July 2026 - Legal Update - Bankruptcy vs. Mortgage Default : Understanding the Difference

It is common for consumers who face financial difficulty to ask questions about bankruptcy and mortgage default. Bankruptcy is a formal process under federal law addressing a person’s overall finances and providing relief from unsecured debts. For a homeowner who has a mortgage, an event of non-payment carries the risk that a lender forces the collection of all outstanding debt owing. This process is commonly known as power of sale proceedings, and this article hopes to shed light on the risk of default proceedings. It is important to preface this article by stating that if you feel you are at risk of defaulting on a mortgage payment, you should speak to a lawyer or mortgage professional at your earliest opportunity. This is because every situation is unique. This article therefore can only provide general notes, rather than legal advice. Communication is one of the best tools to avoid a power of sale. It is important to know that individuals and families concerned about mortgage payments being rejected because of insufficient funds in their account should contact the lender promptly to discuss. Communication can minimize the risk that a lender places you into default. This is because lenders can sometimes accommodate late payments if agreed upon in advance, or allow you to refinance and pay them out in full as long as communication is prompt. If you are facing a personal emergency, or serious circumstances relating to a death in the family or legal separation, the lender may offer relief in the form of a 1-month payment deferral or allow you to fix a delinquency without it affecting your credit score. The situation often becomes much more expensive once the lender refers the mortgage to a lawyer. The lender’s legal fees, administrative charges, interest, and enforcement expenses are then added to the mortgage amount owing. There is no standard tariff fixing what lawyers can charge for mortgage enforcement. This is especially difficult for families who must now pay back several thousands of dollars, and these costs can escalate quickly the longer the enforcement process takes. Importantly, speaking to a lawyer to understand timelines for power of sale is extremely important, because the legal demand letters do not tell you the rights you have as a consumer, and instead demand your vacancy immediately. Early communication with the lender may not solve every financial problem, but communicating with trusted professionals early can preserve your legal options and prevent losing hard-earned equity before your situation becomes a legal crisis. Michael Craig Liddiard, BA MA JD (905) 932-5437 [email protected] Liddiard Law Professional Corporation