Debt Repayment Options and Your Home
When you make a consumer proposal, your home and related equity is unaffected. The trustee and creditors will not take possession of your property and you will be able to keep any house equity that you have accumulated.
On the flip side, if you file personal bankruptcy any equity that you have in your home becomes property of your bankrupt estate.
So, before we make a decision as to what route is best for a client, we ask the client if they would like to keep their home or if they have considered surrendering it.
When you make a consumer proposal, what you are essentially saying to creditors is, “you let me keep my home and I will make payments to you through my proposal.” This results in a win/win for debtors and creditors. The debtor is happy because they are allowed to keep their home and the creditors are happy because they are receiving payments and getting more than what they would if the debtor were to file for bankruptcy.
But some people who own their own home can’t or don’t want to keep it. Some common reasons why someone might not want to keep their home are:
- Can’t afford the payments
- The house value is far less than the mortgage balance owed
- Marital/relationship breakdown
The biggest challenge facing a homeowner who wants to surrender their home is finding a new place to live. In most cases this involved getting approved by a landlord and having the money to cover first and last months rent, and moving expenses. More information on finding a place to rent after making a consumer proposal or filing personal bankruptcy.
We recommend the following to people who want to surrender their home:
Stop making mortgage payments – once you stop making mortgage payments your mortgage company will eventually initiate power of sale or foreclosure proceedings.
Wait for the bank to force you out – power of sale or foreclosure is a process which takes time during which you can live in your home mortgage and rent free.
Save your money – you should save the money that you are not paying to your mortgage company to be used for first and last month rent as well as moving expenses.
Maintain your insurance – as long as you are living in your home you should maintain your insurance to protect your belongings and avoid any other liabilities which may arise.
Residual balance or shortfall – after the bank has sold the property, any residual balance or shortfall left owing (assuming the sale proceeds were less than the total amount owing) can be discharged by making a consumer proposal or filing personal bankruptcy.
In most cases, people will file their consumer proposal or bankruptcy around the same time they stop making their mortgage payments. It is not necessary to wait until the mortgage company has taken possession of the property or the house has been sold to take action.
If you own your home and have questions about debt repayment options, don’t hesitate to contact our office for a free, no-obligation consultation.