Declaring bankruptcy is an extreme measure, but using it in the right way at the right time can save you money, give you peace of mind and help you get back on your feet financially. It allows businesses or individuals that are unable to pay their debts to settle their financial difficulties.
One of the first questions that get asked regarding bankruptcy is “Will I lose everything?” People generally fear that a trustee will seize everything and sell it during such times.
Crowe MacKay & Company Ltd has been helping the residents of Greater Vancouver, Surrey and Burnaby by providing a variety of debt solutions including bankruptcy and proposals. Our licensed insolvency trustees can provide vital advice and information to ensure your debt is handled correctly. Our services are grouped under:
In this blog, we have explained which assets you will lose and which you won’t during bankruptcy.
Bankruptcy Exemptions Explained
While bankruptcy laws vary from province to province, all governments have set limits on how much a trustee can take. These limits cover the necessities of life and are called personal bankruptcy exemptions. The assets you can keep include:
• Household Goods
In most cases, people can keep a reasonable number of appliances and household furniture after bankruptcy. Their value is not what you paid but what they are worth today. In most cases, you don’t need to appraise any particular item as you can sign a sworn document which states the combined value.
• Personal Belongings
This includes items such as personal clothing and in certain provinces, jewelry. Again, its value is what it would be worth today. Most jewelry carries more of a sentimental value but if you feel yours is expensive, you can have it appraised for cash value. Since in most cases, the value of the jewelry is less than the store price or insurance, personal belongings are rarely taken into possession.
• Your Car
You can keep your vehicle as long as its value is below the provincial bankruptcy exemption limit. You can keep it even if it’s worth more, but you will have to pay the trustee the difference between what the exempted limit is and what the car is worth (you can appraise it if you are not sure about its value).
If you owe money for the vehicle and the amount is more than the vehicle is worth, you can keep it and continue to pay the monthly car loan payments in addition to the required payments in your bankruptcy.
If you have a second vehicle in your name, you will have to surrender it or pay the trustee its full value to keep it.
• Your Home
Losing your home if you file for bankruptcy is one of the biggest myths surrounding the procedure. In most cases, when someone loses a house it’s because the homeowner wants to give it to the mortgage holder to get out of the negative equity situation; the trustee doesn’t take it.
You might be able to keep your home, even if the equity in your home exceeds the exemption limit. This is because the idea of bankruptcy is that a trustee assumes control of your assets in exchange for debt elimination. However, the trustee will only have an active interest in selling a home if it can be sold for profit after paying mortgage, realtor’s commissions, legal fees, outstanding property taxes and any penalties to break a mortgage.
If you have a realizable equity in your home, you may want to explore other options with your trustee for settling your debts. If you do not have any equity in your home, the decision will be left to you and the mortgage company to decide on what should be done. Generally, if you are able to maintain the monthly mortgage payments, the lender allows you to retain your home.
• Tools of Your Trade
Most provinces understand that even after bankruptcy, you still need to make a living. If you have equipment, tools or machinery that you specifically need to earn a living, you can keep those if they are worth less than the provincial limit.
• Pensions, Life Insurance and RRSP’s
All provinces of Canada protect pensions very well. Rules allow you to keep RRSP investments except what’s been given into the RRSP in the last 12 months leading up to the bankruptcy. Life insurance and pensions are also exempt, in most cases, from seizure in bankruptcy.
What Cannot Be Kept with You?
RESP’s, TFSA’s and Savings Bonds can be seized in bankruptcy as they are basically cashable savings accounts. Most people who think about bankruptcy deplete their savings accounts many months before filing it to avoid losing everything. A consumer proposal might be a better option than bankruptcy if you still have savings. This way you still might be able to keep all or some savings in a proposal.
Let Crowe MacKay & Company Ltd Help
Our licensed insolvency trustees can help you deal with your debts with ease. They will evaluate your current situation in order to decide your options and suggest which solution may work best. You can always count on us for advice and assistance.
For information on consumer proposal, read our blog post – What’s a Consumer Proposal?
Call us to learn more about our services.
At Crowe MacKay & Company, we have over 60 years of experience and offer free initial consultations. If you have any questions regarding the information above, contact our office today and start your debt relief journey.
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This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice.