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Filing for Bankruptcy: What Can You Keep?

Let’s admit it; bankruptcy is one of the scariest words you’d think of where financial matters are concerned which is why people tend to steer clear of the thought of filing for bankruptcy. When you do choose to file for bankruptcy, it isn’t a hopeless case especially when you work with a licensed insolvency trustee (LIT) who can hold your hand and walk you through the options and processes you have to go through.

Understanding Ontario Bankruptcy Exemptions

Each province has its own exemption legislation. Certain exemptions concerning what assets an individual surrenders are made clear under federal law, while some are provided by provincial legislation. As such, it is important to work with an LIT in Ontario or your respective area who knows the ins and outs of the exemptions of the legislation where you reside. You do not lose everything when you file for bankruptcy and the Ontario Execution Act lays out these exemptions. Of note, there are prescribed limits and these are based on the resale value of an asset on an as-is basis.

What do you get to keep when filing for bankruptcy?

The idea of being bankrupt often comes with the feeling of losing all of your assets, but this simply isn’t the case. In summary, here are the assets you get to keep when you’ve filed for bankruptcy as outlined in the Execution Act at the time this blog is published:

  • Your and your dependent/s’ clothing; no dollar limit
  • Household appliances and furnishings; up to $14,180
  • Tools and personal property used relative to income; up to $14,405. In the event the debtor is engaged in farming, soil tillage, livestock, fowl, bees; up to $31,379
  • A motor vehicle up to $7,117
  • The debtor’s principal residence; prescribed amount for which is $10,783. However, the property’s total equity must be below this amount to claim the exemption.

In addition to the provincial limits, there are also amounts that you are allowed to retain under the Bankruptcy and Insolvency Act. These are:

  • Property you hold in trust for any other person (must be a true trust)
  • GST tax credit payments (subject to certain conditions – ask us for further details)
  • Prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt
  • RRSP, RRIF, or RDSP other than the amounts contributed to any of those plans or funds within the 12 months before the date of bankruptcy

Other assets you get to keep which are worth discussing with an LIT are the following:

  • Medical aids and devices used by the debtor if with disability
  • Sales and refunds: This may apply to household furnishings, vehicles, tools, or other items sold as exempted goods or as part of the ongoing business operations (contact us to discuss this further).
Benefits of Filing for Bankruptcy

This means that although there will be changes to how your money flows and which assets you can keep, there are also certain benefits that come with filing for bankruptcy

  • Less stress – This comes in the form of the “stay of proceedings” which means creditors can no longer call and threaten you with lawsuits after they receive notice of your filed bankruptcy. 
  • No more wage garnishments – Creditors can no longer get a court order to get a wage garnishment which forces your employer to pay as much as 30% of your wage to your creditor.
  • Clear cut process – When working with a Licensed Insolvency Trustee, you can both review your financial situation and come up with a plan to move through the bankruptcy and even past it. Depending on your case, a first-time personal bankruptcy can be over in as little as nine months, and with advice from your selected LIT, you can manage your finances better moving forward.
  • Costs – Filing for bankruptcy may even be the lowest cost option when compared to trying to negotiate payments on your own or dealing with collection agents or legal actions, or hiring an “agent” to act on your behalf. Paying your debts off, ideally, shouldn’t cost you more money.

While declaring bankruptcy may not clear you of all of your debts and worries, it takes a huge weight off of your shoulders. This enables you to think more clearly and have a better grip on your finances.

When you file a consumer proposal, typically, you do not need to sell or redeem any assets, unless the proposal requires you to do so. Typically, when we meet with an individual who is unsure whether to file a bankruptcy or proposal, we review the exemptions and compare a bankruptcy to a proposal. Often, people with parents who are elderly and financially secure, or if they have assets that they do not want to sell or redeem, we consider a consumer proposal.  In a consumer proposal, you do not lose any assets unless it is included as a term of the proposal.

Learn more about filing bankruptcy or a consumer proposal to make informed decisions that will work for you.

We hope this article on “Filing for Bankruptcy: What Can You Keep?” helped you. If you have any questions please contact us and BOOK YOUR FREE NO OBLIGATION JUDGEMENT FREE CONSULTATION TODAY!

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