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House Equity in Bankruptcy in Ontario
Question: I am in the process of filing bankruptcy in Ontario but have not signed the papers yet. There is $8000 equity in my house however there is still 4 years to go on the mortgage that if I sold now I would owe more than I make in closing costs and the rate differential however the trustees say they want us to pay the $8000 which is really not possible, not even in payments. We make just under what is determined for our family size and there is no extra monies. If either of us did get another position to help cover that cost it would only increase the length of our bankruptsy. I would like to go through with the bankruptcy but can’t afford to agree to this extra expense? Consumer proposal would not help. Don’t know what to do.
Answer: You have three choices:
First, you could get a second opinion from a different Ontario bankruptcy trustee. It appears that if the trustee was to seize your house and sell it, after paying disposition costs and the penalty to break the mortgage there may not be any equity. Alternatively, the trustee could apply to court for an extension to your bankruptcy to allow you to pay the equity over a longer period of time.
Second, you could sell the house. If there truly was no equity, you would have proof, and your bankruptcy would end in the normal period of time. Obviously that’s a very drastic solution.
Third, you could consider a consumer proposal. If there would be no surplus income in your bankruptcy, the consumer proposal could offer to pay the equity in your house over an extended period of time to make the payment affordable. Again, you should consult a different Ontario bankruptcy trustee for a second opinion.
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