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House Broke And Facing Mortgage Foreclosure? Find Debt Relief Options

Thanks to high interest rates, elevated housing prices, and a growing cost of living, many Canadians are feeling house broke and concerned about the possibility of foreclosure. 

A recent article from the International Monetary Fund (IMF) reports that Canada is one of the countries with the highest risk of mortgage default.  With two-thirds of mortgages set to renew between 2024 and 2026, many Canadians will face higher average mortgage rates

It’s estimated that average monthly mortgage payments could rise by 15% by the end of 2024, 30% by the end of 2025, and 45% by the end of 2026, according to data reported in the Financial Post. While some Canadians might try to downsize to accommodate increasing costs, it’s likely that many will default on their mortgage payments when there’s simply not enough money in the budget to make ends meet. 

If you’re wondering what will happen if you can no longer afford to pay your mortgage, keep reading. 

What is House Foreclosure?

House foreclosure, also known as mortgage foreclosure can occur if you miss your mortgage payments for multiple months. When you miss your first mortgage payments, your mortgage goes into default. 

If you continue to miss your payments, your mortgage lender can initiate a legal process to take your home and sell it to get back some of the money you owe. This process is known as foreclosure.

If the lender sells your home for less than you owe on it, you might have to pay the remaining amount.  

What to do if You’re Facing Mortgage Foreclosure?

The foreclosure process is typically not something lenders want to engage in as it’s often expensive and complicated. To avoid foreclosure, many lenders are willing to work with you to find an alternate solution. 

The Financial Consumer Agency for Canada, a federal agency that works to keep the financial system strong and safe for Canadians, has an expectation for banks to help customers who are struggling to pay their mortgages due to exceptional circumstances. 

Exceptional circumstances can include: 

  • High household debt
  • Increase in cost of living
  • Rapidly increasing interest rates 

Your bank is also supposed to take some responsibility if there are signs of mortgage default, including: 

  • Creating criteria for offering mortgage relief measures
  • Reaching out to you if you are at risk of default
  • Encouraging you to contact them if you are experiencing financial difficulties
  • Provide help to find information on mortgage relief measures

Some of the temporary relief measures your bank is expected to offer include: 

  • Waiving prepayment penalties if you have to sell your primary residence 
  • Waiving internal fees or costs for a limited period
  • Avoid charging you interest on interest for a limited time 

Will Filing For Bankruptcy Get Rid of Mortgage Debt?

Filing for Bankruptcy in Canada will not get rid of your mortgage debt. This is because your mortgage is a secured loan, and secured debt is not included in Bankruptcy. 

If you’re dealing with a significant amount of debt and thinking about filing for Bankruptcy, you might also question, “Will I lose my house in Bankruptcy?” The answer is, Not necessarily. 

Filing for Bankruptcy does not automatically mean your home goes into foreclosure. In many cases, you can keep your home as long as you continue to make your payments. 

To better understand what will happen to your home if you file for Bankruptcy, it’s a good idea to reach out to a Licensed Insolvency Trustee (LIT). An LIT can assess your financial situation to see if Bankruptcy is your best option, and can also advise you on the exact rules for your province.   

Will a Consumer Proposal Get Rid of Mortgage Debt?

Similar to Bankruptcy, filing for a Consumer Proposal will not eliminate your mortgage debt because it is secured debt. You also will not lose your home in a Consumer Proposal, provided you continue to make your mortgage payments. 

Can I Get a Mortgage After Bankruptcy?

If you’re contemplating Bankruptcy, a question you may be wondering is whether you will ever be able to get a mortgage again?  Or how long will it take?  

The answer is yes. It is possible to get a mortgage after being discharged from Bankruptcy, but it can take time and effort. The same is true when it comes to getting a mortgage after a Consumer Proposal. 

In general, most lending institutions won’t consider your mortgage application until a few years after you’re discharged from Bankruptcy, but this can vary between lenders, so it may be worth asking or investigating first. 

In addition, filing for Bankruptcy or a Consumer Proposal can significantly impact your credit score. For example, bankruptcy stays on your report for up to seven years, and a proposal will stay on for three years after you pay all of the debts included in your proposal, or six years after signing your Proposal, whichever is sooner.

Speak to a LIT About House Foreclosure

Whether you’re insolvent and behind on your mortgage payments, or you’re still managing to pay your bills but it’s a struggle, consider reaching out to a Licensed Insolvency Trustee (LIT). 

A LIT can assess your financial situation and recommend a solution to help you pay off debt and find your financial footing. While the thought of a Consumer Proposal or Bankruptcy might scare you, these solutions may also help you to save your house from foreclosure. By reducing or eliminating some of your debt, you can free up enough cash to pay your mortgage. 

If you’re worried that foreclosure is in your future, reach out to Allan Marshall & Associates today for a free, no-obligation consultation. Give us a call at 1-888-371-8900 or fill in our online contact form

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Glenn Steiner

Glenn Steiner is a Licensed Insolvency Trustee with Allan Marshall & Associates Inc. He has over 23 years as an LIT and 15 years in senior positions with the Office of the Superintendent of Bankruptcy.