Here’s a debt scenario that presents a challenge – what do you do if you have equity in your home but are behind on mortgage payments, owe other money, are getting collection calls and need protection? Should you file bankruptcy or are there other options?
How to deal with debts in this situation is going to depend on the answers to three questions:
- How far behind are you? One month can be caught up, four months means the house is likely going to be taken – but there are no absolutes, and could be options for either situation.
- Do you want to stay or have you decided you can’t afford to stay and need to let it go? If you are going to let the house go, consult with a trustee first to ensure you know how this works.
- How much equity is there? A small amount may not really be any, and a large amount could open up other options, such as a proposal or refinancing, or both!
Filing bankruptcy protects you in many ways from the actions of an unsecured creditor, like a credit card. But, it does not protect you from a mortgage bank (secured creditor) if you are behind on the payments. If they wish to enforce ‘power of sale’ and take the house, they can. So, if you are a little behind, you will need to bring your mortgage arrears current. Neither a bankruptcy, nor a consumer proposal, will deal with your mortgage arrears.
However, if you are quite a bit behind, you may have to seriously consider letting the house go. If you cannot afford to keep up with your mortgage payments in the long term, even after eliminating all your other debts through bankruptcy, then selling your home may be your best option. If there is a shortfall, this debt will be included in your bankruptcy allowing you to completely walk away from your mortgage. If there is any equity above any provincial limits, then any equity will be paid into your bankruptcy for the benefit of your creditors.
In the last scenario, we assumed you don’t want to keep your house. But what if you do and it’s other debts that are the real reason you can’t keep up with your mortgage. In other words, you are paying so much against your credit cards, payday loans and other unsecured debts each month that you don’t have enough left over to cover the mortgage. If, by eliminating those debts, you could afford to keep your home then you have two options:
- consider filing bankruptcy. If you do, any equity value in your home above any provincial exemption amounts, will have to be paid into your bankruptcy. That means coming up with the money from a friend or family member, or being forced to sell your home anyway.
- another way to keep you home if it has equity is to file a consumer proposal. This is essentially a payment plan with your unsecured creditors which will see you pay out the equity value in your home to your unsecured creditors over a period of up to five years. You may also have to pay an additional amount if you have significant income or other assets, but the main point is you can keep these assets if you file a consumer proposal.
Figuring out the answer to the three questions I outlined earlier can be difficult. It means taking a hard look at your budget, your debts and your overall financial situation. Book a free consultation with a licensed insolvency trustee in your community to get professional debt advice about your particular circumstances.
This article was contributed by Joel Sandwith, Licensed Insolvency Trustee with Hoyes, Michalos & Associates Inc.
I need to find my bankruptcy papers from 2014. My trustees name is Don Allen, who I think has passed away!
Contact the Office of the Superintendent of Bankruptcy. They should be able to tell you who is responsible for your file now, they may even have copies of the paperwork you require.
My wife and I are in our 70’s and we are both disabled
Back in approximately 2003 we accumulated a credit card debt approx $5,000 which due to interest has not accumulated to in excess of $13,000
We live in a rent assisted apt building
We receive food from the Food Bank and from my son
The only income that we receive is the income from the Govt
We do not possess a vehicle
I have received a letter from TPH legal services of their intent to FORCE me into Bankruptcy under the Bankruptcy and Insolvency Act RSC 1985
Can I be forced into Bankruptcy?
I couldn’t afford to pay the $5,000 back in 2003 and I certainly cannot afford $13,000+ now as my wife and I can barely feed ourselves
Many Thanks
Hi Chris. It is very unlikely that a collection agency will incur the legal fees (well in excess of $5,000) to petition you into bankruptcy, where they would get nothing. Also, depending on what province you live in, there are limitation periods. In Ontario, a creditor must commence legal action within 2 years of when you stop paying the debt, so if this is a debt from 2003, it is well past the time period under which they can take legal action against you.
My advice would be to inform the creditor that you don’t have the money, and that the debt is well past the limitations period. If they do sue you (which is highly unlikely) you can explain the matter to the judge, and that should be the end of it. Hope that helps.
I am behind in credit card and mortgage payments. I owe about 70 000. O cannot refinance but a private lender will help mecatch up on mortgage but huge fees. If I get the private loan can I do a consumer proposal and keep my house? I have about 60000 in equity.
I can’t really give you a specific answer without a lot more information. If you file a consumer proposal, you have to offer your creditors an amount equal to or greater than what they’d receive in a bankruptcy. Your house equity would have to be paid in a bankruptcy so your proposal will have to offer to repay an amount equal to your equity as a starting point.