Can Bankruptcy Stop a Power of Sale?
Usually, no. Filing for bankruptcy may deal with unsecured debts, but a mortgage lender is a secured creditor. If the mortgage is in default, bankruptcy does not normally take away the lender's right to enforce its security against the property.
← Back to Power of Sale QuestionsBankruptcy Does Not Normally Stop the Mortgage Lender.
Bankruptcy can stop many unsecured creditors from continuing collection or legal action, but a mortgage is different because it is secured against the property.
Your Mortgage Is Secured Debt
The lender has a registered security interest in the property. That security gives the lender rights that are different from ordinary unsecured creditors such as credit cards or personal loans.
Bankruptcy Deals Mainly With Unsecured Debt
Bankruptcy may eliminate or restructure many unsecured debts, but it generally does not erase the lender's security against your home.
The Lender Can Still Enforce
If the mortgage remains in default, the secured lender can generally continue enforcing its rights against the property, including proceeding toward a Power of Sale.
Equity Still Matters
If there is enough equity in the property, refinancing may still be possible even when the homeowner is dealing with serious debt or has experienced financial difficulty.
Timing Matters
Waiting until the lender is close to completing enforcement can make arranging financing much more difficult. The earlier the situation is reviewed, the more options may still exist.
Bankruptcy May Not Solve the Immediate Problem
If the immediate problem is stopping the mortgage lender from selling the property, bankruptcy alone may not accomplish that. The mortgage default itself still has to be addressed.
Unsecured Debt and Mortgage Debt Are Not the Same Thing.
Bankruptcy can provide relief from many unsecured debts, but the mortgage lender has security registered against the property. That security generally survives the bankruptcy process.
If the lender has already started a Power of Sale, the immediate question is usually not whether bankruptcy will stop it. The more important question is whether the mortgage can still be paid out, refinanced or otherwise resolved before the lender completes the sale.
Get an up-to-date mortgage statement and any Notice of Sale or legal documents you have received.
Equity is often one of the most important factors in determining whether refinancing is realistic.
Alternative or private financing may sometimes be available even when a bank mortgage is no longer realistic.
If bankruptcy or a consumer proposal is being considered, speak with a Licensed Insolvency Trustee about the insolvency side of the situation.
The Mortgage Default Still Needs a Solution.
If the objective is to keep the property, the lender ultimately needs to be paid or brought into an acceptable position.
Refinance the Existing Mortgage
If there is sufficient equity, replacement financing may allow the existing mortgage, arrears and enforcement costs to be paid out.
Use Private Financing
A private mortgage may sometimes provide short-term financing when traditional lenders will not approve the file.
Bring in Additional Funds
Savings or assistance from family may reduce the amount that needs to be refinanced and make a solution more workable.
Sell Before the Lender Does
If keeping the property is not realistic, a controlled sale by the homeowner may provide more control over timing, price and costs than allowing the lender to complete the Power of Sale.
Deal With Unsecured Debt Separately
A Licensed Insolvency Trustee can explain whether bankruptcy or a consumer proposal makes sense for credit cards, loans and other unsecured obligations.
Build an Exit Strategy
Any short-term financing solution should include a realistic plan for what happens next, whether that means refinancing later, selling the property or reducing overall debt.
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