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home bankruptcy

Keeping a jointly owned home in a bankruptcy

Question from Randy14U on Reddit AMA: Hi Victor, I may have to go bankrupt but my wife doesn’t have to as she doesn’t have the mountain of debt that I have. We have about $80K in equity in our home. Can we keep our home? Half of this equity is hers, how would that affect a bankruptcy for myself? If we simply sell the house, can she take half of the equity while I put the rest towards my debt?

Reply from Victor Fong, Licensed Insolvency Trustee, Toronto, Canada

Hi Randy,

Her share of the equity in the home would not be directly affected by your bankruptcy.

However, the Licensed Insolvency Trustee would attempt to liquidate your share of the equity (that would automatically become property of the trustee upon your filing bankruptcy) in your bankruptcy proceedings by asking her to purchase the trustee’s interest in the house.

A basic calculation of the equity you or your wife would have to “repurchase” from the trustee would be calculated as the current fair market value of your home minus the current outstanding balance on your mortgage less any homestead exemptions in your province, times 50%.  If you or your wife are unable to pay the trustee out all at once, the trustee might be willing to set up a payment plan with you, supported by a promissory note you would give to the trustee. During the time the equity is being paid out, the trustee will register a charge against the property with the land registry office in order to secure the promissory note.

As you suggested in your post, if you were to sell the property prior to filing bankruptcy and she took here share and you paid down your debts with your share of the sale proceeds, that would be perfectly fine so long as you pay your creditors on a pro rata basis. That is, don’t use your share of the money to pay off certain creditors and leave the rest unpaid. You should pay each creditor an equal share according to how much you owe each of them.

co owner house

Is the co-owner of my house affected by my bankruptcy?

From Reddit: ta19762 asks: Big question……if my wife and I declare personal bankruptcy is our house in jeopardy? My mum lives with us and made a significant down-payment, and we pay the mortgage on the remainder. It’s in our name, but we have a legal doc stating my mum owns 37%. I don’t want our financial situation to impact her. She’s on s fixed income and I don’t want to be responsible for making it worse. We live in Ontario.

Victor Fong, Licensed Insolvency Trustee in Toronto, Ontario replies:

Hi Ta1976,

You indicated that your mother owns a 37% interest in your family home and that you have a legal document to support this. Is this legal document a title deed? That is to ask: is your mother on title with both you and your wife?

Also, is your mother a co-signatory on the mortgage? It would be helpful if you could provide this information.

But to provide a general answer to a situation like yours: the interest owned by you and your wife in the equity (i.e., the fair market value of the home minus the outstanding mortgage balance) would be affected by your bankruptcy. Your mother’s legal interest in the home’s equity would be unaffected.

When filing bankruptcy, your share of the equity becomes the legal property of the trustee. The trustee has a duty to realize on the equity. The trustee will usually work out some sort of payment arrangement where you and your wife can “buy back” the equity from the bankruptcy trustee under a monthly payment plan. The trustee will need the approval of your creditors before entering into such an arrangement with you. In the meanwhile, the trustee will register a bankruptcy caution or a mortgage charge at the land registry where your house is situated to make sure that you don’t sell the home and run off with the money before you’ve paid the trustee in full.