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.