Many Canadians struggle with mounting debt and often have to hire professionals to help them find a solution. If you ca unable even pay back part of the debt you owe, personal bankruptcy might be the only option left.
When faced with this, several questions pop up, such as “Will I lose my house if I file bankruptcy in Canada?” or “What happens when you declare bankruptcy in Canada?”
This blog will dive into what declaring bankruptcy means and its consequences for you and your assets.
What Happens When You Declare Bankruptcy in Canada?
The basic concept of bankruptcy is pretty simple. You have to surrender assets in return for the discharge of your debts. Obviously, it is not that straightforward, as there are exceptions to which assets must be surrendered and to which debts can be discharged through bankruptcy.
When you file for bankruptcy, an immediate ‘stay of proceedings’ happens. This means unsecured creditors cannot start or continue lawsuits, garnish wages, or contact you to request payment.
Within five days of the bankruptcy starting, the trustee will send a copy of the paperwork to creditors so that they can file a claim.
The trustee will file outstanding tax returns up to the date of bankruptcy. Any taxes or penalties owed by CRA will be included.
You will have certain obligations that you will have to fulfil, including a monthly income statement and attending credit counselling sessions.
How Does Bankruptcy Impact My Assets?
In Canada, when you declare bankruptcy, your assets are divided into exempt and non-exempt.
Exempt assets are protected from being seized by creditors and include items such as your home, car, furniture, clothing, and tools of the trade up to certain value limits. Non-exempt assets are not protected and can be seized by creditors to be used to pay off your debts.
The most common types of exempt assets comprise:
- Personal effects (e.g., clothing, furniture, appliances)
- Household goods (e.g., dishes, pots, and pans)
- Tools of the trade (e.g., tools used for your job)
- Vehicles up to a particular value
- RRSPs and other registered retirement savings plans
The most common types of non-exempt assets comprise:
- Cash
- Investments (e.g., stocks, bonds, GICs)
- Property (e.g., real estate, cars)
- Business assets
- Unpaid wages
During bankruptcy proceedings, an appointed Licensed Insolvency Trustee will review your financial condition and determine which assets can be used to repay your creditors. Our Licensed Insolvency Trustees at Risman Zysman make sure that you retain possession of most of your assets and only consider selling them if necessary. You can keep some assets (called exemptions) to live on. The exact amount depends on the province or territory in which you reside.
What Debts Will Go Away When I Declare Bankruptcy?
Some people think that all your debt will disappear when you declare bankruptcy, but this is not the case. So let’s look at which debt will be covered by bankruptcy and which will not.
Also Read: Consumer Proposal Vs Debt Consolidation: Which is Best Option for Debt Relief
Unsecured Debts
Unsecured debts that will be cleared by bankruptcy include:
- Credit card debt
- Personal loans (if unsecured)
- Lines of credit (if unsecured)
- Payday loans
- Arrears of income and municipal house taxes
- Unpaid utility bills
- Medical bills
- Retail store accounts
- Past-due insurance premiums
Now, there are some exceptions to unsecured debts that a bankruptcy cannot cover:
- Child and spousal support
- Student loans that are less than 7 years old
- Fines and court-ordered restitution payments
- Court-awarded damages for sexual sault or intentionally inflicting bodily harm
- Debts from fraud, misappropriation or embezzlement
- Certain government overpayments (we recommend checking with a Licensed Insolvency Trustee concerning any overpayments you may have received from the government as this is a complicated area.)
Secured Debts
Secured debts, such as mortgages, car loans or other debts secured by collateral, may stay. Especially if your mortgage covers the majority of your house’s value, it may be exempt from bankruptcy. We recommend speaking to one of our Licensed Insolvency Trustees at 416-222-4600 for a free, confidential, no-obligation consultation.
What Can They Take During Bankruptcies?
Now you’re probably wondering what assets you can lose when you declare bankruptcy. Let’s look at what can be taken and what you can keep under the Ontario Execution Act and the Regulations.
Personal Property
There is no limit to personal clothing you can keep, and you can also keep up to $13,150 of household furniture, food, fuel and equipment.
If you require tools to do your work, you may keep up to $11,300 worth of tools.
Real Estate
You are allowed to keep certain farm property (up to $29,100) and your home (up to $10,000 of equity, if your equity is higher, a consumer proposal may be a better solution)
Vehicles
You can keep your motor vehicle if it is worth $6,600 or less.
Retirement Saving
You can also keep most pension plans, life insurance policies, and all RRSPs (except for contributions in the 12 months before the date of bankruptcy).
Investment & Stock
Any investments or stock (other than what is covered under the retirement saving exemption) is subject to a seizure to benefit your creditors. We recommend speaking to an LIT to learn which investments may be exempt.
Inherited Property
All assets you are awarded as an inheritance, whether property or cash, has to be disclosed in bankruptcy.
Other Assets
It is important to note that any things owned entirely by your spouse are exempt. If you own anything jointly, you may have to sell your portion.
Gifts and Transfers of Property Before Filing for Bankruptcy
If you have transferred any property or made any gifts before filing for bankruptcy, you must let your LIT know, as the court can reverse them. This is to avoid you trying to protect assets from being surrendered during the bankruptcy proceedings. All transfers made in the year before filing have to be reviewed by your LIT.
They will also need to know if you have made any payments or given preferential treatment to any creditor in the three months before declaring bankruptcy.
How to Stop Losing Assets after Bankruptcy Declaration?
Do you lose all your assets in bankruptcy? No. Does bankruptcy clear all of your debts? No. Bankruptcy is a complicated process, so it is critical to know all details before deciding to file. A Licensed Insolvency Trustee can help you review your finances and determine the right solution.
Risman Zysman has over 45 years of experience providing quality debt solutions. Our team of professionals understands the fears and frustrations of individuals facing financial difficulty. At Risman Zysman, we present each client with a full range of options and guide them to make the right choices so they can move forward.
To find out how we can help you, call us at 416-222-4600 and get a free, confidential, no-obligation consultation today! Risman Zysman can help you on the road to financial recovery.
FAQs (if possible, falls under content structure):
Do You Lose Everything After a Bankruptcy?
There are exemptions for what can be seized in bankruptcy, so you will not lose everything. You can keep personal items, such as clothing, household furniture, food, equipment, motor vehicles, tools and more, up to a specific amount. Talk to a Licensed Insolvency Trustee of RIsman Zysman at 416-222-4600 today to learn more.
What Gets Erased in Bankruptcy?
Most of your unsecured debts will be erased in bankruptcy, but exceptions exist. The same goes for secured debt, such as a mortgage. We recommend speaking to a Licensed Insolvency Trustee to determine which debts can be cleared in bankruptcy.
Can I Keep My House If I Declare Bankruptcy?
It depends on the equity you have in your house. If the equity is less than $10,000, you can keep your home; a consumer proposal might be a better debt solution if it is above.
What Happens to My Car if I File for Bankruptcy?
If the value of your car is below $6,600, you can keep your vehicle if you file for bankruptcy.
Will I Lose All My Savings and Retirement Funds?
Most pension plans and life insurance policies are exempt, same for all RRSPs (except for contributions made in the 12 months before filing bankruptcy). However, there is no specific exemption for cash in your bank accounts unless it is required for you to live on until the next pay cheque.
