22/11/2018Can I Keep My House and Car if I Go Bankrupt in Ontario?
There is no easy answer to this question; it really depends on a lot of different factors, such as how much you owe, how much of your house you own and if it has significant equity. The same is also true of your vehicle – if the value of your car is less than a particular amount, you will get to keep it.
Keeping your house during bankruptcy
In 2015, the Ontario government introduced new rules to the Execution Act that increased the exemption limit that protects cars, furniture and houses from seizure.
With the new increase, a principal residence is exempt from seizure if the debtor’s equity in the home is not more than $10,000. So, for example, if you have a house worth $500,000 and your mortgage is $495,000, your home is exempt from seizure because your equity is less than $10,000. You can keep your home without needing to buy back any equity from the trustee, pending that your mortgage is in good standing and you continue to pay it on time.
If you do have some equity in your home, your Trustee will make arrangements with you to allow you to buy back your equity, since claiming bankruptcy means that the Licensed Insolvency Trustee technically becomes the owner of your assets.
So for example, if your house is worth $500,000 and you have a mortgage of $480,000, you have $20,000 of equity. The Trustee will make an arrangement with you to buy back this $20,000 in equity over an agreed-upon period of time so that you can keep your house.
If you can’t buy back the equity back from the house, you could sell or refinance it, however the truth is that if you do have more than $10,000 worth of equity in your property, you’re most likely going to be better off filing a consumer proposal than bankruptcy.
Keeping your car during bankruptcy
Many people are concerned that if they file for bankruptcy they will have to sell their car or return it to the financing company. This is simply not true!
In Ontario there is an exemption for a motor vehicle in the amount of $6,600.00. This means that if the value of your car is less than $6,600.00, then you can keep your car at no cost and still file for bankruptcy.
If your car is financed or leased, then you can still keep your car during a bankruptcy as long as you are current on your payments and maintain your payments going forward. The financing company cannot legally cancel your contract solely based on the fact that you have filed for bankruptcy. Therefore, as long as you keep paying your car payments you should be fine.
If your car is financed or owned, and it is worth more than $6,600.00, you may still be able to keep your car. The Trustee can make an arrangement with you to repurchase the equity over a period of time.
Find out more about debt solutions for car loans.
How to keep your car and home during bankruptcy
Let’s break down a few possible scenarios to see if it may be in your best interest to give up a home, condo, or vehicle in bankruptcy.
Scenario 1: Your home has $25,000 of equity in it and a mortgage of $300,000. Your car is leased through Honda Finance Canada.
Possible outcome: The exemption limit of a primary residence for a bankruptcy is $10,000, meaning that if you have less than $10,000 in equity in your home, it will not be seized and you can keep the mortgage (if you can afford it).
However given that this home has $25,000 in equity, the debtor will have to buy back the equity of $25,000 from a Licensed Insolvency Trustee over an agreed-upon period of time.
Seeing as there is no equity in the car, if you choose to continue to pay Honda Finance Canada, you can keep the car.
Scenario 2: Your home is fully mortgaged and you technically have about $5,000 of equity, but it would be hard to capitalize all of it. Your car is financed through BMW Canada. When you first financed it 3 years ago, it cost $72,000, and you currently still owe $65,000 on the vehicle. The Canadian Black Book states the vehicle is only worth $50,000.
Possible outcome: As your home is under the principal residence exemption limit of $10,000, you can keep it so long as you maintain your mortgage payments. Your vehicle will fall under the vehicle exemption limit of up to $6,600, even though you have paid $7,000 towards it. Now though, the vehicle is worth less than you owe, meaning technically you have a deficit, not equity. If you choose to maintain the payments, you can keep the vehicle.
Scenario 3: Your primary residence is fully mortgaged and you have $0 of equity in the home. Your car is leased from Kia and you have $0 of equity in it. You own a small condo in cottage country worth $100,000 and have no mortgage on that property.
Possible outcome: Your primary residence is exempt as you have less than $10,000 of equity, however your investment property in cottage country is not exempt. As it is not your primary residence, there is no exemption limit, and you will have to buy back the entire $100,000 of equity from the Trustee, or let the Trustee sell the property for the benefit of the creditors.
Your vehicle is exempt as you have less than $6,600 of equity.
Once you’ve sorted out if you need to buy back the equity, it is your decision whether you want to maintain payments on a secured asset. If you choose to keep making payments, the asset cannot be included in the bankruptcy at a later date.
For more information on how we can help you understand your options, please contact our licensed insolvency trustees.