Gifts During Bankruptcy. How Are They Treated?


Category: Bankruptcy Q&A (24) comments

gifts-bankruptcy

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

    Reply
  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?

    Reply
    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.

      Reply
  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 ??

    Reply
    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…

      Reply
  4. Brad

    A family member of mine filed for bankruptcy and it was approved last year. Recently their car has died and they have no transportation. If another family member is willing to purchase a used vehicle in full for the family member in bankruptcy what are the rules for this to occur. IE: Is their a max price that the car can be purchased for them. I will be a gift to help them out. Thanks for any info on this. Province that bankruptcy took place is NFLD.

    Reply
    1. Ted Michalos

      The quick answer is for the family member to keep the car in their own name until the bankruptcy is over. Then there is no issue. If for insurance purposes it needs to be registered in the bankrupt’s name, then I suggest the family member “sell” the car to the bankrupt for its fair price, that includes writing out a bill of sale and terms of repayment – it can be $20 a month. As long as the bankrupt makes the payments.

      If you just give someone in bankruptcy a car it may be treated as a “windfall” (free money) and the trustee may require the bankrupt to pay an amount equal to the value of the car into the bankruptcy for the benefit of the bankrupt’s creditors.

      If you call the licenced insolvency trustee handling the bankruptcy they will explain all of the options to do this legally and not get the bankrupt into trouble…

      Reply
  5. Steve

    I have had a bad couple of years dealing with mental issues. I am currently in bankruptcy and have new tax debt. I do not know what to do anymore. I should be out of bankruptcy this year but am behind on my duties and trying to get caught up. Completely at a loss.

    Reply
    1. J. Douglas Hoyes

      Hi Steve. Your best option is to book a meeting with your trustee and discuss what exactly you need to do to complete your bankruptcy; your trustee can advise you on how to make a plan to get it completed, and they can give you advice on dealing with any new tax debts.

      Reply
  6. Kitty Grayson

    During a bunkruptcy are inherited assets, like jewellery, money, property (overseas) exempt or non exempt?

    Reply
    1. Ted Michalos

      Inherited property that has any sort of monetary value is considered either a “windfall” or “after acquired property” and may be subject to seizure and sale. You are required to disclose any inheritance to your trustee so they can decide whether or not something needs to be done with/about it.

      Reply
  7. Tammy Foreman

    My common law partner is thinking of applying for bankruptcy soon. I was recently notified that I am going to receive a monetary gift (pre- inheritance) of $25000 in August. How would his bankruptcy effect this monetary gift?

    Reply
    1. Ted Michalos

      A gift to you will have no affect on your partner’s bankruptcy filing. It will only be an issue if you file for bankruptcy…

      Reply
  8. LA

    I am planning to file for bankruptcy and they are asking for my spouses income, he recently had a car accident and is filing a law suit against the other party, if he receives a settlement do I have to disclose this with the trustee? also do I have to disclose of any savings that my spouse has?

    Reply
    1. J. Douglas Hoyes

      Your spouse’s assets do not form part of your bankruptcy. If your spouse receives a lump sum settlement that is likely an asset, and therefore would not form part of your bankruptcy. However, these are all questions you should ask your Licensed Insolvency Trustee before you file so that you can make a fully informed decision.

      Reply
  9. Nicole L.

    Hello I am in bankruptcy but a good friend of mine has been helping with part of my rent each month so I could afford to stay where I am . It’s a total of 5,400 .
    Will I be in trouble ?

    Reply
  10. Roy

    I see that an inheritance or lottery win would need to be reported to the trustee, and getting a discharge wouldn’t matter if you deliberately waited to collect, in order to avoid paying creditors.

    Hypothetically, if a relative is offering to help an undischarged bankrupt with money for medical treatment, and one told the relative to delay the offer until a discharge could be obtained, could this be fraud? How long should one wait after discharge to accept the gift, in order to avoid possible prosecution?

    Reply
    1. Ted Michalos

      Anything that happens after discharge is outside the restrictions of bankruptcy law. If a relative is going to help someone withe medical costs then the relative could either pay the costs directly, or loan the money to the bankrupt (to be repaid later) and then there would be no impact on the bankruptcy. Give your trustee a call and I am sure they will go over these options in detail with you…

      Reply
  11. Lee

    what evidence will bankruptcy court hear other than the debtor’s evidence of Financial Affairs and the Trustee’s Report?

    for example, I would like the bankruptcy court to hear my evidence as to the creditor’s behaviour, but I’m not sure, if the bankruptcy court will even be willing to hear that.

    Reply
    1. Ted Michalos

      I don’t understand what you are asking. The Court will deal with whatever matters are brought before it. If you have a complaint or concern about how a creditor conducted themselves then the Court will deal with it if you bring some sort of motion or action against the creditor. If you are a bankrupt and you have a discharge hearing coming up, the Court will certainly give you the opportunity to make a statement and tell your side of the story. If that includes comments about how a creditor has acted, the Court may take that into consideration when they decide what to do about your discharge. Did that help?

      Reply

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