Effect Of Bankruptcy And Proposal On Our Mortgage

When you file for bankruptcy, secured creditors (such as a mortgage) act "outside" of the bankruptcy. This means that they can enforce any of the terms of their loan documents if you haven't been compliant.

In Alberta, if you are current with your mortgage when you file for bankruptcy, the mortgage company can not call your mortgage. If you are behind on the mortgage payments or have broken any of the other terms of the mortgage (eg: insurance), the lender CAN call the mortgage. You would have to bring the mortgage back to current again.

Where the issue may possibly come into play is when the mortgage comes due for renewal. When you meet with a Trustee or counsellor, be sure to discuss your mortgage renewal date versus the date you will finish your bankruptcy. If your mortgage renews while you are still in bankruptcy, there could be
problems renewing it.

You also have the option of including your property and the mortgage in the bankruptcy if you want, particularly if the fair market value of the property is quite a bit less than the mortgage, and if the mortgage is insured with CMHC, Genworth, etc.

If you file a proposal to your creditors, you can choose to keep the mortgage current or to include the insured shortfall in the proposal.