While most mortgages have a clause that allows them to foreclose on your home if you go bankrupt, very few mortgage lenders act on this. As long as you pay your mortgage on time, they’d rather have the payments than deal with selling the home—their profit will come from the interest you pay over the terms of the mortgage.
When your mortgage term* is up for renewal, you will most likely be able to sign a new agreement with your current lender. However, if you were hoping to shop around for a better mortgage rate, the bankruptcy will affect your chances of qualifying. It will depend on how long it has been since your bankruptcy was discharged and how successful you’ve been at rebuilding your credit score in the meantime.
*Some people may confuse their mortgage term with their mortgage amortization. The mortgage term is the length of time the current interest contract is valid for. You may have signed a mortgage for a two year term or for seven year term. The amortization is the length of time it will take to fully pay off the mortgage—15, 25, or even 35 years.
Your amortization is relevant if interest rates change. In the late 1970’s, interest rates on mortgages rose as high as 18%. People renewing their mortgage terms were shocked to discover that they now might have a monthly payment that was double or even triple what it had been. If their mortgage amortization was at the maximum allowed time (currently 35 years in Canada), their new payments had to be at a rate that would fully pay down the mortgage by the end of the amortization—hence the high monthly payment.
“Don’t let your past decide your future.” Frederick Bliss
Many people think that they will not be able to get credit after bankruptcy. This is not true; you will be able to borrow money after bankruptcy. It will just be more difficult than if you had a good credit rating. Your credit rating can actually get better following a bankruptcy, providing you follow a few practical steps. Once your bankruptcy is discharged, you can pay bills on time and build up cash reserves and take other actions that will rebuild your credit score.
You may even be thinking that you never want to go into debt again because of the stress that led up to the bankruptcy. Going into debt is a different kettle of fish than having access to credit. Most people require a mortgage to buy a home. If you want a newer car, you will probably need to use a loan or lease to afford it. If you need to book a flight or make a reservation, it is difficult to do so without the use of a credit card. Debt becomes a problem when you start using credit to make purchases that don’t fit your income level. But not having access to credit can make living in the modern world difficult.
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