Gifts During Bankruptcy. How Are They Treated?

Category: Bankruptcy Q&A (8) comments


Part of the process of filing bankruptcy in Canada requires that the licensed insolvency trustee of the bankruptcy estate seize any non-exempt assets, sell them, and distribute those proceeds fairly to the creditors.  This would include any asset owned as of the date of bankruptcy and any assets received after the date of filing for bankruptcy.  This has implications if you receive a large gift or windfall that has monetary value.

You must tell your trustee about any windfalls you receive while you are in bankruptcy, this would include gifts, lottery winnings and inheritance.

Gifts:  There is no set limit in terms of what you would have to report to your trustee.  Technically, any gifts you have received can be seized by the trustee.  From a practical point of view, the trustee is not going to seize the five dollars your grandmother sent you for your birthday, however, if you were given thousands of dollars that is another matter.  The same would be true if you receive a physical gift.  If you are given a modest gift of clothing or an appliance, the trustee will likely not make an issue of it.  You are allowed a bankruptcy exemption for clothing and household effects.  If you are given a gift that is in excess of your personal bankruptcy exemption, you may have to surrender that item to the Trustee.  An example would be receiving a valuable antique.

Lottery Winnings:  If you win money in a lottery, the money is property of the bankruptcy estate.    It doesn’t matter if you don’t collect your winnings until after you are discharged.  If you were entitled to the money when you were in bankruptcy it is property of the bankruptcy.  You don’t have to worry if you win a big jackpot.  The trustee will take enough money to pay out your creditors in full, with interest and cost, and you will still be entitled to receive the balance left over.  You won’t lost the entire jackpot (unless of course you had that much in debt).

Inheritance:  If you find out that you are entitled to an inheritance while you are in bankruptcy, you must let your trustee know.  Your trustee will then contact the executor of the estate and provide him or her with the necessary paper work.  When the executor distributes the money, your proceeds will be sent to the licensed insolvency trustee.  As with lottery winnings, if there is enough money available to pay the debts in full, with costs and interest, the balance will be returned to you.

If you are in bankruptcy and expecting a gift, talk to your trustee and explain the situation.

If you have not yet filed, and expect to come into an inheritance or other gift, again discuss this with the trustee prior to filing. They may be able to present you with options like a consumer proposal that will fix the cost of filing up front.

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  1. A Wilson

    My wife got sick and now she can no longer work and I had my pay reduce due to owner selling the business and I have over $15.000 worth of credit cards i can no longer pay what is my option and how do I fill

  2. gjtse

    If you declare bankruptcy four years after being a student will the remainder of the student loan be discharged after you have been bankrupt for three years?

    1. J. Douglas Hoyes

      No. A student loan is only automatically discharged if, when you go bankrupt, you have already ceased to be a student for over seven years. The amount of time you are bankrupt does not impact that calculation.

  3. Jeje

    I went out bankruptcy in November and I won the lottery ticket for 5500 what is the species from my trusty watch and I do will she find out by herself or I have to tell her ??

    1. Ted Michalos

      Your are required by law to tell your trustee of any windfalls (lottery winnings you receive) during your bankruptcy. If you do not and your trustee finds out themselves then you may be denied a discharge from your bankruptcy. That means the Court will say “you didn’t follow the rules” and therefore you have to repay all of your debts in full. Id’ give your trustee a call if I were you…


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