For many Canadians struggling with overwhelming debt, the idea of bankruptcy can feel intimidating—especially if they own a home. One of the most common fears is whether filing bankruptcy automatically means losing your house.
The short answer: not necessarily.
Homeownership plays an important role in a bankruptcy, but losing your home is not automatic. What happens depends largely on your home’s equity, your income, and your overall financial picture.
Here’s a plain-language breakdown of how bankruptcy works in Canada when you own a home.
Bankruptcy in Canada: The Basics
Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and can only be administered by a Licensed Insolvency Trustee (LIT).
When you file bankruptcy:
Most unsecured debts are eliminated
Interest stops
Collection activity and legal action stop
A legal process begins to deal with assets and income
The goal is to provide financial relief while treating creditors fairly.
Your Home Is Considered an Asset
If you own a home, the trustee will determine whether you have equity.
Home Equity = Market Value – Mortgage & Secured Loans
Example:
Home value: $450,000
Mortgage balance: $380,000
Equity: $70,000
This equity is what matters in a bankruptcy.
If You Have Little or No Equity
If your home has little or no equity, you may be able to keep it, as long as:
You continue making your mortgage payments
You can afford the ongoing housing costs
The trustee determines there is no meaningful value for creditors
In these cases, selling the home is often unnecessary.
If You Have Significant Equity
If your home has equity, that value is considered an asset that could be used to repay creditors.
This does not automatically mean your home must be sold, but typically one of the following options is explored:
Paying the equity value into the bankruptcy over time
Refinancing to access some equity
Using help from a family member or third party
If no arrangement can be made to address the equity, selling the home may become necessary.
Why Many Homeowners Choose a Consumer Proposal Instead
For homeowners with equity, a Consumer Proposal is often a better alternative to bankruptcy.
A Consumer Proposal:
Is a legal alternative to bankruptcy
Lets you keep your assets, including your home
Reduces the total amount you owe
Stops interest and collections
Sets one affordable monthly payment
Because home equity is protected in a proposal, many homeowners find this option more appealing.
Mortgage Payments Continue
Bankruptcy does not eliminate your mortgage. A mortgage is a secured debt.
If you want to keep your home, you must continue making your mortgage payments on time. If you fall behind, the lender can still take action regardless of a bankruptcy filing.
Every Situation Is Different
Whether you can keep your home depends on:
Amount of equity
Household income
Mortgage status
Other assets
Total debt level
Only a Licensed Insolvency Trustee can make a final determination after reviewing your full financial picture.
Talk to Someone Before You Decide
Bankruptcy is a serious financial decision. Before choosing any path, it’s important to understand:
Your equity position
Whether a Consumer Proposal is an option
What your realistic payment scenarios look like
Getting guidance early can help protect your home and your long-term financial future.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Formal insolvency proceedings in Canada are governed by the Bankruptcy and Insolvency Act and must be administered by a Licensed Insolvency Trustee.