What Happens to Your House in Bankruptcy in Ontario?

TL;DR

In Ontario, the bankruptcy exemption for home equity is $10,783. If your home equity is at or below this amount, you keep your home in bankruptcy and continue making mortgage payments as usual. If your equity exceeds the exemption, you must pay the excess to the bankruptcy estate, or the trustee may sell the property. For homeowners with significant equity, a consumer proposal is typically the better option because it protects all assets, including your home.

Understanding Home Equity and Bankruptcy

When you file for bankruptcy in Ontario, your Licensed Insolvency Trustee must account for all your assets, including your home. However, bankruptcy does not automatically mean losing your house. The outcome depends on one key number: your home equity.

Home equity = Fair market value - All secured debts

For example:

• Home value: $550,000
• Mortgage balance: $480,000
• HELOC balance: $40,000
• Equity: $30,000

In this case, the equity ($30,000) exceeds Ontario's exemption ($10,783), so the excess ($19,217) would need to be addressed in the bankruptcy.

Ontario's Home Equity Exemption

Under Ontario's Execution Act, the bankruptcy exemption for a principal residence is $10,783. This is among the lowest home exemptions in Canada. For comparison:

| Province | Home Equity Exemption | |---|---| | Ontario | $10,783 | | Alberta | $40,000 | | British Columbia | Based on location ($12,000 - $9,000 in GVRD) | | Saskatchewan | $32,000 | | Manitoba | $2,500 | | Nova Scotia | No specific exemption |

Ontario's low exemption means that many Ontario homeowners with even modest equity will need to consider alternatives to bankruptcy.

Three Scenarios for Your Home

Scenario 1: Equity Below the Exemption

If your equity is $10,783 or less, you keep your home. You continue making your regular mortgage payments, and the bankruptcy process deals only with your unsecured debts.

Example: Your home is worth $400,000 and you owe $395,000 on your mortgage. Your equity is $5,000 — below the exemption. You keep your home.

Scenario 2: Equity Above the Exemption

If your equity exceeds $10,783, you have two options:

1. Pay the excess to the estate. You (or someone on your behalf) can pay the difference between your equity and the exemption amount to the bankruptcy estate. This lets you keep the home.

2. The trustee sells the property. If you cannot pay the excess, the trustee may sell the home. From the proceeds, the mortgage and other secured debts are paid first, you receive the exemption amount ($10,783), and the remainder goes to the bankruptcy estate to pay creditors.

Example: Your equity is $50,000. The excess is $39,217 ($50,000 - $10,783). You can pay $39,217 to the estate (perhaps through financing or a family loan) to keep the home, or the trustee sells it.

Scenario 3: Negative or Zero Equity

If you owe more than your home is worth (negative equity), the home has no value to the bankruptcy estate. You keep the home and continue making mortgage payments. The trustee has no interest in selling a property with no equity.

Your Mortgage During Bankruptcy

Key points about your mortgage during bankruptcy:

• Mortgage payments continue as normal. Bankruptcy only affects unsecured debts. Your mortgage is secured and is not included.
• Your mortgage lender is notified. The trustee sends notice to all creditors, including your mortgage holder.
• Current mortgage terms continue. Your lender generally cannot change the terms of your existing mortgage solely because of the bankruptcy.
• Mortgage renewal may be affected. When your mortgage comes up for renewal, you may face higher rates or difficulty qualifying with your current lender. However, the mortgage broker market in Canada is competitive, and most people can secure renewal — potentially through a B-lender at a slightly higher rate.

The Consumer Proposal Alternative

For Ontario homeowners with significant equity, a consumer proposal is almost always the better choice because:

• You keep all assets, including your home, regardless of equity
• You repay a portion (typically 20% to 50%) of unsecured debts over up to 5 years
• All interest stops, and creditors cannot pursue collection
• The proposal payment is structured to be affordable based on your income

A consumer proposal does consider your home equity when determining how much creditors will expect you to pay. Creditors generally expect to receive at least as much through the proposal as they would in a bankruptcy — so higher equity typically means higher proposal payments. But critically, you keep your home.

Use our consumer proposal calculator to estimate what monthly payments would look like based on your equity and total debt.

Jointly Owned Homes

If you own your home jointly (commonly with a spouse), only your share of the equity is considered in bankruptcy:

• In a joint tenancy, your share is typically 50% of the total equity
• Your co-owner's share is protected and not part of the bankruptcy estate
• The trustee can only claim your interest in the property

Example: Total equity is $80,000. Your share is $40,000. The exempt portion is $10,783, so the excess is $29,217. Your co-owner's $40,000 share is unaffected.

In practice, the trustee will often negotiate a buyout of your interest rather than forcing a sale of a jointly owned property — especially if your co-owner can arrange financing.

Steps to Protect Your Home

1. Get an accurate valuation of your property (recent comparable sales, a real estate appraisal, or your municipal property assessment)
2. Calculate your true equity by subtracting all registered debts from the value
3. Consult a Licensed Insolvency Trustee for a free assessment — they will explain all options
4. Compare bankruptcy vs. consumer proposal outcomes for your specific situation
5. Do not transfer or remove equity before filing — this is a fraudulent preference under the BIA and can result in serious legal consequences

Explore all your debt relief options before deciding, and take our debt relief quiz for a personalized recommendation.

FAQ

Can I refinance my home to pay off debts instead of filing bankruptcy? Yes, if you have sufficient equity and income to qualify. Refinancing to consolidate debts can be effective, but be cautious about converting unsecured debt into debt secured by your home. If you cannot keep up with payments after refinancing, your home is directly at risk.

What if I have a HELOC and file for bankruptcy in Ontario? A HELOC is a secured debt registered against your home. It is not included in bankruptcy. You must continue making HELOC payments. The HELOC balance is subtracted from your home's value when calculating equity for bankruptcy purposes.

Can the trustee force a sale if my spouse does not agree? The trustee has a legal right to your share of the equity, but forcing a sale of a jointly owned home is complex and rare. More commonly, the trustee negotiates a buyout of your interest from the co-owner or arranges for the excess equity to be paid to the estate through other means.

Should I sell my house before filing bankruptcy? Selling assets before filing bankruptcy requires extreme caution. If you sell at below market value or use the proceeds in a way that disadvantages creditors, the transaction can be reversed by the trustee. Always consult your LIT before selling any assets.

Sources

• Ontario Execution Act, R.S.O. 1990, c. E.24
• Office of the Superintendent of Bankruptcy Canada (OSB)
• Bankruptcy and Insolvency Act (BIA), R.S.C., 1985, c. B-3
• Canadian Association of Insolvency and Restructuring Professionals (CAIRP)