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Car, House, Bankruptcy – Will I Lose My Assets?

Posted on 8 January 2019

It’s a New Year and You Need a New Debt-Free Plan – But What Will Happen to Your Car or House if you File Bankruptcy?

A new year is upon us and 2019 is your year to become debt free. You may have heard rumours about bankruptcy that make it sound like a choice you would never make. It’s a good idea to know the facts before you decide if a bankruptcy will work for you. You might be thinking “but what about my car, house” – bankruptcy (fortunately) doesn’t have to mean giving up these things. Contrary to popular belief, you don’t lose all of your assets if you file bankruptcy. Here are a few of the assets that most people are concerned about when considering bankruptcy.

Will I lose my house if I file bankruptcy?

Your home is very personal and most people are very attached to where they live. Real estate is likely the biggest purchase you’ve ever made and you have probably put a lot of money into your home so far via mortgage payments, repairs, upgrades and renovations. You’ve got debt and can’t afford to pay your bills but you don’t want to sell your house (or lose it) to service your debt. What do you do?

Homeowners have options outside of bankruptcy to consider such as refinancing for a home equity loan or a consumer proposal. However, in some cases, bankruptcy is the only debt solution that will work. You won’t lose your home if you file bankruptcy, but you must remain current and up to date on your mortgage(s), taxes and utilities to avoid any problems. If your home has equity at the time of your bankruptcy filing, you may have to pay more to your bankrupt estate to obtain a discharge from your bankruptcy. Essentially, the net equity (value after estimated selling costs have been deducted) becomes the amount you are required to pay to keep the property and finish the bankruptcy.

Will I lose my car if I file bankruptcy?

Similar to your home, if you continue to make payments to the creditor who is “secured”, you can keep your car. What if you don’t have a lease or car financing payment to make? If you own your car free and clear we look at the estimated value of your vehicle. We compare the value of your car to a limit set by your province. In Ontario, you can be bankrupt and own 1 vehicle for personal use that is worth a wholesale value of no more than $6,600. When a vehicle exceeds this limit (set by the Ontario government), similar to home equity, you will be required to pay more to your estate. The “excess” value of your vehicle must be paid into your bankruptcy. Effectively, you are “repurchasing” your vehicle from your creditors. As long as you pay the required sum you can keep the vehicle. You’ll obtain a discharge from the bankruptcy process if this “repayment” is fulfilled along with your other requirements.

Will I lose my life insurance policy if I file bankruptcy?

You may be asking yourself: “What happens to life insurance when I declare bankruptcy?” Insurance is a special kind of asset because it rarely has what we refer to as “cash surrender value”. Life insurance policies are also protected under the law in bankruptcy. A policy can’t be seized if the beneficiary is a close relative such as a spouse or child. In other words – your life insurance is yours to keep. Nothing will change provided it has no cash surrender value and/or a beneficiary that is protected under provincial law.

Have questions about an asset we didn’t mention here? We have more information about bankruptcy and your assets on our website. Call us toll free: 1-877-501-4321 or book an appointment online here.

Happy New Year – you owe it to yourself to learn more about how bankruptcy will impact your assets. Before you decide on your 2019 debt-free strategy, let us help!

Helpful starting information:

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