YOUR HOME IN BANKRUPTCY
It is normal to have a strong emotional attachment to your home – it is a very personal space where you feel safe and secure. Experiencing financial problems and worrying about whether you will be able to keep your home if you file for bankruptcy adds emotional stress that can be overwhelming.
It may be reassuring to know that you do not automatically lose your home when you file for bankruptcy. The key factors considered include:
- The amount of equity you have in your home
- Your cash flow and ability to manage your home-related payments (mortgage, property taxes, utilities, etc.)
How home equity is handled in a bankruptcy filing
Your equity is the difference between what your home is worth on the market and what you still owe on it. In order to keep your home when filing for bankruptcy, you must be able to pay out all of your home equity to the Trustee. To estimate the equity you have in your home, use the following formula:
(Current market value of your home) –
(Unpaid property taxes + Other liens or charges)
For example: based on recent sales of similar homes in his neighbourhood, Bob estimates that his Prince George, British Columbia home would sell for $150,000. The Trustee may require confirmation of the value as part of the bankruptcy process. Bob’s remaining mortgage is $130,000 and he has $600 outstanding on his property taxes. Below is the calculation of the estimate-equity Bob has in his home:
|Current market value of Bob's home||$150 000|
|Remaining mortgage amount||$130 000|
|Property tax arrears||$600|
|Total liens||$130 600|
|Bob's estimate home equity*||$19 400|
To file for bankruptcy in this case, Bob would have to pay the Trustee $19,400 before his bankruptcy was complete in order to keep his home in Prince George. If he does not have any equity nor has negative equity (where the mortgage balance is greater than the value of the home), he could still keep his home due to the bankruptcy exemptions outlined for British Columbia. At the same time, it is important for Bob to ensure that he can afford to maintain his home without jeopardizing his financial future.
Too much home equity to file for bankruptcy?
Paying out the equity in your home may or may not be possible or desirable if you have paid down a significant amount of your mortgage and/or the value of your home has increased significantly. There is another option.
For example: based on recent sales of similar Prince George, British Columbia homes in his neighbourhood, John estimates that his home would sell for $200,000. His remaining mortgage is $100,000 and he owes $1,000 in unpaid property taxes, but he has kept his utility payments up-to-date. Below is the calculation of the estimate-equity John has in his home:
|Current market value of John's home||$200 000|
|Remaining mortgage amount||$100 000|
|Property tax arrears||$1 000|
|Total liens||$101 000|
|John's estimate home equity*||$99 000|
In this case, if John filed for bankruptcy, he would have to pay the Trustee $99,000 before his bankruptcy was complete in order to keep his home. For many people like John, with too much home equity, this simply is not feasible.
If you find that you have accumulated more equity than you can pay, there are other options that allow you to keep your home, such as filing a consumer proposal. Talk to a BDO Trustee in Prince George about the benefits of filing a consumer proposal instead of filing for bankruptcy.
*For illustrative purposes only. Further deductions to the home equity (such as mortgage penalties) may also need to be considered.