When you could Keep Your House and File for Bankruptcy

A regularly asked question that syndic de faillite, or bankruptcy attorneys, often get is whether a client can keep their residence if they are declaring bankruptcy. The answer is: It depends.


Whether a debtor can keep his/her residence in a bankruptcy depends on several aspects. The factors may include the estimated value of the house, net value of the house, mortgages on the home, whether or not the debtor can manage future repayment of the property. The gross value of the home really doesn't affect the ability to keep the house. If you still have questions or need help with your application after reading the following examples then it would be best to contact a syndic de faillite Montreal, or a Montreal bankruptcy lawyer. Let's look at an example:


Borrower has a house worth $500,000:
It may appear that there would be no way a borrower can retain their home in bankruptcy. Suppose there is a mortgage balance of $450,000; if it was sold and all closing costs had been paid, like real estate commissions, filing fees, legal fees, etc., there probably will be nothing left over. In effect, this home has no worth to collectors or the estate. Under this circumstance the borrower would keep his/her $500,000 property given he/she could hold it.


Borrower possesses a home worth $150,000
Given that the borrower has no mortgages on the property, borrower would lose that house in bankruptcy. The home will be sold to pay lenders. Why? There is equity in the property and this asset has value.


It should be noted that the above two examples are assuming that the debtor filed for bankruptcy (liquidation) rather than a consumer proposal (reorganization). In a consumer proposal, in terms of keeping your home, the common rule is this: If you can afford to keep your house, you may retain it. There are exceptions to this and often exceptions to the exceptions, but this is the common rule. Conceptually, if you can afford to pay for the equity of the property out of future income, you will be able to keep your home. For instance, it's determined that the borrowers home has a net value after closing costs, and so on., has a worth of $50,000. That's the amount that if the debtor's house was sold for this amount, the lenders would get approximately $50,000. In consumer proposal, the debtor is essentially saying to the Court, Trustee and Creditors - If I sell my property you are only receiving $50,000 so I will pay you the $50,000 with future earnings. A win-win for all. The lenders get exactly the same amount they would get if they reported bankruptcy and the borrower gets to keep the property.


The above examples are very basic and there are many more variables which are equally important in this determination but I've limited the analysis to clarify that it truly is possible to keep your home and file bankruptcy.


To conclude, you must not make an assessment yourself whether or not you can retain your home when filing for bankruptcy because often borrowers are going to be incorrect in their evaluation. You must always get in touch with an attorney who is an expert in bankruptcy and who practices inside your jurisdiction - the attorney is also most suitable to advise you on whether you can keep your house in bankruptcy.