It’s a common concern that many people have when the idea of filing for bankruptcy in Ontario comes up: “What will happen to my assets? Will I lose everything?” For years, creditors and collection agencies have scared people into believing that if you claim bankruptcy it means that you lose everything you own. This is not true. The Bankruptcy and Insolvency Act of Canada (BIA) which regulates the laws on bankruptcy and insolvency and also governs bankruptcies, consumer proposals, receiverships and commercial proposals in Canada, is not designed to punish people. The goal of the act (and of the bankruptcy process) is to provide those who are struggling with debt with an option to eliminate most (if not all) of their debts and to receive a fresh start.
Therefore, when you file for bankruptcy in Ontario, you are able to keep certain assets. These assets are considered necessary to live a basic lifestyle and to earn a living. These assets are known as “exempt assets.” Each province and territory in Canada has its own list of assets that are considered exempt and a maximum value of these assets. When filing for bankruptcy in Ontario, you are able to keep:
- Up to $5,650 in personal items
- Up to $11,300 in household furnishings
- Up to $11,300 in tools of the trade that are required to do work
- Up to $5,650 in a single automobile for personal use
In addition, federal law allows you to keep RRSP contributions that were made more than 12 months prior to the data of insolvency. Contributions made in the last 12 months may not be considered exempt. You are also able to keep funds that are stored in a pension plan with a “locked in” retirement date as well as life insurance policies that have a preferred beneficiary listed. When you file for personal bankruptcy in Ontario, it must be done through a licensed insolvency trustee. This is a person who is trained and registered by the Office of the Superintendent of Bankruptcy to administer bankruptcy and proposal estates. A trustee understands which assets are considered exempt and will ensure that you are able to keep all of the exempt assets. You may be able to keep other assets as long as you make arrangements to compensate the trustee for their value. When you meet with a trustee, it is in your best interest, and required by the law, to disclose all of your assets so that your trustee can help you understand how you can keep the exempt assets. Insolvency trustees ensure that the bankruptcy process is followed according to the law and that the process is fair to both the debtor and the creditor.
Spouses and Bankruptcy in Ontario
Another common question is what happens to your spouse when you file for bankruptcy in Ontario. Will your spouse be responsible for your debts? Do your spouse lose his or her assets? Every situation is unique, but the general idea is that each person’s debt is his or her own responsibility. If your debt is separate from your spouse, he or she will not be affected by your bankruptcy. However, if your debts are joint with your partner (your partner co-signed the application, such as with a joint credit card, joint bank account or joint line of credit), then the debt is a shared responsibility. If you file for bankruptcy, your spouse is 100% responsible for this debt. Speaking with an insolvency trustee can help you understand how filing for bankruptcy will impact your spouse. However you should note that each cardholder agreement is different and you should check the agreement to understand exactly who is liable for which amounts.
Bankruptcy in Ontario is a way to eliminate your debts and get a fresh start. It is not a way to “punish” those who have high levels of debt. Unfortunately, this is a common misconception. Some people believe that bankruptcy is the worst possible option. However, the reality is that the vast majority of people who file for bankruptcy in Ontario are relieved to have done so. This is because living with debt is stressful and filing ultimately leads to the elimination of the debts. Handling calls from creditors and collection agencies can lead to anxiety, lost sleep, depression and other health issues. When you file for bankruptcy in Ontario, all communication with your creditors is done through the trustee. Your creditors are not able to contact you or send collection agencies after you. This is a great relief for many people who have been living with high amounts of debt. Also, bankruptcy is not the only option available to those who are struggling with debt. A licensed insolvency trustee can help you understand the options available by reviewing your financial situation. Most trustees offer a free consultation.