17 Jul 2019
Foreclosure, Bankruptcy, Consumer Proposal & Credit Counseling
The Canadian Bankers Association’s latest report on mortgage delinquency shows that Saskatchewan has the highest per capita of all the provinces. The national average shows that .24% of home owners are having difficulty paying their mortgage. Saskatchewan is more than triple that at .80% with next in line Atlantic Canada at .51% and then Alberta at .46%. At first glance these numbers seem relatively small until you note the fine print that “delinquency” in this report only represents those homeowners that are more than 3 months behind.
I thought that I would take the time to go over the mortgage ramifications of foreclosure, bankruptcy, consumer proposal and credit counseling.
This is when the mortgage has gone unpaid to the point that the bank is forced to take back the security for the mortgage which is the home. First of all, the bank doesn’t want to have to do this. Non-payment of the mortgage for an extended period of time forces their hand. The foreclosure process is different in every province. Saskatchewan has the most difficult foreclosure process for the bank and gives the homeowner many chances to catch up and stop it. This process can take months to work through for the bank to take possession of the home to be able to sell it to recover their losses. The long-term effect on a client that goes through foreclosure is permanent. A record of the foreclosure is placed on each clients’ credit report. Unlike a bankruptcy or consumer proposal that are eventually removed, the foreclosure stays on their credit report for life. What that will mean is that when they want to eventually purchase a home again, they will more than likely require at least 20% down payment.
Bankruptcy & Consumer Proposal
Both bankruptcy and consumer proposal are administered through a licensed insolvency trustee. Typically, every creditor that you have debt with will participate in the process. This includes student loans and arrears with Canada Revenue Agency.
If you have gone through either of these insolvency actions, the mortgage industry sees them as them as the same thing. What is most important after either of those is to get back up on the credit horse and walk before you run. Canadians that swear off debt of any kind after insolvency are better known as lifelong renters. Never having a credit card or loan again is certainly fine until you apply for a mortgage to buy a home. Banks and mortgage lenders want to see that you can walk with small amounts of credit before running with hundreds of thousands in a mortgage. Once discharged from either a bankruptcy or consumer proposal obtaining a credit card should be your very first step. The next thing to do is advise both Canadian credit reporting agencies that you were discharged. You may be required to send documents related to the insolvency. It is a good idea to keep all your paper work from this process in a safe place for at least 10 years.
Credit counselling could be a viable option for those that are keeping up with their debt payments but need help in making a household budget to get out of debt faster. For those that have fallen behind on their debts and 1 or more have gone into collection status, credit counselling may not be the answer. There are 2 distinct differences between working with a credit counselor and a licensed insolvency trustee.
1. Student loans and debts to Canada Revenue Agency cannot be addressed within credit counseling.
2. If the credit counseling requires debt negotiations and/or payment arrangements, some of your creditors may decline to participate. This leaves debts outside of the credit counseling arrangement that you must address on your own. It’s a little like having 2 flat tires on your car and only 1 spare. The spare may work well to fix one flat but your car still isn’t roadworthy.