Bankruptcy Exemptions in Brantford

by Howard Hayes on October 31, 2013

NLP_2311One of the most frequent questions I hear in my Brantford office is “Can I keep any of my assets if I file bankruptcy?”

It’s a bit of a myth that you lose everything if you file bankruptcy.  Some assets are more at risk than others.

Some assets are protected from seizure by a trustee by Federal law and some by Provincial law.  Each province in Canada can set it’s own rules with respect to assets that would be exempt from a trustee seizure.  The information below is subject to changes made by provincial government but is correct as of the date of writing (Oct 2013).

Here’s a brief outline as to whether or not the trustee in bankruptcy would likely have an interest in an asset and whether or not there’s bankruptcy exemptions.

House

The trustee would be interested in a house if the house had equity.  In a bankruptcy context, the equity is normally defined as the amount left over on a potential sale: “Value, minus mortgages, taxes, realtors fees, lawyers fees etc”.  If there’s no equity, you can keep it if you can maintain the normal mortgage payments on it.

There’s no provincial exemption for house equity in Ontario, so in theory, if you have $1 equity, you’d have to pay the trustee the $1 to keep the house or surrender it to the trustee.

Cars

There’s two types of car – one that is bought and paid for and one that has financing owing against it.

Most people that own a car that has money owing against it, owe more than what the car is worth.  If you do, then you can keep it if you continue paying for it.

If you own it outright, you can keep a car as long as it’s worth less than $5,650.  If you’re not sure of the value of your car, get it appraised, look online fora comparable or check the book value.  If it’s worth more than $5,650, you can still keep it if you pay the difference between its value and $5,650.

Investments

The most common investments lost to a bankruptcy are RESP’s, Savings Bonds and TFSA’s.  There’s no bankruptcy exemption rules preventing the trustee redeeming those types of assets.

Most pensions, life insurance policies and RRSP’s are exempt from a trustee seizure.  The only exception to this would be that the trustee can seize the contributions you  made into RRSP’s in the 12 months leading up to the filing date of the bankruptcy.

Tax refunds

If you become eligible for a tax refund for the year of the bankruptcy or from any year prior to the bankruptcy you’d lose those refunds.   Baby bonus is not effected by a bankruptcy and HST refunds are typically no longer seized by trustees.

Tools

If you’re self employed you can keep $11,300 worth of tools for your trade.

Household Goods/Furnishings

You can keep $11,300 worth of household goods (such as furniture, appliances).  The value is not based on what you paid for it, it’s based on it’s current 2nd hand value.

Personal Effects

Personal effects such as clothing, jewelry, sports equipment you can keep up to the value of $5,650.  Again, it’s the 2nd hand value, not the price you paid for it.

It’s important that you understand how these specific rules work in a bankruptcy so that you know in advance if an asset is likely at risk or not.  If you come to me for a free consultation I’d ask you for information with respect to you assets so that you fully understand how a bankruptcy might impact you.  If too many assets are at risk of seizure in a bankruptcy, we could look at alternative options such as a consumer proposal instead.  A proposal allows you to keep control of your assets regardless of security, value.

If you’d like more information, or to book a free consultation, contact me today by calling (519) 770 4440 or email me via the contact form.

About

Howard has worked in our Brantford office for many years helping Brantford residents find solutions for debt problems. As a licensed trustee in bankruptcy Howard is able to explain all your options and find a solution that works for you.

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