What happens to my assets and what can I keep when I file for personal bankruptcy?

Assets: what can you keep when filing for personal bankruptcy in Canada?

The general principle of bankruptcy law is that upon filing for bankruptcy, your assets become the legal property of the bankruptcy trustee. The trustee is then required to liquidate the assets in an orderly manner and deposit the proceeds into her trust account. The proceeds are then distributed to your creditors after the trustee pays herself a fee for her professional services.

However, there are a number of very important exceptions to this general rule.

Under the Bankruptcy and Insolvency Act, an RRSP is exempt from seizure by the trustee. However, any contributions made to the RRSP within the 12-month period prior to the day of bankruptcy would have to be realized by the trustee. Therefore, a trustee will need to examine your RRSP statement to determine if you made any contributions to your RRSP within the 12 months prior to bankruptcy. If this is the case, the trustee will write to the financial institution holding your RRSP and request a remittance of these funds to her office. The funds are then deposited into her trust account to be held in trust for your creditors.

Each province in Canada have laws containing lists of assets that are protected from your creditors, as well as from a bankruptcy trustee, up to a certain dollar amount. These are called “exemptions”.

The list of assets and their dollar exemption limits will vary from province to province. To illustrate, here is a list of exempt assets under the Ontario Executions Act:

  • Household furnishings and appliances up to $13,150.00
  • Your principal residence is exempt from seizure IF the equity in your home does not exceed $10,000. If the equity does exceed $10,000 then your principal residence is subject to seizure and sale
  • All necessary clothing
  • Tools of the trade up to $11,300.00
  • A vehicle valued up to $6,600.00
  • Pensions
  • Other special exemptions for farmers
  • Certain life insurance policies and certain RRSPs

So for example, if you are filing for personal bankruptcy in Ontario, you can keep a vehicle up to $6,600.00 – you wouldn’t have to worry about losing your vehicle to the trustee so long as its fair market value is beneath that threshold. Your trustee should be able to look up its value for you.

Here is a link to a list of the various provincial exemptions.

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