There are three basic types of assets in bankruptcy: Exempt, Non-Exempt, and Secured.
Exempt Assets in Bankruptcy
If an asset is exempt from seizure, you won’t lose it if you file for bankruptcy. The rules that define what assets are exempt are provincial rules, so each province has slightly different exemption limits. However, in most provinces you are permitted to keep your basic household furnishings, clothing, and other household items.
In simple terms, you typically would be able to keep the bed you sleep in each night, unless it happens to be a 200 year old antique bed worth tens of thousands of dollars. In virtually all cases your basic household furnishings and possessions will be exempt from seizure.
Non-exempt Assets in Bankruptcy
Non-exempt assets would be any assets that are specifically defined as non-exempt in bankruptcy legislation.
For example, all contributions you have made to your RRSP in the twelve months prior to the date of bankruptcy are non-exempt from seizure by your trustee. If you file bankruptcy in Canada, you lose any contributions to your RRSP in the last twelve months. Those contributions are not exempt. Any contributions you made more than twelve months ago are exempt from seizure; you are permitted to keep RRSP contributions made before the last year. They will not be seized by your trustee.
(The government does not want you to go an borrow a lot of money and put it in your RRSP just before you declare bankruptcy, so any contributions in the last twelve months are non-exempt).
Secured Assets
The final category of assets are secured assets. A common example would be a car, with a car loan. If you have a car worth $10,000, but you have a loan for $10,000 with the car as collateral, the car will not be seized by your trustee. If the trustee did seize your car and sell it the proceeds would go to the the secured creditor, so there is no point in the trustee seizing your car. As long as you continue to make your loan payments, you can keep the car if you declare bankruptcy.
The rules in this area are complex, and vary from province to province, so we strongly suggest that you arrange a no charge consultation with a licensed bankruptcy trustee to review all of your assets, so that they can advise you whether or not you will lose your assets if you declare bankruptcy.
My wife and i have declared bankruptcy. Its not going well and weve stayed together for this reason..but were told that we cant earn more than 2500. Together as we will lose 50% of the extra income.So if we separated instead of living seperate lives in the same appartment would ee each be able to earn 2000.$ and not be charged the 50% seing were below the single threashold by the government .please give me news as i’m blamed for the troubles and would like start my life over . Thanks kevin
Hi Kevin. The amount you are required to pay each month in a bankruptcy is based on your family income. You are correct that the surplus income limit for a family of two is approximately $2,500 per month, and the penalty is half of the amount that you are over the limit.
Whether or not you are a “family” is a question for the trustee to determine. It is theoretically possible to be separated and remain living in the same house, but that is an unusual situation, so you would have to provide your trustee with some evidence that you are actually separated.
If you are the trustee disagree, you have the right to request mediation to attempt to resolve the matter. If that is not successful, you can request a court discharge hearing where the court will determine your family status, and the amount you are required to pay. As this is a complicated area, I would suggest you discuss this in detail with your trustee, and request that they explain all options so that you are fully informed.
What is the debt to income ratio that would constitute being in a bankruptcy position? If the primary residence has no equity and the 1st mortgage is held by a bank, what are the potential steps another financial institution could potentially take if they are holding a second mortgage on the same property? Is the property safe from a forced sale, as with the vehicle example, if there is no equity and the bank is owed essentially more than the value of the property?
Hi Stephanie. If a second mortgage holder isn’t paid, they are legally entitled to foreclose on a house to recover their money.
However, if there is no equity for the second mortgage holder, it is highly unlikely that a second mortgage holder would incur the legal expense to commence foreclosure proceedings when they would not receive any funds, so in your example it is likely that the property is safe from a forced sale by the second mortgage holder. A lawyer or a licensed insolvency trustee can provide more guidance.
If I have a life insurance policy with no value inside of it, and my children are the beneficiarys , will I be able to maintain it and continue to pay the monthly payment required
That’s up to you. If you can afford to make the payments then go ahead. Bankruptcy (or a consumer proposal) don’t stop you from making purchases you deem appropriate. You can’t make payments towards your unsecured debts – that will get you into trouble, but if you want to maintain your insurance you certainly may.