Real Estate and Bankruptcy – Bankrupt’s Perspective

By virtue of Sections 67(1)(c)¹ and 71² of the Bankruptcy and Insolvency Act, upon filing and assignment with the Official Receiver, all property³ of the bankrupt immediately passes and vests in the Trustee, including bankrupt’s interest in the real estate. In most bankruptcy scenarios, the bankrupt’s interest in the properly is usually a 100 per cent interest or 50 per cent interest with a spouse. The bankrupt may also have a beneficial/equitable interest in the property.

Bankrupt’s Perspective

Will I lose my house?

Most bankrupts are able to keep their property pending they remain current with their mortgage payments. It is not financially beneficial for the lender, usually a bank, to proceed with foreclosure as it is a costly and time-consuming process. It is therefore imperative that the bankrupt continues to make regular mortgage payments.

What is equity and how does the bankruptcy impact it?

Equity is the difference between the market value of the property and any claims (mortgages, unpaid real estate taxes, etc.) held against it. It is this equity that the Trustee will be required to realize on for the benefit of the estate creditors. Commonly, if the bankrupt or bankrupt’s spouse wish to keep the property, the Trustee will negotiate with the parties to repay the equity.

Is there any equity exemption?

As of December 1, 2015, pursuant to the Ontario Execution Act, if the equity of your home does not exceed $10,000, the principal residence is exempt from seizure. However, if the equity exceeds $10,000, the principal residence is subject to seizure.

What if I am holding the property in trust for someone else?

Should the bankrupt be holding a property in trust for another individual, the Trustee will investigate the matter further. The bankrupt will be required to provide all supporting materials to establish that the property is in fact “someone else’s”, specifically, any and all written trust agreements and title transfers.

In the past I have contributed to a property, however, I am not registered on title. Will bankruptcy affect this property?

While the bankrupt may not have legal title to the property, the bankrupt may in fact have beneficial interest in the said property. Though the legal land title is held by another party, the conduct of the bankrupt with respect to the property will be reviewed. Specifically, the Trustee will analyze the payment history for the maintenance of the property, investigate the source of the down payment and assess if any beneficial interest exist.

[1] BIA – S.67 (1)

The property of a bankrupt divisible among his creditors…

but it shall comprise

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge…

[2] BIA – S.71

On a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass to and vest in the trustee named in the bankruptcy order or assignment, and in any case of change of trustee the property shall pass from trustee to trustee without any assignment or transfer.

[3] BIA – S.2

“Property”

“Property” refers to any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property.

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.