When you file for bankruptcy, your trustee is required to seize your assets and distribute them to your creditors. While technically any money in your bank account is an asset to be surrendered to your bankruptcy trustee, in most cases your trustee will not automatically seize your bank account if you file bankruptcy in Canada.
Exemptions For Reasonable Expenses
Your trustee will allow you to retain in your bank account a reasonable amount of money to cover your typical living expenses. This is particularly true if you have a small amount in your bank account from your recent pay and that amount is earmarked for current needs.
Here is an example:
Joe is filing bankruptcy on the 30th day of the month. He has $1,200 in his bank account. On the 1st of the month, Joe will pay his rent for the month of $1,000. So Joe doesn’t really have $1,200; he only has $200, because $1,000 is already “spoken for”, to pay his rent for next month.
How much is reasonable? That will depend on your unique situation and the province you live in. In Ontario, a typical guideline would be expenses you would be incurring over the next few weeks. The amount you will be paying for rent, groceries, and transportation between now and your next paycheque would be reasonable, and under typical circumstances would not be seized by your trustee. Bankruptcy exemptions differ by province, including those for a reasonable amount of cash you can keep on hand for living expenses.
When You Lose Your Money
Some people carry a balance in their bank account to cover emergencies or to avoid banking fees. This amount of money could be considered an asset of your estate and subject to seizure by your bankruptcy trustee. In addition, savings accounts and unprotected funds outside of any provincial bankruptcy exemption limits are also at risk.
In Canada, RRSPs are exempt assets in a bankruptcy (except for contributions made in the past 12 months) .
What To Do
If you are concerned about any bank account or investments you have, discuss it with your trustee. Ask them how much you may retain in your bank account and what happens to your investments, so that you know in advance what will happen in your unique situation.