Home ownership is a dream of many residents of Ontario, Canada. We save for the down payment on our home, and the day we move in is one of the happiest days of our lives.

But what happens when the dream does not work out as well as expected?

Home ownership is more expensive than most people realize. We all know that we must make the mortgage payments. Those are easy to calculate. Unfortunately we often under-estimate the property taxes, utilities, and repairs and maintenance costs on our homes, and that's what gets us in to trouble. It's not just the mortgage payments that can cause financial trouble and lead to bankruptcy in Ontario.

Unlike other areas of Canada and the United States, there is no homestead exemption for a home if you go bankrupt. If there is equity in your house when you go bankrupt, your bankruptcy trustee must turn that equity into cash for the benefit of your creditors. (Equity is the difference between the value of your home, and the mortgage and other costs that must be paid when your home is sold).

Ontario's leading personal bankruptcy web site, Bankruptcy Ontario, explains the process if you own a home and are forced to file for personal bankruptcy in Ontario.

First, the trustee will get an appraisal of your home. They will then get the updated mortgage balance from your mortgage holder, and determine if there are any property taxes or other charges against the property. They will then determine what it would cost to sell the home, so that they know the equity in the home.

If the equity is a relatively small amount, it may be possible for the person going bankrupt to pay the trustee the equity in the home, perhaps by getting a second mortgage, or by borrowing from friends or family.

If the equity is more than the person can afford to pay, the trustee will sell the house, and the proceeds of the sale will be distributed to the creditors as part of the bankruptcy.

(Another option, which is beyond the scope of this article, available to residents of Ontario, is to file a consumer proposal. In a proposal, the debtor offers a settlement to the creditors, which will allow them to keep the house).

If the debtor decides to keep their house after going bankrupt, and makes a settlement with the trustee, it is important to make sure the mortgage lender agrees to leave the mortgage in place. In the vast majority of cases, as long as the mortgage is in good standing, the mortgage company doesn't care if you are bankrupt or not.

The reason is simple. They have already lent you the money, and the mortgage is secured by your house, so there is really no reason for them to call in your mortgage just because you have filed for personal bankruptcy in Ontario.

Author Information: Written by Doug Hoyes of Bankruptcy Ontario

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