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debts in bankruptcy Canada

This is one of the most simple, common and very emotionally charged questions by homeowners who are seeking debt relief. We always strive to provide an answer that is as simple as the question itself. In reality, it is rarely conceivable. A house or, rather, real property ownership is a complex matter, and it certainly warrants a complex approach.

And yet, the short answer to the question is – yes, it is possible for a debtor to go bankrupt if they own a house. Moreover, there are instances where a person will be able to keep the house while filing for a bankruptcy.

However, the real question is:

Should you keep your house in a bankruptcy?

The options will become clearer once number of things are considered. Just to give some examples of things that would matter:

  • the amount of the mortgage; 
  • other encumbrances;
  • the amount and nature of other debt;
  • the value of other assets; 
  • your income;
  • any legal proceedings against you;
  • your intent to sell the house or desire to stay in it.

The combination of these and other factors will dictate whether bankruptcy would even make sense in each particular situation or other alternatives are readily available to achieve the objective and save the person from the need to go bankrupt.

How homeowners can get out of debt

Speaking very generally, there are few key ways to resolve debt problems by homeowners:

  1. Selling the property and using the proceeds to repay all the creditors in full. This would probably mean either buying a smaller house which fits your monthly budget for living expenses, or renting.
  2. If you need to continue living in your house, then you could consider refinancing the property and using the funds to repay one’s debts in full.
  3. When the first two scenarios are not (for any reason) viable, and/or if the funds would not be sufficient to repay all the liabilities in its entirety, then you could consider initiating insolvency proceedings by either doing a Consumer Proposal or filing for a Bankruptcy. In a Consumer Proposal, your house will always be protected, as long as you are current on your mortgage payments. In a Bankruptcy, the status of your house is a little more complex and depends on the variables discussed above.

Whichever decision is finally made, the solution would only take care of one’s past obligations. The next best thing, then, would be to learn from the experience in order to prevent debt issues from reoccurring. The key here is being as realistic as possible while answering one’s own question: Am I able to afford my house? In other words, does my income support the level of housing expenses if I were to stay in the property?

In view of the aforesaid and in order to achieve satisfactory results, debt solution decisions, including the bankruptcy option, by homeowners, should be made in the context of all of one’s life issues – financial and emotional.

To learn all about the debt relief options that are specifically available to you, schedule a free, non-obligation consultation with one of our licensed professionals.

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