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.