Can You Keep Your House in Bankruptcy Canada? Provincial Exemptions 2026

You can keep your house in bankruptcy if your home equity—fair market value minus mortgage minus 5% selling costs—is below your province’s exemption: Alberta $40,000, Ontario $10,783, BC $12,000 (Greater Vancouver/Victoria) or $9,000, Saskatchewan $32,000. If equity exceeds the exemption, you must pay the difference to the trustee or the trustee may force sale of the property.

Provincial exemptions protect basic necessities including home equity up to specific dollar amounts. These exemptions exist to prevent bankruptcy from leaving people homeless. Understanding your province’s rules and calculating your actual equity helps you determine whether bankruptcy or a consumer proposal better protects your home. If you’re noticing warning signs of financial trouble, acting early gives you more options.

How is home equity calculated in bankruptcy?

Home equity equals your home’s fair market value minus the outstanding mortgage balance minus estimated selling costs. Trustees use 5% of fair market value as a standard selling cost estimate to account for real estate commissions, legal fees, and closing costs.

The calculation works like this: Fair Market Value minus Outstanding Mortgage minus (Fair Market Value times 0.05) equals Net Home Equity. For a home worth $600,000 with a $500,000 mortgage, equity is $600,000 minus $500,000 minus $30,000 (5% of $600,000) equals $70,000.

Fair market value is determined through recent comparable sales in your neighborhood. Trustees review real estate listings and recent sales of similar homes within a few blocks of your property. Market conditions at the time of filing matter—if your neighborhood saw rapid price increases or decreases, this affects valuation.

Professional appraisals may be required for unique properties or when comparable sales are limited. Rural properties, luxury homes, or properties with unusual features often require professional appraisers. The trustee arranges and pays for appraisals, deducting the cost from bankruptcy receipts.

Mortgage balance includes all amounts owed to secured lenders. If you have both a first mortgage and a home equity line of credit secured against the property, both amounts are deducted when calculating equity. Property tax arrears secured by a lien also reduce equity. Only unsecured debts like credit cards do not reduce home equity.

Second mortgages and private lenders complicate calculations. If you have a second mortgage at 12% interest with a private lender, this reduces your equity just like a first mortgage. Some second mortgages have penalties for early discharge—these penalties are included in the mortgage balance for equity calculations.

Equity fluctuates with market values and mortgage payments. If you file bankruptcy in January and property values increase 10% by March, your equity increases. Conversely, declining markets reduce equity. Monthly mortgage principal payments also increase equity slowly—a $2,000 mortgage payment might include $800 in principal, increasing your equity by $800 monthly.

Joint owners share equity proportionally. If you and a spouse each own 50%, your equity is half the total calculated equity. If you own 75% and another person owns 25%, your equity is 75% of the total. Only your ownership percentage is at risk in bankruptcy—your co-owner’s share is completely protected.

What are home equity exemptions by province?

Provincial legislation sets home equity exemptions that vary dramatically across Canada. These amounts represent the equity you can keep without paying the trustee. Equity above exemptions must be paid to the trustee or the property may be sold.

Alberta offers the highest protection at $40,000 per owner. A couple jointly owning a home in Alberta protects $80,000 total equity ($40,000 each). This makes Alberta one of the most bankruptcy-friendly provinces for homeowners. Saskatchewan’s $32,000 exemption is second-highest and also provides strong protection.

Ontario’s exemption is indexed to inflation annually. The $10,783 amount applies for 2026. This amount increases each year based on the Consumer Price Index. Ontario also provides graduated exemptions for different asset categories totaling approximately $14,000 to $15,000 across all personal property when combined with vehicle and household goods exemptions.

British Columbia has location-based exemptions reflecting regional housing cost differences. The $12,000 exemption applies in Greater Vancouver and Greater Victoria where housing costs are highest. The $9,000 exemption applies in all other BC regions. This structure acknowledges that identical equity amounts have different purchasing power across the province.

Quebec and Newfoundland offer no general home equity exemptions, making these provinces most difficult for homeowners filing bankruptcy. Quebec has special rules for small claims under $20,000 where principal residences may be protected, but this does not apply in most bankruptcies involving significant debt. Homeowners in these provinces almost always choose consumer proposals to protect equity.

Manitoba’s $2,500 exemption is among the lowest in Canada and provides minimal protection. A homeowner with even modest equity—$15,000 in a $300,000 home with a $260,000 mortgage—must pay $12,500 to the trustee. This makes Manitoba bankruptcies expensive for homeowners and pushes most toward consumer proposals.

Provincial exemptions apply per owner, not per property. If you own two homes, the exemption applies only once across all properties. You cannot claim $40,000 exemption on a principal residence and another $40,000 on a cottage. The trustee allocates the exemption to maximize benefit for creditors, typically applying it to the property with lowest equity.

Exemptions are automatic and do not require court applications. If your equity is below the exemption, the trustee has no interest in your property and you continue living there. No formal claiming process exists—the trustee simply acknowledges the exemption when reviewing your assets.

What happens if equity exceeds the exemption?

You have three options when home equity exceeds your provincial exemption. Each option has different costs, timelines, and implications for keeping your home.

Option one is paying the non-exempt equity amount to the bankruptcy trustee. If you have $30,000 equity in Ontario where the exemption is $10,783, you must pay $19,217 to the trustee. This payment can be made as a lump sum or through installment payments during your bankruptcy period. Most trustees accept payment plans over 9 to 21 months depending on your surplus income status.

Payment sources include borrowing from family members, using funds from a spouse’s assets, or withdrawing from RRSPs over one year old. RRSP withdrawals trigger income tax, so if you withdraw $20,000 to buy out home equity, you may owe $6,000 to $10,000 in additional income tax depending on your tax bracket. Many people borrow from parents or siblings with informal repayment arrangements after bankruptcy discharge.

Option two is refinancing your mortgage or obtaining a home equity line of credit to extract the non-exempt equity. Some lenders will refinance during bankruptcy if you have sufficient income and equity to support the new loan. The refinanced mortgage increases to cover the non-exempt equity amount, and those funds go to the trustee. Your mortgage payments increase accordingly.

Refinancing during bankruptcy is difficult but not impossible. B-lenders and private lenders sometimes approve mortgages for bankrupts at higher interest rates—typically 8% to 12% versus prime rates of 5% to 7%. You need stable income and equity beyond the exemption amount plus refinancing costs. Total loan-to-value usually cannot exceed 80% of property value.

Option three is trustee-forced sale of the property. The trustee lists the property for sale through a real estate agent, markets it at fair market value, and completes the sale. After paying off the mortgage and selling costs, the trustee gives you the exempt amount and distributes the remainder to creditors. You must find new housing within the sale timeline, typically 3 to 6 months.

Forced sales are the least preferred option for all parties. Sale costs consume 5% to 7% of proceeds through commissions and legal fees. The process delays your bankruptcy discharge while the sale completes. Finding replacement housing during bankruptcy with damaged credit is difficult. Trustees avoid forced sales when negotiated buyouts are possible.

Negotiating payment arrangements works better than refusing to cooperate. If you acknowledge the equity situation and propose a reasonable payment plan, most trustees accept installments over the bankruptcy period. If you hide assets or refuse to discuss options, the trustee moves directly to forced sale without offering buyout opportunities.

Timeline matters for non-exempt equity payments. If you need 12 months to save the buyout amount but your bankruptcy discharges in 9 months, the trustee may agree to extend your discharge timeline until payment is complete. This is negotiable based on your specific circumstances and the trustee’s willingness to accommodate payment plans.

Consumer proposals eliminate these complications by protecting 100% of home equity regardless of amount. If paying non-exempt equity makes bankruptcy unaffordable, compare proposal costs to bankruptcy plus equity buyout costs. Proposals often save money for homeowners with $15,000 or more in non-exempt equity.

How does joint ownership affect bankruptcy?

Only your ownership share of jointly owned property is part of the bankruptcy estate. If you own 50% of a home with your spouse, sibling, or other co-owner, only your 50% share is subject to bankruptcy rules. Your co-owner’s 50% share is completely protected and unaffected by your bankruptcy.

Calculate your equity as your ownership percentage times total equity. A home with $100,000 total equity where you own 50% means your equity is $50,000. Apply your provincial exemption to your $50,000 share only. In Ontario with a $10,783 exemption, you would owe the trustee $39,217 for your 50% share of a home with $100,000 total equity.

Joint ownership complicates trustee sales significantly. If the trustee wants to force sale but your co-owner wants to keep the property, the co-owner can purchase your ownership share from the trustee at fair market value. This is called a buyout from the bankruptcy estate. Your co-owner pays the trustee the non-exempt equity amount and becomes sole owner.

Spouses commonly buy out the bankrupt partner’s share. If you file bankruptcy and your spouse is not bankrupt, your spouse can use their income, savings, or borrowing capacity to buy your share from the trustee. This keeps the home in the family while satisfying trustee requirements. Your spouse’s equity remains protected throughout this process.

Co-ownership with non-spouses follows the same rules but raises different practical issues. If you and a friend or sibling jointly own investment property, your bankruptcy affects your half regardless of who paid the mortgage or made improvements. The trustee bases calculations purely on registered ownership percentages.

Tenancy in common versus joint tenancy affects bankruptcy differently. Tenants in common own specific percentages—commonly 50/50 but can be any split like 60/40 or 75/25. Joint tenants own the entire property together with right of survivorship. In bankruptcy, both forms of joint ownership are treated similarly—the trustee calculates equity based on registered ownership percentage.

Right of survivorship in joint tenancy does not protect assets from bankruptcy trustees. Some people incorrectly believe that joint tenancy protects their share because it passes automatically to the survivor upon death. Bankruptcy trustees treat joint tenancy ownership shares like any other asset and can force sale or demand buyout payments.

Unequal contributions to mortgage or down payment do not change registered ownership percentages. If you paid 80% of the down payment but registered ownership is 50/50, the trustee uses the registered 50/50 split. Pre-bankruptcy disputes over ownership percentages should be resolved through property law mechanisms before filing—trustees will not arbitrate contribution disputes.

Joint ownership with elderly parents creates unique challenges. If you own your parents’ home jointly to help them manage finances or avoid probate, bankruptcy puts their home at risk. Adult children who jointly own parents’ homes should consult trustees before filing to explore alternative arrangements that protect parental homes.

Does bankruptcy affect my mortgage?

Your mortgage continues exactly as before bankruptcy if you keep your home and stay current on payments. Bankruptcy discharges unsecured debts like credit cards and personal loans but does not eliminate secured debts where creditors hold collateral. Your mortgage lender’s security interest in your property survives bankruptcy unchanged.

Monthly mortgage payments remain the same amount on the same schedule. Your interest rate does not change because of bankruptcy. Payment due dates, prepayment privileges, and all other mortgage terms continue exactly as stated in your mortgage contract. The lender cannot demand early repayment or change terms simply because you filed bankruptcy.

Mortgage arrears at the time of filing present problems. If you are behind on mortgage payments when you file bankruptcy, the lender can continue foreclosure proceedings. The stay of proceedings in bankruptcy stops unsecured creditors but does not stop secured creditors from enforcing their security. You must catch up on mortgage arrears to keep your home during bankruptcy.

Foreclosure timelines vary by province. Ontario foreclosure takes 6 to 9 months from first missed payment to forced sale. British Columbia foreclosure can complete in 4 to 6 months. Alberta uses judicial sale process taking 6 to 12 months. Filing bankruptcy does not pause these timelines—staying current on mortgage payments is essential.

Mortgage renewals during bankruptcy can be problematic. If your mortgage term ends while you are an undischarged bankrupt, your lender may decline renewal or offer renewal only at higher interest rates. Most major banks have policies against renewing mortgages for undischarged bankrupts. You may need to switch to a B-lender at higher rates—typically 2% to 4% above prime. With the 2026 mortgage renewal crisis affecting millions of Canadian homeowners, timing your insolvency filing around renewals is more important than ever.

Planning mortgage renewals around bankruptcy timing avoids this issue. If your mortgage renews in 8 months and you need to file bankruptcy, delay filing until after renewal if possible. If your mortgage just renewed for 5 years, bankruptcy during the term causes no renewal problems—you will likely be discharged before the next renewal.

Second mortgages and home equity lines of credit are treated as secured debts just like first mortgages. If you have a HELOC with a $50,000 balance secured against your home, bankruptcy does not eliminate this debt if you keep the home. You must continue HELOC payments or the lender can enforce their security.

Some homeowners surrender homes during bankruptcy to eliminate unsecured mortgage shortfalls. If your home is worth $300,000 with a $350,000 mortgage, you have no equity and the home is underwater. Surrendering the property in bankruptcy discharges the $50,000 shortfall as an unsecured debt. You lose the home but eliminate the underwater debt.

Walking away from an underwater home requires careful timing. If you surrender the home, you cannot claim the housing exemption for the small amount of equity that may exist after selling costs. Trustees calculate equity conservatively and may find small amounts of equity even in apparently underwater properties. Consult your trustee about surrender timing to maximize benefit.

Property tax arrears are treated separately from mortgages. Municipal property tax liens have priority over most other creditors and survive bankruptcy. If you owe $5,000 in property tax, you must pay this amount to keep your home even though it is technically unsecured debt. Municipalities can force sale for tax arrears after bankruptcy discharge.

Can a consumer proposal protect more home equity?

Consumer proposals protect 100% of home equity regardless of amount. Provincial exemptions do not apply to consumer proposals—you keep your house with $50,000 equity, $100,000 equity, or any amount of equity as long as you maintain mortgage payments. This protection makes proposals the preferred option for homeowners with equity above provincial exemptions.

Calculate proposal costs compared to bankruptcy plus equity buyout. If you have $40,000 in non-exempt home equity in Ontario, bankruptcy requires paying $40,000 minus $10,783 equals $29,217 to the trustee, plus $2,000 in base fees, plus any surplus income. If you earn $50,000 annually with $10,500 in surplus payments over 21 months, total bankruptcy cost is $41,717.

A consumer proposal for the same person with $60,000 in unsecured debt might settle at 30% ($18,000) paid over 5 years at $300 per month. Including trustee fees of approximately $3,500, total proposal cost is $21,500—a savings of over $20,000 compared to bankruptcy while keeping full $40,000 home equity intact.

Proposal payments are fixed for the entire term regardless of income changes. If you negotiate a $300 monthly payment and later receive a $10,000 raise, your proposal payment stays $300. In bankruptcy, the $10,000 raise triggers higher surplus income and potential timeline extensions. This payment stability makes proposals attractive for people expecting income growth.

Asset protection extends beyond home equity to all property. If you have $15,000 vehicle equity, $30,000 in RRSP contributions from the past year, $10,000 in household goods, and $40,000 home equity, bankruptcy requires surrendering or paying for all non-exempt amounts. Consumer proposals protect everything while discharging 60% to 80% of unsecured debt.

Creditors accept 99% of consumer proposals according to industry data. The acceptance threshold is 50% plus one dollar by value of proven claims. If creditors holding 51% of your debt by dollar value accept, the proposal passes and binds all creditors. Most proposals are drafted by trustees to be acceptable based on what creditors would receive in your bankruptcy—proposals almost always offer more than bankruptcy recovery.

Proposal payments can be paused during financial hardship. If you lose employment halfway through your proposal, most trustees and creditors agree to 3 to 6 month payment pauses without annulling the proposal. This flexibility does not exist in bankruptcy—missed surplus income payments can result in discharge refusal or annulment.

Maximum proposal term is 60 months but most complete sooner. A proposal paying $500 monthly on $30,000 debt settles at 30% and completes in 60 months. A proposal paying $1,000 monthly completes in 30 months. Shorter terms mean less total interest paid and faster credit recovery. Bankruptcy timelines are fixed at 9 to 21 months regardless of payment amount.

Proposals work for debt between $5,000 and $250,000 excluding mortgages on principal residence. If your unsecured debt exceeds $250,000, you cannot file a consumer proposal under the Bankruptcy and Insolvency Act. Bankruptcy or Division I proposals are your only options for debts over $250,000.

What if I have no equity or negative equity?

No equity or negative equity means your home is not at risk in bankruptcy. If your mortgage balance equals or exceeds your property value after accounting for selling costs, the trustee has no interest in the property. You can keep your home by continuing mortgage payments, or you can surrender it to eliminate any potential shortfall.

Calculate exact equity to confirm trustee interest. A home worth $400,000 with a $395,000 mortgage has approximately $5,000 equity after 5% selling costs of $20,000. This calculation yields negative equity: $400,000 minus $395,000 minus $20,000 equals negative $15,000. The trustee cannot recover anything from selling this property and will disclaim interest.

Negative equity creates strategic opportunities. If you surrender an underwater property in bankruptcy, the mortgage shortfall becomes unsecured debt and is discharged. The lender sells the property, typically recovering 90% to 95% of the mortgage balance, and the 5% to 10% shortfall is eliminated as unsecured debt. You walk away owing nothing.

Mortgage lenders cannot pursue deficiency judgments after bankruptcy discharge. If your lender forecloses on a $350,000 mortgage and sells the property for $320,000, the $30,000 shortfall is included in bankruptcy and discharged. Post-discharge collection for this shortfall is prohibited. This protection applies across all provinces.

Keeping an underwater home during bankruptcy requires continuing mortgage payments. If you want to stay in the home despite negative equity, you simply continue making mortgage payments throughout bankruptcy and after discharge. The lender cannot force sale if you remain current. Many people keep underwater homes for stability, school districts, or family reasons.

Market timing affects underwater decisions. If you expect property values to recover within 2 to 5 years, keeping an underwater home may build future equity. If values are declining or stagnant, surrendering eliminates the underwater debt and allows renting or purchasing more affordable housing post-discharge. With the economic pressures facing Canadians in 2026, real estate market analysis helps guide this decision.

Strategic surrenders work best when rental costs are lower than mortgage payments. If your mortgage costs $2,500 monthly but comparable rentals cost $1,800, surrendering the home in bankruptcy saves $700 monthly. Over 5 years, this saves $42,000 while eliminating the underwater debt—often a better financial outcome than struggling with unaffordable housing.

Emotional attachment to homes often overrides financial logic. Many people keep underwater homes because they raised children there, made extensive renovations, or cannot bear the thought of moving. Bankruptcy discharge eliminates other debts, sometimes making underwater mortgage payments affordable by freeing up $800 to $1,500 monthly from discharged credit cards.

Landlords and property investors with underwater rental properties face different calculations. If rental income covers mortgage and property costs, keeping underwater rentals may generate positive cash flow and tax deductions. If rentals generate losses exceeding $500 monthly, surrendering during bankruptcy eliminates both the property and the monthly losses.

Bottom Line

You keep your house in bankruptcy if home equity is below your provincial exemption—Alberta and Saskatchewan offer the strongest protection at $40,000 and $32,000, while Quebec and Newfoundland protect nothing, making equity calculations critical before filing. Calculate equity as fair market value minus mortgage minus 5% selling costs, then compare your result to your province’s exemption: if you have $30,000 equity in Ontario where the exemption is $10,783, you must pay $19,217 to the trustee or risk forced sale. Joint ownership protects your co-owner’s share completely but complicates buyout negotiations, and bankruptcy does not eliminate your mortgage or change its terms—you must stay current on payments or face foreclosure regardless of bankruptcy status. Consumer proposals protect 100% of home equity regardless of amount, making proposals almost always more affordable than bankruptcy for homeowners with equity exceeding $15,000 above provincial exemptions, especially when combined with surplus income payments that often push total bankruptcy costs above proposal fixed-payment plans. If your home equity exceeds your provincial exemption by more than $10,000, calculate your consumer proposal cost to compare bankruptcy plus equity buyout versus proposal fixed payments for your debt.

Disclaimer: This article provides general information about home protection in Canadian bankruptcy. Rules vary by province. Consult with a Licensed Insolvency Trustee for advice specific to your situation.

Last updated: February 2, 2026