What Happens To My Assets In A Bankruptcy?
One of the major principles of Ontario bankruptcy law is that a person, dealing with overwhelming debt issues, deserves the opportunity of a fresh financial start. Part of that fresh start includes leaving the person with enough possessions to maintain dignity & support a basic lifestyle. The Bankruptcy Insolvency Act (BIA) is a rehabilitative Act, not a punitive one. The goal is to ensure each person has an opportunity for a fresh start.
The BIA, in conjunction with the Executions Act of Ontario, ensures there is a solution for every asset you want to keep. Firstly, the following items are exempt – your Trustee and your creditors cannot take them. The law protects you:
|Name of Exemption:||Amount:|
|Tools of the Trade||$11,300|
|Automobile (one only)||$6,600|
|Primary Residence (Owned)||<$10,000|
|Life Insurance||Exempt if preferred beneficiaries|
By taking a detailed look at each of these exemptions, we can illustrate how they might impact you in an insolvency filing. And we’ll also review some other exemptions that are treated differently.
- Household Goods: This exemption means that pretty much all of your household items, from television set to dishes and furniture to your iPod, would be exempt from seizure by the Trustee and the creditors. So unless you have valuable artwork hanging on your walls (for example), you should be able to utilize these exemptions to hold on to all of your household goods.
- Farming Tools: This exemption refers to any equipment you would need if you are self-employed. For example, a home builder might have a truck and a variety of construction tools he needs to conduct his business. These tools would be itemized by you and submitted to the Trustee for review prior to filing.
- Motor Vehicles: Perhaps you have one older vehicle and a brand-new leased automobile, both under your name. At first glance, this might be a problem since the Ontario Execution Act also allows one vehicle to be exempt from seizure (as long as it is valued at less than $6,600). But it’s very likely that new leased vehicle will stay in your driveway since it’s not yet officially owned by you but by the leasing company while you continue making payments to them.
- Your Primary Residence: In most instances you will be able to keep your house. If the current value of your house is close to the amount owing on the mortgage, the Trustee will have no interest in your house. If the equity calculated in your home is less than $10,000 the exemption will apply. If the current value is significantly higher than the amount owing on the mortgage, you would not qualify for the exemption and your creditors have a right to that excess. However, you will still be able to keep your house as long as you increase your monthly payments, or extend the period of your bankruptcy to do so.
- Other Secured Debts: Secured creditors, like banks, credit unions, and finance companies can collect against the asset you've borrowed against even if you declare bankruptcy. If there's no value in the asset, the trustee will release its interest. If you want to keep the asset, you can make arrangements with the secured creditor.
Special Asset Situations
R.R.S.Ps: Contributions made to your RRSP in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate. So if you took $1,000 and put it into your RRSP six months before you met with the Trustee to sign your paperwork, you will need to turn that amount ($1,000) over to the Insolvency Trustee once you file. Please take note: Any amount you contributed to the fund prior to the 12 month period, or that your employer contributed to a locked-in fund, would be exempt.
Company Pension Plans & Life Insurance Policies: If your pension plan is “locked in” until retirement it is usually exempt from seizure, as are any life insurance policies that have a preferred beneficiary (such as a parent, spouse or child of the policyholder).
Other Investments During A Bankruptcy
There are several types of assets that are not exempt. They can either be turned over to the Trustee or purchased back from the estate through an arrangement with the Trustee. One such example of a realizable asset is the popular Canada Savings Bond investment vehicle. Any CSB contributions you’ve made (regardless of when you made them) would be realizable by the Trustee during the Bankruptcy period. In addition, any shares you hold in a corporation would similarly become property of your bankruptcy estate and be realizable by your unsecured creditors.
Most Of Your Assets Could Remain In Your Hands
Many people who are experiencing financial stress are relieved to discover that the majority of rumors surrounding their assets and the filing of insolvency protection with a Trustee are misleading. These tales are frequently spread by credit collectors, who want to keep you as far away as possible from a Licensed Trustee. They will often say, and do, anything to keep you from filing a Bankruptcy, as it is not in their interest.
It’s essential that you provide information about all of your assets, when you meet with your Insolvency Trustee. Based on this analysis, the Trustee can then provide you with the correct advice for your specific situation BEFORE you sign anything.
Our R-Plan is designed to provide you with a free, no-obligation consultation at one of our 50+ offices - call us toll-free today at (844) 507-7526 so we can set up a meeting for you at an office location close to where you live or work. Or, fill in the form below to apply online.