What Does That Mean For You
If youâre current with your mortgage payments â¡ï¸ everything will stay basically the same.
Youâll continue to make your mortgage payments until the house is paid off. Of course, there are some legal nuances, like the discharge of your personal liability on the home loan, and how it protects you in the event you lose your home down the road, but the important takeaway here is this:
If you have enough income to pay your mortgage lender, you can keep your home even after filing Chapter 7 bankruptcy.
Itâs a little more complicated if your home is worth more than what you owe on your mortgage. In that case, you may have to deal with the bankruptcy trustee. More on that below.
Protecting Your Home In Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, you keep your property and repay your debts over time. Because you keep your property in Chapter 13, you won’t automatically lose your home. But keeping a home in Chapter 13 can be costly.
If you are current on your mortgage payments, and you can cover all of your equity with bankruptcy exemptions, you’ll be fine. However, here’s where it can get expensivea filer must pay the value of any nonexempt equity to creditors through the plan. So you’ll need to show that you have sufficient income to pay your monthly house payment, your nonexempt equity, and all other required debt payments over the course of the three- to five-year Chapter 13 repayment plan.
If you are behind on mortgage payments or facing foreclosure, Chapter 13 allows you to make up the arrearage through your repayment plan. For this reason, Chapter 13 is often the right choice for people at risk of losing their homes. But again, you’ll have to show that you have enough income to make your regular monthly payment and pay the arrearages and all other required amountsincluding nonexempt equity reimbursementover the course of the plan. Learn about calculating a repayment plan and the steps involved in Chapter 13.
Bankruptcy Exemptions Help Protect Most Of Your Day
Chapter 7 bankruptcy exemptions can be a tricky subject, with lots of very specific rules, requirements, and terms. However, they can also save you a lot of money and property during your bankruptcy process.
The more effort you invest in learning your exemption laws, the more you will be able to keep during your bankruptcy. Before you submit your filing, take the time to research your exemption rules or speak with a bankruptcy attorney about how exemptions can protect the property you care about the most.
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If Your Home Is In Negative Equity
If your home is in negative equity, then you may be able to keep it. It won’t be sold unless the value of your share is more than £1000, after any sale costs have been taken off.
At two years and three months after the bankruptcy order is made, the situation will be reviewed. If your interest in the property is still valued at less than £1000, it’s unlikely the home will be sold and it will transfer back to you.
Bankruptcy Exemptions On Prince Edward Island
- No limit on clothing for you and your family
- No limit on medical or health aids
- Any motor vehicle needed for transportation to work up to $6,500, or up to $3,000 if not used for work
- Household furniture, utensils, equipment, food and fuel up to $5,000
- Tools used by you in your business or trade, up to $2,000
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Wages Benefits And Retirement Account Exemptions
There are exemptions to protect the money you receive as a benefit, support or what you have in retirement savings, including:
- Alimony, support, or maintenance that you reasonably need for your support
- Life insurance payments that you need for support
- All Social Security benefits, unemployment benefits, veterans benefits, public assistance and disability or illness benefits
- Under most circumstances, you can keep proceeds from your retirement accounts up to the maximum aggregate value of $1,362,800
What If I Have Too Much Equity In My House
You still have options. The amount of equity above the exemption is in question. You also have other options. To help people understand this scenario and the scenario when equity is below the limit, we built the following debt relief options comparison calculator to help you understand the different options, costs of those options, and pros and cons.
What Happens To A Leased Or Financed Car In Bankruptcy
Bankruptcy in Canada deals with unsecured debts. If your car is financed, through a lease or car loan, then that debt is considered a secured debt.
If you lease or finance a vehicle and file for bankruptcy, you can keep your vehicle as long as you are, and remain, current on your car loan or lease payments.
Your car lender can, however, repossess your vehicle if you fall behind on your payments, and bankruptcy wont stop that.
What If I Have Very Little Equity
If you have recently mortgaged or re-financed your home, you may have very little equity in it . If this is the case, there is a chance you can keep your home, and continue your mortgage payments, if you can find a way to pay this amount into the bankruptcy through other means. This is a matter you can discuss with a Licensed Insolvency Trustee for clarification.
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Option 4 Do Nothing Keep Paying
Why sign a document or cough up big money you dont have?
In the old days, you could simply do nothing and continue making payments after your Chapter 7 bankruptcy. The lender got paid, you kept the car or house. It was a classic win-win situation.
Not necessarily so anymore, though. Depending on the type of property, the lender and the specific facts of your case it may not work for you to keep making payments and hope to keep the property.
You and I will need to talk about this option if thats the one you want to take. The last thing I want to see is a situation that blows up in your face, spoiling your plans.
Protecting Your Home With Bankruptcy’s Automatic Stay
Bankruptcy’s automatic stay prevents creditors from continuing collection actions after you file a bankruptcy petition, including foreclosure proceedings. However, lenders can ask the court to remove the automatic stay and allow the lender to continue the foreclosure. If it is a foregone conclusion that you will lose your homeyou can’t immediately catch up arrears in Chapter 7 or show enough income to pay arrears over three to five years in Chapter 13the court will grant the lender’s motion. The lender won’t have to wait until the bankruptcy case is over to foreclose on your home.
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Chapter 7 Bankruptcy And Your Mortgage
If you file for Chapter 7 bankruptcy and your home is exempt, you can continue to make your mortgage payments if you want to keep your home. Although the bankruptcy will discharge your personal liability for the home loan at the end of the case, the lender’s security interest in the property remains in force. So, if you don’t make your payments, the lender can foreclose.
If you are behind in your mortgage payments and want to keep your home, you’ll have to catch up in order to keep your home. Unlike Chapter 13 bankruptcy, Chapter 7 does not provide a method for you to pay an arrearage through bankruptcy. To learn more about how Chapter 7 bankruptcy affects a home in foreclosure, see Chapter 7 Bankruptcy and Foreclosure.
Differences Between Chapter 7 And Chapter 13 Bankruptcy
There is more than one process whereby you can file for bankruptcy. The two types people most favor are Chapter 7 bankruptcy and Chapter 13 bankruptcy. The type of bankruptcy also affects what items may be kept or taken from you.
A chapter 7 bankruptcy enables you to legally discharge, or no longer be liable for, most debt that you owed as of the date you filed for the bankruptcy. This process takes about three months after you file the bankruptcy petition. You could lose some of your property by taking this route. If you had transferred property before filing for bankruptcy, the transfer may be reversed to you.
A chapter 13 bankruptcy enables you to enter into a payment plan to pay off your debt over a three-to-five-year period. Congress has even extended the plan period to seven years, with some exceptions, as a result of the covid crisis. This process protects your property and prevents wage garnishment, and you are able to pay back your outstanding debt through your payment plan. You have to make a payment out of your disposable income every month.
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What Happens To Your Mortgage When You File For Bankruptcy
A mortgage is a secured debt that means that if you pay, you keep the security on it, which is your house. If you dont pay, you lose it. Bankruptcy, of course, complicates that.
Under Chapter 7, if its determined you cant pay your mortgage, then the bank will foreclose. The house will no longer be yours, and youll have to move out. You dont make any more payments in most cases.
With Chapter 13, you continue to make monthly mortgage payments, and also make past due payments, keeping the mortgage alive. But its not easy more Chapter 13 cases were dismissed in 2020, which means finished without being completed, than were discharged. When a case is dismissed, its as though the person never filed. The majority dismissed cases was because homeowners didnt or couldnt make their payments. Whatever the reason, the debts are still owed, which puts you right back where you were before filing.
Whether you stick with the payment plan or cant, you are still responsible for paying your mortgage or you will lose your house.
Get Help To Consider Debt Relief Options And If You Can Keep Your House In Bankruptcy
Between financial trouble and , there are debt relief options that most Canadians have never heard of. Finding ways to keep your house, if at all possible, is important. Its your home and having to move makes a difficult situation that much harder. Our credit counsellors specialize in helping you explore all of the options to figure out what will work best for you to get you back on track as quickly as possible, while not jeopardizing your long-term goals entirely.
If youd like to explore your debt relief options, get some guidance and information, and see whats available to you, get in touch with us today by toll free phone at , , or anonymous online chat. Our help is free, completely confidential, and judgement free. Were here for you and ready to help.
Fortunately, for many people who feel this way, there are other less severe options. Speak with one of credit counsellors to learn all your options. Theyll be happy to carefully review your whole financial situation with you and answer any questions you may have. Speaking with our certified counsellors is always free, confidential and without any obligation. Were here to help.
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Can I Make A Consumer Proposal If I Have A Mortgage
Even if you have a mortgage you can be eligible to make a Consumer Proposal. A Consumer Proposal can be used to consolidate debt, cut debt balances and keep assets intact, while avoiding bankruptcy. If you can make some payment towards your debt each month, you may be able to make a legal debt settlement with your creditors using a Consumer Proposal filed by a Licensed Insolvency Trustee.
A Consumer Proposal allows people to retain assets , and in addition to consolidating all your debts:
- Interest automatically stops
- Debts can often be reduced by up to 30-80% of the balance due
- Consolidate government debt and consumer debt.
Consumer Proposals normally do not include an existing mortgage.
Dealing With The Equity In Your Home
Another issue for homeowners that declare bankruptcy is the in their house. Equity is the amount of money you would receive if you sold your house.
For example, if your house sells for $200,000, but the mortgage is $150,000, and the real estate commissions and legal fees are another $10,000, the equity in your house would be the difference, or $40,000.
The specific rules about how equity in your home is treated in a bankruptcy are different in each province, so you should for an explanation of the law in your province. In some provinces you are permitted to keep some equity in other provinces all house equity is an asset of your estate, and must be turned over to the trustee.
This does not mean you lose your house, but you do lose the non-exempt equity. For example, if you have seizable house equity of $10,000, you could allow the trustee to sell your house, or you could make an arrangement with the trustee to pay the $10,000 in equity into your bankruptcy estate .
Of course if you are declaring bankruptcy it is unlikely that you have $10,000 in cash. You still have options however. You can borrow the funds from family and friends or arrange to pay that amount to your trustee in monthly installments during your bankruptcy. This will however increase the total monthly payment you need to make. If you are in 9 months, what happens if you cant afford these payments? The solution could be to look to a consumer proposal.
Complete A Petition & Paperwork
Completing the paperwork to petition for bankruptcy is often the most time-consuming part of filing for bankruptcy. In addition to the petition prepared by your attorney, you will have to provide documentation for your:
Filing your petition for bankruptcy stays collection actions, meaning your creditors cant foreclose on your home, repossess your vehicle, file a lawsuit against you, garnish your wages, or even make collection calls. There is one important exception to this automatic stay: Automatic payments taken out of your paycheck for a 401 loan continue.
The court is required to charge case filing fees and administrative fees. In most cases, you must pay these fees before filing, but you can apply to pay in installments using Form B 3A. Just keep in mind that you must pay the whole amount within 120 days of filing, and you must pay each installment as agreed, or you run the risk of the court dismissing your case.
The fees are as follows:
- Chapter 7: $425 case filing fee, $75 miscellaneous administrative fee, $15 trustee surcharge
- Chapter 13: $235 case filing fee, $75 miscellaneous administrative fee
You may also be charged additional fees for copies of paperwork, filing amendments to your list of creditors, converting a Chapter 13 case to a Chapter 7 case, reopening a closed bankruptcy case, and more. Check out the U.S. Courts Miscellaneous Fee Schedule for a complete list of fees.
Navigating Your Bankruptcy Case
Bankruptcy is an unusual area because it’s essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can’t skip a step.
One way to keep track of your research is to use the bankruptcy forms as an outline. You’ll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you’ll need to complete the petition.
Bankruptcy Exemption Information
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Yukon Northwest Territories And Nunavut Bankruptcy Exemptions
$500 worth of household furnishings and goods
$600 worth of motor vehicle equity and vocational tools
unlimited clothing for the family
$3,000 worth of home equity
enough food to feed you and your family for one year
all medical devices
all essential household furnishings
$5,000 worth of household goods
$3,000 worth of motor vehicle equity
$1,000 worth of vocational tools
all essential clothing
all essential food and fuel for debtor and his or her family
all necessary medical devices
$11,300 worth of household furnishings and goods
$5,650 worth of motor vehicle equity
$11,300 worth of vocational tools
$5,600 worth of clothing that is essential
$28,300 worth of farm equity
Bankruptcy And Assets: Which Are Exempt
Every province and territory in Canada has its own list of exemptions, designed to leave you with enough resources to make a fresh financial start.
In Canada, the federal Bankruptcy and Insolvency Act defines three kinds of exemptions:
- Property you hold in trust for other persons.
- GST credit payments and prescribed payments relating to your familys essential needs.
- Other exempt property defined by the province or territory in which you live.
What are your likely exemptions? What can you keep in a bankruptcy? A Licensed Insolvency Trustee has up-to-date information on exemptions for every province and can advise you on how these apply to your situation. Your first consultation is free and confidential contact a Trustee today!
The provinces and territories generally define other exempt property as including some or all of the following categories, up to limited values that vary greatly from province to province:
- Food and heating fuel needed by you and your dependants
- Clothing needed by you and your dependants
- Household furnishings and appliances
- Pensions or retirement savings
- Miscellaneous categories in some provinces
The tools exemption and the farm exemption cannot both be taken you may claim one category only, which applies to your principal occupation.
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