Many people worry that they will lose their home, car, or savings if they file for bankruptcy.
Going bankrupt doesn’t necessarily mean you’ll lose all of your assets, and the good news is you can keep some possessions when you file.
If you want to learn how assets are affected by bankruptcy, read on.
Does bankruptcy affect my assets?
Bankruptcy is a debt relief solution best suited to those who have little hope of paying off their liabilities.
Once declared bankrupt, you pay what you can afford until the bankruptcy is over and surrender some assets to your Licensed Insolvency Trustee, who will turn those assets into cash and distribute them to your creditors.
Many people file for bankruptcy through no fault of their own, and they just need some help to start again.
To make this fresh start possible, some assets are protected in bankruptcy proceedings, called bankruptcy exemptions. This is a list of items that are exempt from seizure in your province or territory.
Typically, you can keep assets such as your home and car (if they don’t exceed the equity limit), clothing, health aids, food, heating, household furnishings and appliances.
If an asset is exempt, it means it’s protected if you go bankrupt. In other words, you won’t lose it if you file.
A Licensed Insolvency Trustee can advise on the exemptions that apply to you and which assets you can keep if you file. Speak to a trustee today to get free impartial advice.
Next, let’s look at what assets are affected in greater detail.
Exempt assets in bankruptcy
However, the rules vary depending on where you live, and the equity values can change regularly.
The great thing about these exemptions is that they allow you to maintain a decent standard of living during and after your bankruptcy. They are in place to ensure you are not left destitute, helping to give you the foundations to start again.
Common exempt assets include household furnishings, clothing, food, heating, work tools and a vehicle up to a certain value. There are also exemptions for keeping some home equity.
Each province is different, and some of the items above won’t be exempt in your province or territory.
These exemptions change regularly, so always get advice from a Licensed Insolvency Trustee.
See also: Bankruptcy exemptions in Canada
Non-exempt assets in bankruptcy
Some assets can be seized by your Licensed Insolvency Trustee when you file for bankruptcy.
Assets such as TFSAs, RESPs, stocks, bonds and mutual funds are non-exempt assets, meaning they can be sold by your trustee, with the proceeds used to pay your creditors.
If you want to keep a non-exempt asset, you must make a payment arrangement with your Licensed Insolvency Trustee to repurchase it.
Discuss the best way to resolve your debts and protect your assets with a Licensed Insolvency Trustee.
See also: Non-exempt assets in bankruptcy.
Will I lose my home?
In most cases, you will not lose your home when filing for bankruptcy.
That said, the rules are different in each province or territory. If you’re considering bankruptcy and want to keep your home, the first step is to arrange a consultation with a Licensed Insolvency Trustee.
Specifically, your trustee will consider the equity in your home. This is the amount of money you would receive if you sold your house.
Depending on where you live, you can keep some equity in your home when filing for bankruptcy. Where this is true, the equity must not exceed a certain amount.
Not everywhere has an exemption for home equity. In some provinces, all equity is considered an asset of your bankruptcy estate.
The most important takeaway here is that you don’t automatically lose your home if you go bankrupt, and a trustee can advise you on the best course of action.
If you have no equity in your home
If you have no equity in your home, you can keep your home during bankruptcy as long as you continue to pay your mortgage payments and property taxes.
After all, if you have no equity, it makes no sense to sell your home because the creditors will not receive any money.
If you have equity in your home
Here’s an example: if you file for bankruptcy in Ontario, you can keep $10,000 of equity in your principal residence.
So, if your home equity is less than $10,000, you have no seizable equity. If you continue to pay your mortgage payments and property taxes, you can protect your home if you go bankrupt.
Let’s look at another example. If you live in Alberta and decide to declare bankruptcy, you can keep $40,000 of equity in your principal residence.
That means if your home equity is $45,000, and you want to keep your home, the trustee requires you to pay the surplus equity of $5,000 into your bankruptcy estate.
Basically, if you have home equity that exceeds the exemption amount, you will need to pay this surplus equity to your creditors through your bankruptcy if you want to keep your home.
And if there is no exemption where you live, you have the option to pay the additional equity into your bankruptcy estate to keep your home.
While it may be expensive, it is possible to spread the payments over the duration of your bankruptcy.
If you cannot afford to pay the surplus equity
If you don’t have additional money to pay this surplus equity, your home could be seized by your Licensed Insolvency Trustee to be sold, with the money distributed to your creditors.
You could consider selling or remortgaging your home, but there is another way, through filing a consumer proposal.
Keep your home with a consumer proposal
If you cannot afford to pay surplus equity towards your bankruptcy, then a consumer proposal could be the ideal alternative.
Through a consumer proposal, you can offer a better deal to your creditors than they would receive if you filed for bankruptcy.
By offering to pay more than the surplus equity in your home, you can keep your home in a consumer proposal.
Yes, you will pay more than you would in bankruptcy, but you can spread the payments over five years.
As a result, it gives you more time to pay, meaning your monthly payments are lower than they would be if you declared bankruptcy.
Plus, your creditors are happier because they will receive more than they would have if the trustee had sold your home through bankruptcy.
If you are behind on your mortgage payments
Unfortunately, if you’re behind on your mortgage payments, your lender can foreclose and sell your home regardless of whether you are bankrupt or not, so it’s important not to fall behind on your mortgage.
If you jointly own a home
If you jointly own your home and decide to file for bankruptcy, you will owe creditors a portion of the equity in the house.
The person who is not filing will keep their share of the equity, and this portion does not go to your creditors. This process may also apply to other assets, such as a vehicle.
How much equity do I have in my home?
To calculate your home equity, you must establish your property’s current market value through a home appraisal.
Once you have this value, use a home equity calculator or calculate it yourself by subtracting the amount you owe on your mortgage and any owed property taxes from your home’s appraised value.
Example: you owe $150,000 on a mortgage and £5000 in property taxes. Your house was recently appraised at $350,000, so your home equity is $195,000.
Property ownership determines what percentage of equity you have. For example, if your property is joint-owned, this would affect the amount of equity.
Can I keep my car if I file for bankruptcy?
In bankruptcy, options are available that allow you to keep your vehicle.
A Licensed Insolvency Trustee will require some information about your vehicle, such as:
- Make, model, year and registration number.
- The purpose of the car.
- The ownership status of the vehicle.
- Appraisal value or fair market value.
If you own your car outright, there’s a decent chance you’ll be able to keep your vehicle as long as it is valued below a certain amount.
For example, in British Columbia, equity in a vehicle up to $5,000 is exempt from seizure, so any vehicle worth less than $5,000 is protected.
But if the value is greater than the exempt amount, you have to make additional payments to your trustee during your bankruptcy to keep your vehicle.
If you cannot afford to make these extra payments, ask your trustee about a consumer proposal. You can protect multiple vehicles in a consumer proposal as long as you can afford to make a monthly payment to your creditors.
To find out what your vehicle is worth, you will require an appraisal, which can be carried out by a dealer, lender or a professional independent appraiser.
A valuation website such as Canadian Black Book is also acceptable to establish a fair market value.
All that said, a Licensed Insolvency Trustee can advise you on the best way to protect your car, be that through bankruptcy or an alternative debt relief solution.
There are different rules throughout Canada, so always talk to a Licensed Insolvency Trustee who can advise you for your province or territory.
Can I keep a financed vehicle if I file for bankruptcy?
A financed vehicle will not be seized if you file for bankruptcy as it is a secured debt.
You just need to continue making your payments towards the loan, or the finance company can repossess the vehicle.
If you cannot afford to, you can stop making payments and surrender the vehicle to the lender before you file.
This allows for any shortfall to be added to your bankruptcy as an unsecured debt.
Can I keep a leased vehicle if I file for bankruptcy?
If you lease your vehicle, it will not be seized if you file for bankruptcy, but you must continue to make payments towards the lease.
If you can’t afford to, you can hand back the vehicle to the leasing company before you file.
Will I lose my Registered Retirement Savings Plan (RRSP)?
A Registered Retirement Savings Plan (RRSP) is a retirement savings plan for employees and self-employed in Canada.
You can hold various investments within an RRSP, such as stocks, bonds, GICs, and mutual funds.
Any investment income earned is tax-deferred in the RRSP until you withdraw the funds.
If you’ve worked hard to save for your retirement, it’s understandable that you’d be worried about losing these funds.
However, bankruptcy shouldn’t impact your RRSP investments, except for contributions made in the last year.
Will I lose my tax refunds?
Any tax refunds from the date you file bankruptcy (or any refunds from previous years) will be sent to your trustee and form part of your estate.
Wages and salary in bankruptcy
If you file for bankruptcy, creditors cannot apply wage garnishments. However, bankruptcy can be expensive if you have a large income or if your income suddenly increases.
You are required to send your trustee proof of income and expenses every month. If your income increases, your monthly bankruptcy payments also increase.
A higher amount due to higher income is called a surplus income payment.
Inheritance or lottery win in bankruptcy
If you win the lottery or inherit any money during your bankruptcy, you must give that money to your trustee, who will distribute it amongst your creditors.
If the amount is more than your debts, you can pay your creditors what is due and keep the rest.
Do I qualify for filing bankruptcy?
Bankruptcy is a legal process governed by Canada’s Bankruptcy & Insolvency Act legislation.
To be eligible, you must:
- Owe at least $1,000 in unsecured debt.
- Live in Canada, do business in Canada or own property in Canada.
- Be unable to make payments to your unsecured creditors as they become due.
- Have debts that exceed the value of your assets.
A consumer proposal can protect all of your assets
A consumer proposal is a popular alternative to bankruptcy because you can keep all your assets, including your house and car.
You can make an offer to repay what you can afford to your creditors rather than the total amount due, and your creditors forgive the remaining amount.
Any offer is dependant on the value of your assets, as you must be able to offer your creditors more than what they would receive if you went bankrupt.
If you can afford to make a monthly payment to your creditors each month, then a consumer proposal could work for you.
See also: What is a consumer proposal?
To recap, you won’t lose everything if you file for bankruptcy.
Each province and territory has rules that allow you to keep certain assets, and sometimes you can keep some equity in your home.
In other words, your home, car and other assets can be protected when you file for bankruptcy under certain conditions.
If you are interested in filing for bankruptcy, get advice from a Licensed Insolvency Trustee to determine which assets you can keep.
Your trustee will explain all your debt relief options during your free consultation and help you find an affordable solution.
If you have lots of unsecured debt and few assets or little equity in your home, bankruptcy could give you a fresh start.
Bankruptcy is not designed as a punishment. The aim is to provide a fresh financial start. Your trustee will also explore alternative options, such as a consumer proposal.
By talking to a trustee, you can be assured that you will receive impartial advice and the opportunity to regain some control over your debts.
Get started today with a free, no-obligation consultation.
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