Question: If you surrender your house to the bank and file bankruptcy in Canada do you have to move out right away? My specific situation is that I have about $20,000 in equity in the house after realtor fees/legal fees if I were to sell. Unfortunately that would not be close enough to pay off debts I am carrying. Is it possible to stay in the house for a bit after surrendering the house or would it be best file Bankruptcy and let bank foreclose.
Answer: It typically takes a mortgage lender many months to foreclose once you stop paying the mortgage, so yes, you could stay in the house for a period of time after you stop paying the mortgage.
However, if you have a house with $20,000 in equity, it is generally not advisable to let the bank foreclose on your house. You state that your debts are considerably more than the $20,000 you would receive if you sold your house. Let’s assume your total unsecured debts (not including the mortgage) are $50,000. You are correct that selling your house and getting $20,000 is not enough to pay off your debts, but it also doesn’t make sense to walk away from $20,000 and go bankrupt. Here’s an alternate strategy:
List the house for sale, and instruct your real estate agent to price it attractively, so that it will sell in the next month or two. Stop paying the mortgage, and look for a place to rent. (You will probably need your mortgage savings to save for first and last month’s rent when you move to your new rental place).
Once you have a firm offer on the house, file a consumer proposal, offering your creditors the equity in your house. For example, your proposal could be the payment of $20,000 on the closing date of your house.
If the creditor’s accept your proposal, you avoid bankruptcy, and the process is completed quickly.
If the creditor’s don’t accept your proposal, you could then file bankruptcy if required. If you filed bankruptcy either shortly before or after selling the house you would still lose the equity.
The point is this: you have already realized that the equity in your house will be going to your creditors, so the quick solution is to offer that equity in a consumer proposal, and possibly avoid bankruptcy.
This is a quick overview of your options; we strongly recommend you meet with a licensed Ontario bankruptcy trustee and consumer proposal administrator to review your options in more detail.
