Can I Keep My House If I Go Bankrupt In Bc Or The Yukon Territory

For most homeowners, their house, condo or apartment holds a special place in their heart that goes far beyond warmth, shelter and security. In many cases people saved tirelessly for years to build the down payment. They've invested time and energy into making the place theirs and have built fond memories there. Their home isn't just where they live, it's become part of who they are. So, it's not surprising one of the biggest and most common fears I hear from clients is that they will lose their home in the bankruptcy process.

Every bankruptcy is unique, and each province has its own rules about which assets are exempt from liquidation and to what degree. So an absolute guarantee can never be made one way or the other. For some people, downsizing or selling may be the easiest and most cost-effective path toward freedom from debt. However, in most cases people are visibly relieved to learn they will likely be able to keep their home – as long as several conditions or criteria are met. 

If you're considering bankruptcy but, like many other people, worry you may be at risk of losing your home, the following may provide you with more clarity as you plan your next move.

Your Home Equity

Your home's equity is the difference between what the property would be worth if you were to sell it on the open market and what you still owe on the mortgage.

Note: the market value will likely differ significantly from the property assessment provided by your municipal government. For the most accurate figure, you may want to request an appraisal from a realtor.

Subtracting the current value of your mortgage from the market value of your home will tell you the 'gross equity', which your Licensed Insolvency Trustee will compare against the applicable provincial exemption rules to determine whether it is financially feasible to keep your home.  

Provincial Asset Exemptions

Intended to allow you and your family a reasonable standard of living through the duration of your bankruptcy, each province and territory allows for certain asset exemptions on various types of property.  These protect certain assets or their equivalent value from being liquidated for the benefit of your creditors. In British Columbia, a principal residence (where you live most of the time) has an exemption of $9,000 in equity value outside of the Capital Regional District or Greater Vancouver Area, and $12,000 within. In the Yukon Territory, the exemption is $3,000 for the house and buildings occupied by the debtor.

If the equity value in your home is equal to or less than the exemption amount in your province, this is a good sign you will be able to keep your home. However, if the equity is greater than that amount or if you are having trouble keeping up with payments, you will need to plan your next moves carefully.

Paying the Non-Exempt Equity

If there is equity over the provincial exemption, you will be required to pay the difference between the total equity value and exempt amount to keep your home. For example, if you live in Vancouver and there is $14,000 of equity in your property, you would be required to pay $2,000 into your bankruptcy estate for the benefit of your creditors. There are several options for how to do this, including:

• Making a lump-sum payment of the difference to your Licensed Insolvency Trustee who will then discharge those funds to your creditors
• Discuss an arrangement with your Licensed Insolvency Trustee to make monthly payments (if you're able) until you have paid back the value available to your creditors.
• Have a family member make a lump-sum payment of the difference available to your creditors.
• Have a family member purchase your home from you and provide the equity value available to your creditors to your Licensed Insolvency Trustee

If none of these options seem viable, you may want to begin thinking about whether it may be in your better interest to either sell your home or investigate whether other debt-reduction options – such as a consumer proposal – may be available given your situation and goals.

Keeping Mortgage Payments Up-to-Date

You may find yourself in a situation where you're already struggling to keep up with your mortgage payments. Unfortunately, bankruptcy proceedings do not alter the existing payment arrangements you have with your mortgage company. Regardless of the equity and exemption situation, you will still be responsible to pay your mortgage every month and you will need to get caught up on any outstanding payments. Otherwise you will risk your lender moving forward with foreclosure proceedings. 

It is your lender's discretion whether they would be willing to enter some type of payment arrangement to allow you to get caught up. If they are not interested in negotiating a new payment schedule or you are not able to work within their terms, it may be advisable for you to sell your home. That way you can work toward a better financial future and avoid any additional costs down the road.

Note: Filing for bankruptcy will not stop foreclosure proceedings that have already begun.

Other Considerations

What I cannot pay the non-exempt equity to keep my home? In this case, your Licensed Insolvency Trustee is responsible to liquidate your property for the benefit of your creditors. They will list the property for sale and pay the non-exempt value toward your bankruptcy trust. If there is equity value remaining within the exempt amount after paying selling and seizure costs, you may receive the difference. What that totals to will depend on whether the property sells for the expected value and what expenses come up through the selling process.

What if I don't want to keep my home? If there is equity value in your home, your Licensed Insolvency Trustee will follow the process above. If there is not equity in your home, however, your mortgage company will commence foreclosure proceedings. Provided the foreclosure process begins after you have already filed for bankruptcy, you will be legally protected against the mortgage company suing you for the shortfall in the event they sell the property at a loss.

The bankruptcy process will be different for everyone. There are many factors not described above which may affect your assets and your decision to pursue this option. If bankruptcy is a debt solution you are considering, a Free Confidential Consultation with a Licensed Insolvency Trustee will offer the answers you need to make the decision that's right for you.