If you’re a Canadian homeowner who has filed for bankruptcy, getting or keeping a mortgage may still be possible. While bankruptcy significantly impacts your credit, your mortgage is considered a secured debt and isn’t automatically erased. The ability to keep your home—or qualify for a new mortgage after bankruptcy—depends on several factors: how much equity you have, your payment history, and your current financial picture. This guide walks you through everything you need to know about navigating a mortgage after bankruptcy in Canada.
Understanding Bankruptcy and Mortgages in Canada
What is bankruptcy?
- A federally regulated legal process that provides relief from unsecured debts
- Overseen by a Licensed Insolvency Trustee (LIT)
- Typical duration is 9 to 21 months for first-time bankruptcies
What types of debts are included?
- Credit cards, personal loans, and payday loans are discharged
- Important to note: Mortgages are secured debts and not automatically discharged
Keeping Your Mortgage During and After Bankruptcy
One of the first concerns homeowners have when considering bankruptcy is, “What will happen to my home?” It’s a valid fear—after all, your home is more than just an asset; it’s your family’s shelter and security. Protecting that home is a top priority for many, and the good news is that bankruptcy doesn’t always mean giving it up.
Filing for bankruptcy doesn’t always mean losing your home. In fact, many Canadians continue paying their mortgage and keep their homes after bankruptcy. This depends largely on whether your mortgage payments are current and how much equity you have in the property. The rules for secured debts like mortgages differ significantly from unsecured debts.
Can you keep your mortgage?
- Yes, if you’re up to date with payments and your home equity is minimal
- Your mortgage lender may allow you to continue paying without disruption
- Key takeaway: Bankruptcy does not remove your responsibility for mortgage payments
What happens if you’re behind on payments?
- Your lender can still initiate foreclosure or power of sale
- Bankruptcy does not stop secured creditors from reclaiming property
Equity and Its Role in Bankruptcy and Mortgages
Home equity plays a pivotal role in both the bankruptcy process and in qualifying for refinancing or a new mortgage after bankruptcy. If you have significant equity in your home, the bankruptcy trustee may require you to buy back the equity or liquidate the property. On the flip side, having equity can also strengthen your case when applying for a mortgage after bankruptcy, especially with private lenders who focus on the loan-to-value ratio. An appraisal is often required to determine the home’s current market value and calculate how much usable equity you have.
Understanding home equity
- Home equity = market value of your home – mortgage balance
- Example: $600,000 home – $500,000 mortgage = $100,000 equity
Equity exemptions across provinces
- Ontario protects up to $10,000 in home equity
- If equity exceeds this threshold, the trustee may require a buyout or sale of the property
- Common mistake: Believing you’ll keep your home regardless of equity level
How to Rebuild and Qualify for a Mortgage After Bankruptcy
Qualifying for an institutional mortgage after bankruptcy still follows the same core principles—credit score, income, and debt ratios. However, your lender options, required down payment, and acceptable loan-to-value (LTV) ratios will likely be affected. A bankruptcy record signals higher risk, meaning you may need to put more money down or work with alternative lenders initially before qualifying with a major bank again.
Rebuilding your credit score
- Start with a secured credit card and consistent payments
- Monitor credit reports and avoid new missed payments
How long before you can get a mortgage again?
- Banks typically require 2 years post-discharge
- Private lenders may offer solutions sooner if there’s sufficient equity and income
- Key takeaway: Credit rebuilding and income stability are essential for approval
Common mortgage options post-bankruptcy
- Private mortgage lenders: More lenient with credit history but higher interest rates
- B lenders: Accept past bankruptcies but require proof of financial recovery
- A lenders (banks): Require strong credit and long-term financial discipline
Should You Refinance After Bankruptcy?
Consulting a mortgage professional is essential before deciding to refinance after bankruptcy. They can help you assess whether refinancing truly benefits your situation, explain the costs involved, and walk you through what kind of financing you might qualify for. This includes insight into current interest rates, loan-to-value requirements, and which lenders are most likely to consider your application based on your recovery progress.
When refinancing makes sense
- To consolidate remaining debts or reduce monthly payments
- To access home equity for urgent financial needs
Cautions when refinancing
- Higher interest rates from alternative lenders
- Additional fees such as legal and appraisal costs
Importance of Disclosing Previous Bankruptcies
Why honesty is essential with lenders and brokers
Lenders conduct detailed credit checks and bankruptcy records are public. Disclosing past bankruptcies—especially multiple filings—is not only responsible but necessary.
Key takeaway: Transparency helps brokers present your application to the right lender without surprises.
What lenders look for
- Time since last bankruptcy
- Reason for financial hardship
- Proof of re-established credit and income
- Level of home equity
Important to note: Many private and B lenders work with clients who’ve had more than one bankruptcy—if they demonstrate a solid financial recovery.
Consumer Proposal vs. Bankruptcy: Which Is Better for Mortgage Approval?
When you’re overwhelmed with debt, bankruptcy isn’t your only option. A consumer proposal can be a powerful alternative—especially if you’re trying to protect your home and mortgage approval prospects. Lenders often view consumer proposals more favourably than full bankruptcies because they demonstrate an effort to repay what you owe.
Understanding a consumer proposal
- An alternative to bankruptcy that consolidates and reduces debt
- Stays on your credit report for 3 years after completion
Mortgage impact
- Consumer proposals may be viewed more favourably than bankruptcy
- Better chance of retaining your home and qualifying for future mortgages
Common myth: Bankruptcy is the only way to deal with serious debt—it’s not.
Myth vs. Reality: Mortgage After Bankruptcy
Myth: You can’t get a mortgage after bankruptcy
- False. While challenging, options exist with private and B lenders
Myth: Bankruptcy eliminates your mortgage
- Also false. Mortgages are secured debts and must still be paid
Myth: One bankruptcy ruins your financial future
- Not true. Many Canadians recover financially within a few years by being diligent about how they handle finances
Final Thoughts: Planning for a Mortgage After Bankruptcy
Bankruptcy is a serious decision, but it doesn’t mark the end of your homeownership journey. Whether you want to keep your current mortgage or qualify for a new one, there are strategies available.
- Rebuild credit with discipline and consistency
- Work with a mortgage professional to explore lenders that fit your situation
- Understand that equity, income, and transparency are key to your approval
Key takeaway: Mortgage after bankruptcy is possible—planning, patience, and expert guidance make all the difference.
FAQs
Q: Can I keep my home after bankruptcy?
A: Yes. If your mortgage payments are current and your home equity is within the exempt limit, you may keep your home.
Q: How soon can I get a mortgage after filing for bankruptcy?
A: Typically 2 years after discharge with an A lender. Private and B lenders may be an option sooner, depending on your financial recovery.
Q: Will my mortgage be forgiven if I file for bankruptcy?
A: No. Mortgages are secured debts and must be paid unless the property is foreclosed or sold.
Q: What if I’ve filed for bankruptcy more than once?
A: Multiple bankruptcies won’t automatically disqualify you, but expect stricter lender scrutiny. Be honest and show how your situation has improved.
Q: Should I consider a consumer proposal instead of bankruptcy?
A: Possibly. Consumer proposals may help you keep your home, avoid bankruptcy, and improve your odds of mortgage approval later.
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