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March 2009 - Can you keep your house when you file bankruptcy?

Can you keep your house when you file bankruptcy?

☳ by Adam Aspilla

A saying goes like this: “There are only two things that are certain in this world, death and taxes.” Therefore, everything is uncertain including our finances especially now with the global financial crisis.

You may have a good job with investment in stocks, bonds and real estates, but those are not guarantees that you would not experience financial problems. In fact, even banks and insurance companies went under despite their billions of assets and being managed by the so called “experts” in the field of finance and economics. Many of them filed bankruptcy or bankruptcy protection to be able to restructure their operation.

If bankruptcy could happen on those multi-billion dollar companies how much more for individuals? The question commonly asks is, “Can I keep my house when I file for bankruptcy?”

The answer to that question is yes and no. Yes, if you do not have enough equity on your house. In this case, your creditors would not bother to sell to sell your house for nothing is left for them after paying: agent commission, legal fees, mortgage penalties and another related expenses in selling your house. On the other hand, if your house has still an equity after paying those mentioned expenses, your creditors would sell your house through a bankruptcy trustee so they could share proportionately the proceed of the sale of your house. In this scenario you would lose your house.

One exception, you can still keep your house even though it has enough equity provided you will pay the equity of your house to creditors through a bankruptcy trustee.

If bankruptcy is ideal on your financial situation and you own a house, you have to first establish the equity of your house. You ask for a Letter of Opinion from a real estate agent who could give you the lowest value possible base on the latest sales of houses in your area which is called “comparable.” Then, calculate your equity by deducting the current mortgage principal balance, agent commission, legal fees, and mortgage penalties if you break the term of the mortgage and other related expenses from the estimated value of hour house (Letter of Opinion). The net amount after deducting those expenses would be your house equity for bankruptcy purpose.

It’s good for you to know that bankruptcy trustees do not necessarily have uniform amount allowed for the expenses above indicated relative to selling your house. It would be prudent for you to ask a second expert opinion if you are in doubt that you may not keep your house due to the equity issue, because once you have filed bankruptcy you could not back out from it anymore.

In the light of the present global financial crisis, the writer is inviting you to attend his free two-part seminar on “Overcoming Financial Crisis” being sponsored by Word Became Flesh Ministries, a non denominational Christian organization on Saturdays April 18 and April 25 at 2:15pm. at 224 Mills street, Brampton Ontario, L6Y 1T8.

In the said seminar you will learn how to prepare a family budget, causes of financial problems and some ways of avoiding and overcoming financial crises like: Credit counseling, Debt Consolidation, Debt Negotiation, Mortgage refinancing (equity take out), consumer proposal and Bankruptcy as the last resort.

To register, visit www.wbfmfamily.com or call 905-452-7708.
 

 

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.