Can I be Forced to Go Bankrupt in Canada?

Category: Bankruptcy Q&A (5) comments

Question: I have a home which I have a 1st & 2nd mortgage on which are current.

But because of my failing business I have accumulated $700,000 in unsecured debt which I’m now in default of.

The equity in my home is less than $70,000 in a perfect market but more than likely $40,000 in a fire sale repo type sale.

I don’t have a phone so I’m not getting any phone calls and I really don’t care about the collection people my skin is thick at this point in my life.

I know they can sue me in court and get a writ of execution against me in court and put a lien on my home, then foreclose, sell my home, but must first pay off my 1st & 2nd, plus property taxes, worst case scenario.

But when their lawyer does a credit report on me they will see over $700K in outstanding bad debt which I can no longer service.

  1. Will the fact I have $700k in bad debt factor into them wasting more money chasing me, with the absolute real risk they won’t actually get anything back?
  2. Can I be forced to go bankrupt if I have nothing as far as assets left in my life are concerned, except for a home that really doesn’t have much left in equity?

I don’t have any income what so ever, we are living on scraps and my wife and I can’t find any work and our family are helping us out so we don’t starve or move in with them.

Answer: It is very rare that a creditor forces anyone to declare bankruptcy in Canada.  It is theoretically possible for a creditor to petition you into bankruptcy, but it almost never happens, because there is usually nothing for them to gain by forcing you into bankruptcy.

The more common scenario is that the creditors call you, then send letters, then perhaps take you to court and sue you.  In your case you are correct; if they see that you have large debt, they may not bother, because they may assume that as soon as they take you to court you may voluntarily declare bankruptcy.

It is possible that a creditor could sue you, obtain a judgement, and then register a lien on your house.  That theoretically gives them the power to sell your house (if they go through the courts to foreclose), but in most cases the lien simply remains on your house until you sell the house, and then they get paid if there are any funds available.  Again, you are correct that once the creditors see that you have two mortgages they may decide it’s not worth the effort.

At this point you have two obvious options, in addition to continuing your search for employment.

First, you could simply do nothing, and borrow from family and friends to keep the mortgages current.

Second, if you don’t think your situation will improve in the short term, you could sell the house and realize whatever equity is there, and then use that money to survive and rent a place until you are working again.  Obviously if you sell the house you would not want to deposit the money in a bank where you owe money.  Depending on the value of the house and your future employment prospects you could then decide if a bankruptcy is necessary at this time.

Category: Bankruptcy Q&A |

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  1. Mr. Tickles

    If he has that many creditors for that much he probably already has judgments on title. Also if he liquidates his sole property now he’s looking at garnishment and other matters. He should go bankrupt, yesterday.

  2. Sharon Flockton

    I am Married my husband owns the house we live in my name is not on the house he owns a 2016 Kia in his name only
    I am on Quebec pension 342.00 a month I do not own anything can I be forced into bankruptcy and can they touch anything under my husbands name ?

    1. Ted Michalos

      If your only income is a Quebec pension then it is unlikely anyone will go to the trouble to petition you into bankruptcy. It is allowed under the law, but they’d have to pay all the legal costs to do it and at the end of the day you don’t have anything they can seize and sell. If the house and car have never been in your name and your spouse isn’t joint on the debts then there isn’t likely any legal basis to make them pay for your debts.

  3. Lyle

    I’m on Ontario disability and I owe 10 thousand dollars a collection agency has threatened to make a forced bankruptcy against me I do own a 2008 car .its the only possession I have left in this world. I’m not worried about the car but can and will they do it just to add to my pain and suffering

    1. Ted Michalos

      Cars are exempt from seizure if they are worth less than $7,117 pursuant to the Executions Act (you may want to check to see if that number has changed). If your car is worth less than that then it is protected under the law. While it is possible to petition an individual into bankruptcy it is highly unlikely. To do it the person suing has to cover all of the costs so why would they do that if you are on a disability pension? Don’t let them scare you…


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