What Happens to Your Assets When Filing Bankruptcy?

Many people believe that when filing bankruptcy, you will lose everything. In Canada, thankfully this is not the case – of the 100,000 Canadians that file bankruptcy each year, most keep their homes and often their car too.

When filing bankruptcy, it is the case that you will need to surrender any non-exempt assets to a Licensed Insolvency Trustee to pay off debts. It is true, however, that debtors are able to keep any exempt assets, depending on their province of residence. Find out what happens to your assets when filing bankruptcy.

What happens to your assets when filing bankruptcy?

In Canada, most people file bankruptcy to gain a fresh financial start, free from unmanageable debt and being contacted by creditors. As part of the process, debtors must reassign any non-exempt assets to a Licensed Insolvency Trustee to be freed from their debts. There are various exceptions to this rule laid out by the Bankruptcy and Insolvency Act, whereby each province has its own laws on what a debtor may reasonably keep when filing bankruptcy. While it can seem daunting, Spergel’s experienced trustees will walk you through each step of the process.

What are the bankruptcy exemptions by province?

The assets you may keep when filing bankruptcy does vary slightly in each Canadian province, with some allowing higher value than others. Bankruptcy exemptions in Ontario are generous enough to exclude all assets from surrender except those of high value. Take a look at the following links by province to explore what happens to your assets when filing bankruptcy:

Which assets can you keep when filing bankruptcy?

In most cases, the following assets are what you may keep when filing bankruptcy in Canada:

  • Your home, provided it has equity of less than $10,000
  • A car or motor valued to a provincial limit
  • Personal belongings and clothes
  • Equipment related to work
  • Furniture, food, and tools in your house
  • Some types of agricultural property
  • Any RRSP, RRIF, RESP, and DPSP savings (except any made in the year prior to filing bankruptcy)

If you have a lot of high value assets, it is worth discussing bankruptcy alternatives like consumer proposal or debt consolidation with your Licensed Insolvency Trustee.

Can I keep my house when filing bankruptcy?

Contrary to popular belief, you do not automatically lose your home when filing bankruptcy. In fact, it is common to keep your home, provided you can pay your mortgage payments on time. Keeping your house when filing bankruptcy is very much dependent on the equity of your home. This can be calculated by establishing the equity of a sale following real estate commissions, outstanding property taxes, and other associated selling costs. If the remaining equity is less than $10,000 when filing bankruptcy, you can keep your home and continue building equity. If the equity is greater than $10,000, a consumer proposal would likely be a smarter option.

How will filing bankruptcy affect my mortgage?

As a mortgage is a secured debt, it is not automatically cleared when filing bankruptcy. This also means that a secured creditor cannot simply cancel your loan because you have filed bankruptcy. Provided your property’s equity is not valued over $10,000 and you can continue to make your payments on time, you should be able to keep your mortgage when filing bankruptcy. In terms of securing a mortgage after filing bankruptcy, it is key to get discharged from bankruptcy, and then to rebuild your credit. The Canada Mortgage and Housing Corporation will review applications between 1-2 years after discharge. Learn more about which debts are covered by bankruptcy.

Can I keep my car when filing bankruptcy?

When filing bankruptcy, an individual is able to keep one vehicle below the provincial limit. In Ontario in 2021, this would mean you can keep a vehicle you own under the value of $7,117. If the car is worth more, you can still keep it by paying the difference. If you have a lease or a car loan when filing bankruptcy, as long as you can stay current on your payments you can keep the vehicle. If your car payments are simply too much, you can give the car back to the lender and your debts will be cleared when filing bankruptcy. At Spergel, our Licensed Insolvency Trustees can explain how your car and other assets are affected by filing bankruptcy.

How can I get a car after filing bankruptcy?

Contrary to popular belief, it is still possible to get a car loan after filing bankruptcy. During life after bankruptcy, the best thing to do is to begin rebuilding your credit by loyally repaying credit or loans to boost your credit score. While you may need an asset to secure your car loan, it is relatively straightforward to get a car loan after bankruptcy. It is important to be reasonable when considering the value of a vehicle you are in obtaining finance for, and it may be best to go for a specialist lending company when recovering from bankruptcy. Having a healthy down payment will also help obtain a car loan, as well as maintaining a healthy income.

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Filing bankruptcy can have a complex impact on your assets, including your car and home. Book a free consultation with one of our experienced Licensed Insolvency Trustees to discuss your financial options and gain advice on keeping your assets. You owe it to yourself.

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