Making the decision to file for bankruptcy is difficult. Unless you are forced to examine this option, you normally would not have done a lot of research about the bankruptcy laws in Canada. Because of this, there are a lot of misconceptions about how bankruptcy works. One common misconception is that when you file for bankruptcy you lose everything. People fear losing their home, their car, their retirement savings and everything else. This often prevents them from exploring this option and their situation gets worse.
The reality is that both provincial and federal legislation set clear rules about which assets the Trustee is able to seize for the benefit of your creditors and which assets the debtor is allowed to retain. While it is difficult to discuss the specific details in a short article, mostly due to the slight difference from province to province, there are some commonalities across the country.
If you are worried about keeping your home, you need to answer one important question. Does your house have any equity? If you were to sell your house, would there be any money left over after paying the mortgage holder. If so, how much equity is there in the property? If there is no equity available in your home, the Trustee would have no interest in taking that property. If there is a small amount of equity in the property, you can also usually make arrangements to keep your house.
In terms of vehicles, while there are differences between provinces, the important thing to note is that you are allowed to own a vehicle within a set value even if you are bankrupt. If you car is financed then as long as you maintain your vehicle payments, you can usually keep your car as well. And again, if you own a vehicle that is worth more than the exemption limit for your province, arrangements can often be made to keep that vehicle.
There are also exemptions in various amounts for household goods, personal effects, pension plans, RRSPs and other assets.
If you do have assets that would be subject to the Trustee seizing them in a bankruptcy filing, the Bankruptcy Act offers another option called a consumer proposal. When you file a consumer proposal your assets do not vest in the Trustee. This means that the Trustee cannot seize your assets as they may be able to in a bankruptcy. You must still disclose your assets, and their value would be considered when designing a proposal to your creditors. However, the assets would not be liquidated unless you choose to make them a part of your proposal.
The message here is not to assume that filing for bankruptcy equals the loss of all your assets. That is simply not the case. To find out more about the laws in your province, contact a local Trustee to book a free confidential consultation.
