The goal of home ownership remains as strong as ever. Unfortunately for many, the cost of owning a home becomes a burden they can’t repay and bankruptcy or a consumer proposal become the only way out.
A recent study by Hoyes, Michalos & Associates showed the impact of home ownership on the average insolvent debtor (called Joe Debtor). Almost one in three debtors who filed for insolvency were homeowners. Those who did own a home had higher overall debts, even before counting their mortgage. Homeowners were likely to owe 20% more in unsecured debts than the average Joe Debtor. Personal loans like lines of credit were on average 41% higher while credit card debt was 38% higher.
In order to enter the market, home buyers are enticed by flexible mortgage products the help them finance their dream. They soon find however, that other costs mount – insurance, furniture, repairs. Home owners struggling to pay the bills rely on credit to cover home costs and living expenses. While his mortgage may be manageable (the average insolvent debtor mortgage was $208,083), our home owner’s credit card debt has ballooned to $32,862 and personal loans have jumped to $27,288. More than he can repay.
The solution? For three out of four insolvent homeowners the solution was to file a consumer proposal. By filing a proposal to settle his non-mortgage debt with his creditors, rather than bankruptcy, Joe Debtor was able to keep his home (along with any other assets like a car) while reducing his overall debt burden. By filing a proposal for his credit card, line of credit and other unsecured debts he was able to lower his monthly debt repayment costs, allowing him to maintain his mortgage with his mortgage lender and keep his house.
Not all chose this route. For some, their house may have been worth less than their mortgage. For others, choosing to sell their house and decrease their housing costs was a better option. Whatever your circumstances, if you do own a home and your non-mortgage debts are threatening your dream of home ownership, realize you do have options.
For help exploring your debt options, including a consumer proposal, contact a Consumer Proposal Administrator or Bankruptcy Trustee today.