Mortgage after a proposal

Question: I am thinking of filing either a consumer proposal or personal bankruptcy. I owe $45,000 in credit card debt and own my home. My house is worth approximately $275,000 with a first and second mortgage totalling $265,000. Can I file bankruptcy or a proposal and only include my credit card debt. If I file, what will happen when it is time to redo my mortgage. Can I continue to make all payments to my mortgage lender and keep my house even after my credit card debt is reduced or gone?

Will a bank renew my mortgage if I file a bankruptcy or consumer proposal. If so will my interest rate be affected.

Thank you.

Answer:

A bankruptcy in Canada deals with your unsecured debt, so in your case your credit card debt. If you have any other unsecured debts these will also be included in your bankruptcy.  Bankruptcy does not cover secured debt (your mortgage) so your mortgage debt will not be included in your bankruptcy. There may however be a small amount of equity in your home that would have to be paid to the trustee in a bankruptcy (although estimated real estate fees, property taxes and legal costs will reduce this equity). This may make a consumer proposal a better option for you to be able to keep your house.

No matter which option you choose, it is possible to continue making your mortgage payments during a consumer proposal or bankruptcy.  Whether or not your mortgage lender will renew your mortgage when it comes up for renewal is up to them, but in most cases, as long as your payments are up to date, they will renew your mortgage.  Your bankruptcy or consumer proposal will appear on your credit report and of course your lender will be notified as part of your filing. It is possible that due to your consumer proposal or bankruptcy they may increase your interest rate.

We suggest you contact a bankruptcy trustee for more information on how a proposal or bankruptcy will work in your situation, and contact a mortgage broker for information on renewing a mortgage after a proposal or bankruptcy.

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