If you are facing insolvency, you will likely have many questions about your assets. “Will bankruptcy mean I will lose my house (or car)?” “Which assets are exempt from bankruptcy in Ontario?” may be at the top of your list. In this article, we hope to provide answers and assurance to anyone who is looking at declaring personal bankruptcy to get out of debt. If you have questions about Ontario bankruptcy exemptions, here at Spergel, we have the answers.
Which assets are included in Ontario’s bankruptcy exemptions?
This is one of the questions on everyone’s minds as they consider if declaring bankruptcy in Ontario is the right move for them. It is a fair question. The process of declaring bankruptcy includes surrendering your assets to a Licensed Insolvency Trustee (LIT) in exchange for being discharged from your debts. The surrendered assets will be liquidated (turned into cash), and any resulting funds will become part of the bankruptcy estate (pool of money) to be distributed by the LIT to your creditors in accordance with the Bankruptcy and Insolvency Act (BIA). Learn more about how your assets are handled during bankruptcy.
Don’t worry; this does not mean that you will lose everything!
The BIA also has protections in place to make sure that you can maintain a reasonable standard of living and do not lose all that you own by declaring bankruptcy. These are called exemptions and vary by province. If you live in Ontario, it is important to know the Ontario bankruptcy exemptions. You are only required to surrender any non-exempt assets to your trustee. This changes the question from “what will I lose?” to “what can I keep?”
Which assets can I keep?
For the most part, the Bankruptcy and Insolvency Act defers to provincial legislation to determine which assets are exempt, but there are some items that are specifically mentioned under the federal legislation:
- Monies held in a registered plan (DPSP, RRIF or an RRSP) is exempt from any enforcement process (but a payment from the plan is not exempt);
- Property in a registered disability savings plan AND any payments out of the plan are exempt from any enforcement process;
- Funds in a registered education savings plan and any payments or refunds of payments out of the plan to assist the beneficiary in furthering their education at a post-secondary level are exempt from any enforcement process (but any other payments or refunds out of the plan are NOT exempt);
If you are wondering how these exemptions will apply in your specific case, then the best thing to do is book a free consultation meeting with a Licensed Insolvency Trustee at Spergel.
For additional exemptions, we look to provincial legislation. Here you will find some differences between each province.
Ontario bankruptcy exemptions
In Ontario, we have the Ontario Execution Act as provincial legislation governing how and when assets can be seized. This includes assets that are exempt from bankruptcy proceedings. To help, here is a detailed list of all assets included in the Ontario bankruptcy exemptions:
- All clothing items are exempt – this applies to you as well as your family members
- You can retain one vehicle during bankruptcy, but its value cannot be higher than $7,117
- Your furniture, equipment, utensils, fuel, and food are all exempt up to a collective total of $14,180
- If your home equity is $10,783 or less, it is automatically exempt from seizure
- In most cases, pensions plans are exempt
- Some (but not all) types of life insurance are also exempt
- RRSPs are exempt, excluding payments made up to 12 months prior to the date of bankruptcy
For more information on bankruptcy exemptions in Ontario, contact a Spergel Licensed Insolvency Trustee. We will help you navigate through the insolvency process and give you all the information you need to settle your debts and get back on track. There is assurance in knowing all your options and how each one may impact your family and your quality of life. A trustee can show you how the Ontario bankruptcy exemptions can be applied in your case.
This brings us back to the original question, which is one that we get all the time. The Ontario Execution Act states that your primary residence is exempt from bankruptcy proceedings with a maximum value of $10,783. This means that you are only allowed to maintain $10,783 of equity in your home during bankruptcy. If you have more than $10,783 worth of equity, then there are ultimately two options:
- Option A: Your house can be surrendered and/or sold, with the resulting funds being added to the bankruptcy estate. In this case, you would not be keeping your home, but sometimes it makes the most sense.
- Option B: You can pay the difference in equity to your trustee and keep the house. With this option, you would consider the total amount of equity you have in your home and pay that amount to the trustee, minus $10,000, which is exempt. The trustee adds these funds to the bankruptcy estate for distribution to your creditors in accordance with the Bankruptcy and Insolvency Act.
If you are hoping to keep your home, your trustee will work with you to find an acceptable solution that makes sense in your situation. Declaring bankruptcy does not mean that you will lose your home. It is common for people in bankruptcy to keep their homes.
This is another common question we get asked. According to the Ontario bankruptcy exemptions, you can keep one vehicle; however, its maximum value cannot exceed $7,117. This means you are only able to maintain $7,117 of equity in your vehicle during bankruptcy. If it is worth more than $7,117, you have two options:
- Option A: Your car can be surrendered and/or sold with the resulting funds being added to the bankruptcy estate. In this case, you would not be keeping your car but, depending on your circumstances, this option may make the most sense for you.
- Option B: You can choose to pay the difference in equity to your trustee and keep your vehicle. In this scenario, you would consider the total amount of equity you have in your car and pay that amount to the trustee, minus the $7,117 exemption. The trustee adds these funds to the bankruptcy estate for distribution to your creditors in accordance with the Bankruptcy and Insolvency Act.
If keeping your vehicle is important to you, it is worth discussing what your best options are with your Trustee. A LIT will be able to help you find a solution that is right for you. Declaring bankruptcy does not mean that you have to lose your car.
How can I keep all of my assets?
Declaring personal bankruptcy is often the last resort. There are other insolvency solutions that may be a better fit, depending on your situation. Licensed Insolvency Trustees are also able to file a consumer proposal, which is an alternative to bankruptcy in Canada. A consumer proposal is a legally binding debt settlement plan that allows you to maintain control of your assets. With a consumer proposal, you repay only a fraction of what is owed to your creditors, free of interest. The agreement is designed to significantly reduce your debts (repaying as little as 20%), saving you a considerable amount of money. The LIT will work with you to develop a plan that makes sense in your situation, taking into account your income, family size, and current obligations. You can spread the proposal payments over a maximum term of five years, consolidating everything into a fixed monthly amount. Once filed, a consumer proposal also guarantees that your unsecured creditors will not pursue any legal action to recover the debt. At Spergel, we have a 99% acceptance rate on any consumer proposals we file.
A consumer proposal ensures:
- You maintain control of your assets and are not required to surrender anything to the trustee. Learn more about assets and consumer proposals.
- The majority of your unsecured debts are forgiven. In many cases, your debt can be reduced by up to 80%.
- All your debts will be consolidated into a single, manageable monthly payment, based on an amount that you can afford.
- Your creditors can no longer engage in collection activities or take legal action to recover the debt (no more collection calls or wage garnishment).
- Any current legal proceeding initiated by your creditors is halted the moment you file your consumer proposal thanks to a stay of proceedings.
- Whether your repayment term is five months or five years, you will pay zero interest.
- You do not have to declare bankruptcy to settle your debt.
If you are dealing with unmanageable debt, bankruptcy is not your only option. A consumer proposal may be an appropriate alternative. A Licensed Insolvency Trustee can help you evaluate both solutions by showing you how they would apply in your case.
What do I do now that I understand Ontario bankruptcy exemptions?
We hope that we were able to shed some light on the process and provide assurance that you will not lose everything by declaring bankruptcy. If you have further questions about Ontario bankruptcy exemptions, the next step should be to schedule an appointment with one of our Licensed Insolvency Trustees. In this consultation, a trustee will review your unique situation and find out what options are available and, in the case of bankruptcy, how the Ontario bankruptcy exemptions can be applied. Book a FREE, confidential consultation with a licensed professional – you owe it to yourself!