I feel that this post is really important for a lot of people that are trying to get their financials back to together after a bankruptcy or a consumer proposal. There are many reasons for filing and a lot are circumstances beyond one’s control. I see many different scenarios from people referred to me from bankruptcy trustees, Realtors and other clients. My job is to help you get back on track, to get you in a better position for your mortgage needs.
If you own a home and are considering a bankruptcy or consumer proposal you should be consulting a mortgage agent or broker who is familiar with this process, bad advice can really screw you up. I have seen it many times. Professional bankruptcy and consumer proposal trustees will always suggest talking to a mortgage professional before you file, if they do not, get a different trustee.
Filing a Bankruptcy with a Mortgage
Occasionally while filing a bankruptcy you will be allowed to keep your home, it just depends on the amount of equity in the home, if there is none there is a good chance you do not have to sell. Then there is renewal time, what then? You may not be able to renew your mortgage especially if you have filed against the financial institution that holds your mortgage. If you have not missed any mortgage payments you may just receive a renewal letter in the mail. At this point just sign it and send it back. No-one will give you a mortgage if you are in a bankruptcy; however, if you already have a mortgage you can get lucky and have it renewed.
Some American mortgage companies have left the Canadian market due to the bankruptcies of their own companies in the States, so unfortunately your mortgage will not be renewed unless they were bought out by another company and are willing to renew.
Filing a Consumer Proposal with a Mortgage
A consumer proposal works a little different, generally you can keep your home even if there is equity in it; however it is best to speak with a trustee on this matter, different scenarios and rules apply. We can find a lender to renew your mortgage if you have been in a current proposal for 12 months or more if we can receive a letter from your trustee stating you have not missed any payments on the proposal and have sufficient equity in the home. Again your mortgage lender may just send you a renewal letter, just sign it or call us if you need some advice.
Purchasing a Home After a Bankruptcy or Consumer Proposal
You really need to get prepared if you plan on buying a home after you have filed a bankruptcy or consumer proposal. You can buy a home with 5% down after being discharged for at least two years, but you have to really understand that you need impeccable re-established credit after you are discharged for a length of two years.
The very first thing you need to do is obtain New credit as soon as you are discharged. If you were allowed to keep a car with a loan during your bankruptcy or consumer proposal that is not new credit. Once you are discharged immediately get two secured credit cards (not a prepaid). You want these limits to be as high as possible, at least $2,000 worth of new credit on two separate trade lines. And never ever miss a payment, if you are more than 30 days late during your two year re-establishing period, lenders will reject your application.
I have had people come into my office with a $500 credit card they have had for two years that there trustee told them to get and expect to buy a home. Would you lend someone $300,000 who has had a bankruptcy and only has a $500 credit card? That is why it is important to consult with both a bankruptcy or consumer proposal trustee and a mortgage agent, get expert advice from the right expert. You can read more about fixing your credit by clicking “How to Fix and Maintain Your Credit Score”.
There are different possibilities when purchasing with more money down, the day you are discharged from either a bankruptcy or consumer proposal you can purchase with 25% down providing you are in good standing with your trustee. After a year you may be able to purchase with 20% down. Please keep in mind, it does not matter why you filed bankruptcy or a consumer proposal, all that matters is how you are re-establishing yourself.
What I have covered above has probably raised more questions than I have answered and I understand that, but it is impossible for me to explain every scenario and all the different rules in a short post. You can contact me if you need to discuss your situation further or if you would like me to refer you to a bankruptcy or consumer proposal trustee who has your best interest at heart.
Ron Miller
905-667-0699
ron.miller@butlermortgages.com
