc.);
  • $11,300 worth of furnishings;
  • $11,300 worth of tools of the trade (equipment that you use to earn a living);
  • Certain types of life insurance; and
  • RRSP Contributions, other than in the preceding 12 months.

Will you lose your home?  Not necessarily.  Each case is unique.  In Ontario there are no exemption allowances for home equity.  In some cases, it might be best to walk away from a home if you owe more on it than it’s worth.  In other cases, you can file for bankruptcy and keep your home if it meets the guidelines.  Keeping your house depends on its value and the amount owing.  Most people will have a mortgage on their house and if there is equity, then the equity is required to be paid to the Trustee for distribution to your creditors. You can keep your house as long as you settle with the Trustee on the equity.

Another option is a consumer proposal. A proposal, allows you to keep your house and other assets as long as you continue to keep current on your payments to the secured lenders.

There is no simple answer to whether you will or won’t lose your home.  Don’t be afraid to make an appointment with a Trustee who can explain your options. Be prepared with facts and figures so you can get the advice and the help you need.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)