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If you’re facing the possibility of bankruptcy, you may be wondering what will happen to your possessions — will you lose everything you own, including your house and your car? Not necessarily.
The purpose of bankruptcy is to give “honest but unfortunate debtors” a fresh financial start. You are entitled to keep a portion of many of your assets. These are referred to as exempt assets. How much of a particular asset is considered exempt, or whether it is at all, will depend on your province’s regulations.
To give you an idea of what you might expect, we’ve put together a list of common assets and what (if any) exemptions you might expect:
RRSPs: RRSPs are exempt from bankruptcy except for any contributions you make in the 12 months immediately preceding the date of your bankruptcy.
RESPs & Other Cash: Because a Registered Education Savings Plan is held in your name rather than your child’s (and can therefore be cashed in by you at any time), it is considered a cash asset. All cash on hand (savings accounts, etc.) must be turned over to your trustee. There are no exemptions for RESPs and they will be realized upon by the trustee.
House: While you won’t automatically lose your home in a bankruptcy (it isn’t seized by your trustee), there are some considerations you need to keep in mind.
- If there is no equity available in your home for the benefit of your unsecured creditors, the trustee will not take any steps to take possession of your home. Usually your mortgage company will work with you, and if you’re not in arrears, will allow you to keep your home as long as you continue to make your payments.
- If you have any equity in the home, you’ll need to pay the amount of that equity to your trustee before the end of your bankruptcy in order to keep your home. You’ll want to discuss the matter with your trustee.
- If you have more equity in your home than you’re able to pay during your bankruptcy period, you may be able to file a consumer proposal instead of filing for bankruptcy. Your trustee can discuss this option with you.
- If you are already in default on your mortgage payment, or you fall behind on them during your bankruptcy, your lender may decide to initiate Power of Sale Proceedings to sell your property. This action is separate from your bankruptcy proceedings.
Car/Vehicle: Exemptions for vehicles depend on provincial regulations. For instance, in Ontario, you’re entitled to keep one vehicle with a maximum value of $5,650; in Quebec, there is no limit to the value.
Tax Refunds: For as long as you remain in bankruptcy, your tax refunds must be turned over to your trustee for distribution to your creditors. This includes the year in which you file for your bankruptcy.
Inheritances/Lottery Winnings: If you happen to win the lottery or receive an inheritance during your bankruptcy, you must turn the money/property over to your trustee. If there is any money left after your creditors are paid in full (along with the trustee’s fee), it will be returned to you.
To find out more about how bankruptcy might affect you, or to discuss other options that may be better suited to your financial situation, call us today for your free, no obligation consultation: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926 or book online.