The good news is there are some things that you are allowed to keep in bankruptcy.
In a recent article, we looked at exempt assets, which are items that are protected from seizure if you file.
But that’s just one side of the story. In this column, you’ll learn about non-exempt assets, which are items that can be seized if you declare bankruptcy.
Let’s look at what this actually means and some examples.
What are non-exempt assets in bankruptcy?
Non-exempt assets, also known as non-exempt property, are items seized by a Licensed Insolvency Trustee when you file for bankruptcy.
These assets can be sold by your trustee, with the proceeds used to pay your creditors.
Some common examples of non-exempt assets include:
- Stocks, bonds and mutual funds.
- Registered Education Savings Plans (RESPs).
- Tax-Free Savings Accounts (TFSAs).
- RRSP contributions made within the last 12 months.
- A property that isn’t your primary home.
- Expensive luxury items.
- Tax refunds for any year you haven’t filed for yet (and the year of your bankruptcy).
- Any inheritance, windfall or a lump sum received during your bankruptcy.
These items are not protected in bankruptcy.
Additionally, if you have an asset valued above the exemption limit, it can affect whether or not you can keep the asset.
The rules are outlined in the Bankruptcy and Insolvency Act, alongside provincial legislation.
The rules vary depending on where you live, so always consult a Licensed Insolvency Trustee.
What happens if I have non-exempt assets?
If you have non-exempt assets, your trustee can sell them, with the money put towards your bankruptcy estate to pay your creditors.
If you want to file for bankruptcy and keep a non-exempt asset, you must make a payment arrangement with your Licensed Insolvency Trustee. Essentially, you repurchase the asset.
The money you pay goes into your bankruptcy estate for the benefit of your creditors.
If there is an exemption limit and the asset is valued at a higher amount, you can either:
- Surrender the asset, and your trustee will return the exemption amount in cash.
- Arrange to make a payment for the amount exceeding the limit.
Alternatively, a consumer proposal allows you to keep all of your assets.
Because everyone’s situation is unique, discuss your situation with a Licensed Insolvency Trustee. When you meet, you’ll be required to list your assets, including:
- Your home
- Household furnishings
- Tools for your trade or occupation
- Savings, investments and pensions.
Your trustee will work out your total debts and assets, decide which assets are exempt, and devise an action plan for your bankruptcy.
Your trustee will advise if there is an alternative to bankruptcy, such as a consumer proposal.
What are exempt assets in bankruptcy?
In each province and territory in Canada, the government set their own rules on what you can keep if you go bankrupt.
These rules are built around the premise that losing everything you own during bankruptcy could leave you utterly destitute. By protecting some assets, you can start over again.
These are called exempt assets, also known as bankruptcy exemptions.
Exempt assets define items that cannot be sold to pay your creditors. Common items include food, clothing, personal belongings, household furniture and tools needed for your trade or occupation.
Depending on where you live, equity amounts for your home and car are also exempt.
Throughout Canada, RRSPs are exempt, except for contributions made in the last year. You can also protect other savings plans and pensions, but this depends on where you live.
Simply put, exempt assets are protected in bankruptcy, meaning your Licensed Insolvency Trustee cannot seize these assets if you file. However, any income received from these assets is considered when checking whether you have surplus income.
Review the rules in your province or territory: Bankruptcy exemptions
How can I protect my assets from creditors?
If you have non-exempt assets and want to protect them, ask your Licensed Insolvency Trustee about a consumer proposal.
A consumer proposal allows you to keep your assets, and you do not need to surrender them to a trustee. However, your trustee will consider the value of your non-exempt assets when determining an offer to your creditors.
Exempt assets are protected in bankruptcy.
Through rules for exempt assets, bankruptcy allows you to reset your finances without leaving you destitute.
But each province and territory has different rules for exempt assets, so discuss your situation with a Licensed Insolvency Trustee.
Non-exempt assets are not protected in bankruptcy.
These assets can be seized and sold by your Licensed Insolvency Trustee, with the proceeds used to pay your creditors.
Get advice from a trustee
To learn more about exempt and non-exempt assets in bankruptcy, get advice from a Licensed Insolvency Trustee.
A trustee will use their experience and knowledge to assess your situation and provide you with options so that you regain some control over your debts and look forward to a fresh start.
All consultations are free, and all advice is impartial.
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