Would Services of a Trustee Prevent Me From Getting a Mortgage?
In this video, Richard Killen, a Licensed Insolvency Trustee in bankruptcy in Toronto talks about “Would Services of a Trustee Prevent Me From Getting a Mortgage”.
One of the big ambitions of most people, especially for the family is to ultimately buy a house. People who have debt problems come to see a Trustee and end up do a bankruptcy or perhaps a consumer proposal, are going to be concerned whether this bankruptcy or consumer proposal is going to somehow prevent them from being able to obtain a mortgage at a later date. The only way that we can really answer this is, nobody can really predict the future, there is a lot of factors that go into why a person can get a mortgage, and why they cannot. Bankruptcy and proposals on your record are just one factor, and also time. The bottom line is, it is impossible to really predict it, but generally speaking, after you have done a bankruptcy or proposal, and have solved all your credit problems, and some time has gone on, most people can and have the other ingredients properly arranged, they can get the mortgage. An interesting aspect of it though is the mortgage renewal, people are highly concerned that they may lose their house when the renewal time comes. And what we found, I’m not an expert on this practice, but what we found is that renewals, I guess they are automatic, generally they are almost computer generated, and so very few people have this kind of problem renewing their mortgage.
If you are uneasy about mortgage you should definitely visit a licensed insolvency trustee so that you will be given an advice about your mortgage problems.
Will I Lose My Home in a Bankruptcy?
The fear of losing your home is a powerful one. When their finances go south, many imagine that bankruptcy will leave them homeless. Is this fear justified? Not really, or not in the normal course of a bankruptcy.
Yes, when you go bankrupt, you give control of your assets to a trustee in exchange for getting rid of your debts. This, in theory, could mean that the house gets sold to help pay back the creditors. But in practice this rarely happens, mainly because it is not in the best interests of everyone involved. The trustee has a lot of discretion, which he or she generally uses to safeguard the rights and interests of both the creditors and the debtor. Selling the house outright usually doesn’t achieve this purpose. So what normally happens?
Well, there are many different scenarios. If you have no realizable equity in the house – equity is the amount you’d get selling the house after deducting the mortgage and other associated costs – there is no point in selling the house, because all the money would just go to pay off the mortgage(s). In this case you get to keep the house as long as you keep paying your mortgage. The trustee doesn’t get involved.
But, what if you did have some equity, say roughly $20,000? To keep the house, you would have to pay the trustee this amount, because that’s what the creditors would have received if the house had been sold. So the creditors end up getting their fair share and you keep your house.
Yes, but if you had $20,000 to throw around, you wouldn’t be bankrupt in the first place, right? Well, you would have to raise the money, but the trustee would work with you to accomplish this. For instance, you might be able to get the money through a second mortgage. Or you could work out a direct monthly payment plan with the trustee. In either case, you would keep your house.
Where things start to get more complicated is if you have a significant amount of equity in the home, let’s say $100,000. In order to hang onto the castle, you would have to pay the trustee 100 large – a whopping sum, but not impossible and financing is usually obtainable.
But, in such a case you probably would want to explore the legal alternative to bankruptcy: a consumer proposal. If you go this route, you don’t risk losing the house. You simply offer the creditors a settlement, negotiated by your trustee under the protection of the law. Most often this solution satisfies everyone because it pays the creditors an acceptable sum while allowing you to escape the debt quagmire in an orderly and manageable way: win-win.
There are a couple of other points to understand when you’re dealing with the house question.
The first is that in all these scenarios the trustee will remind you of your right to get advice from a lawyer of your choice, someone who is there to protect specifically your interests. This is your basic legal right, but it becomes much more important if you have a lot of equity in your home. A good lawyer will help you deal with the situation and probably get you a better deal from the trustee and creditors than if you were doing this on your own.
The second point is that you should ask yourself: Whether I go bankrupt or not, can I afford to keep the house? If I try to hang on to it will it just drag me back into debt trouble down the line?
This is a tough one. We tend to be emotionally attached to our house in a way that we aren’t with most other things, even our cars. But, we have to ask ourselves this question if we’re going to regain control of our finances. The trustee can help you better understand your situation, but the answer to this question can only come from you. And you need to be brutally honest with yourself about it.
So, to get back to the original question: “If I go bankrupt will I lose my house?” For most people (the vast majority) the answer is “No!” So don’t be afraid to consult a trustee because you’re worried about losing the house. Contact us and get the facts. Remember our TV commercial: “It may be the most stress-relieving call you ever make.”