How Declaring Bankruptcy Can Affect Your Mortgage

Posted on 5th March 2019

Most Canadians dream of having a home. It takes a lot of discipline to get there, that’s because buying a house is expensive. And saving for a down payment can take a long time. It doesn’t get much easier when you actually own a home, you have mortgage payments to make, utility bills, property taxes, and upkeep. We all go into getting a mortgage and buying a home under the presumption that everything is going to work out. But what if it doesn’t?

What happens if you lose your job or your salary is cut? What happens to your home and mortgage if you declare bankruptcy? What happens when it comes time to renew a mortgage or even qualify for a new mortgage after declaring bankruptcy?

Below are some answers to those bankruptcy scenarios.

What Happens to My Home and Existing Mortgage?

Not all debts are wiped clean when you declare bankruptcy. Secured debts, like a mortgage, cannot be included in a bankruptcy. The laws surrounding a bankruptcy vary slightly from province to province, but, for the most part, that means you cannot keep a house in bankruptcy. Especially if you have substantial equity built up in the property.

It might not sound fair, but it isn’t really reasonable for the homeowner to keep all the money (equity) they’ve built up in their property at the same time the creditor’s debts are being discharged.

If substantial equity has been built up in the house, a bankruptcy trustee with either seize the house and sell it or make arrangements with the owner to repay the equity.

On the other hand, if you only have a little equity in the house, you can usually make arrangements with your lenders to keep paying your mortgage and keep the house after filing for bankruptcy.

What Happens When It Comes Time to Renew Your Mortgage?

When you renew a mortgage, you are making a new agreement with your current lender to extend the mortgage. If you declared bankruptcy and were able to keep your home, your existing lender may be willing to renew your mortgage.

Then again, there are some lenders who will not renew a mortgage when it comes to someone who has declared bankruptcy. The bank will allow you to keep the mortgage until it matures, but once it does, you have to locate a new lender. If that does happen, it will be difficult for you to find a new mortgage with a traditional lender.

There is one silver lining. If you are up-to-date on your mortgage payments and declared bankruptcy, and were allowed to keep your property, under Canadian bankruptcy law, a mortgage lender cannot foreclose on your home. That’s because you didn’t break any rules of the mortgage agreement.

If you are behind on your mortgage payments though the bank does not have to honour the agreement. And can foreclose on your mortgaged asset.

How Does Bankruptcy Affect a New Mortgage?

Buying a new home usually means getting a mortgage. To do this, you need to have a good credit score. But after declaring bankruptcy, depending on how much time has passed, chances are your credit score will be low.

Your credit score (on a scale of 300 to 900) shows lenders how likely you are to pay your bills on time. The higher the score, the more likely you are to pay your bills.

To get a new mortgage to buy a home, traditional lenders can insist on a minimum score of 680. That is, if they’re even willing to deal with you at all. The bigger the lender and loan you want to secure, the stricter they are with their lending practices.

In some cases, banks won’t even entertain looking at a mortgage application if you’ve declared bankruptcy. Others will entertain a new mortgage, but because you’ve declared bankruptcy, they may demand that you have a larger down payment and make you pay a much higher interest rate.

Time Is of the Essence

When it comes to bankruptcy, the amount of time after you declared bankruptcy determines if you can get a new mortgage. Traditional lenders will typically only give you a new mortgage or loan if at least two years have passed since your bankruptcy was discharged.

In the meantime, you need to work on getting your finances in order and boosting your credit score. But even that’s not as easy as it sounds. No matter how diligent you are with staying on top of minimum payments, just one 30-day late payment on your credit history can mean the difference between getting a new mortgage and not getting one.

Even if things go perfectly, it will still be difficult to secure a new mortgage right away. Banks may still be reluctant to deal with you. And higher interest rates could prevent you from getting a mortgage with the best rates.

What happens though if you want to get a new mortgage and buy a home before the two years are up? Forget it. The banks won’t give you the time of day.

Fortunately, there is another option for those who have declared bankruptcy and want to secure a new mortgage., Helping Those in Bankruptcy Secure a Mortgage

Whether it’s an unexpected bill, expense, or you’re going through a divorce, people declare bankruptcy for many different reasons. None of which are reason enough to prevent you from getting a new mortgage. If you’ve declared bankruptcy and have been turned down by traditional lenders or want to see what kind of mortgage you qualify for, contact the licensed mortgage experts at

Because the mortgage specialists at are independent, they have access to hundreds of different lenders. Many of them specialize in providing mortgages and loans to those who have declared bankruptcy, have bad credit, even no credit, or unreliable income.

How can these lenders provide more effective service than traditional lenders? Many of them are private, meaning they do not have to follow the same strict rules that all federally regulated institutions do; this includes the big banks.

To find out what kind of mortgage or financial options are available to you, contact today or apply online and a mortgage specialist will set up an appointment at your earliest convenience.

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