Will My Assets Be Sold if I File Personal Bankruptcy?


Category: Personal Bankruptcy (2) comments

does bankruptcy trustee sell all my assetsWhen you file personal bankruptcy in Canada, you are permitted to retain certain assets while others are subject to seizure by your bankruptcy trustee. Your trustee has a responsibility to ‘realize’ on these non-exempt assets, which means that they have to turn the value of these assets into cash to be distributed to your creditors. How this happens depends on the type of asset as well as options you can discuss with your trustee.

Assets Exempt From Seizure and Sale in a Bankruptcy

The specific personal bankruptcy exemptions are slightly different in each province, but in general you are permitted to retain basic household furnishings and personal goods. So, when you file personal bankruptcy, you will not lose your furniture, clothing and other household items.

It’s also important to know that secured debt is not included in a bankruptcy or consumer proposal in Canada. That means if you own a car or a house that is fully financed, you will be able to keep these assets provided your mortgage or car payments are up to date, and you continue to make the payments to your secured lender.

In all provinces you are permitted to keep your RRSP, except for any contributions you have made in the last year.

Who Decides if my Assets will be Sold?

When you file personal bankruptcy, your trustee reviews all of your assets, and they decide whether or not your assets will be sold, based on the rules in your province.

This is not a “one way” decision. You are involved in this process, so you should discuss your options with your personal bankruptcy trustee.

In addition to legislated provincial and federal bankruptcy exemptions, you can still work with your trustee to keep assets they would otherwise have to sell.

For example, under bankruptcy law an RESP is an “asset of your bankruptcy estate”, which is a fancy way of saying that it is the trustee’s job to turn that RESP into cash. The funds are then distributed to your creditors as part of the bankruptcy process. However, that does not mean your trustee will automatically cash in your RESP.

Your trustee will find out from your RESP company how much your bankruptcy estate would get if the trustee cashed it in (after the RESP company repays any government grants, and other fees and expenses). You would then have the option of “buying back” the RESP from your trustee rather than having the RESP redeemed by your trustee.

Here’s an example:

Jane Smith has an RESP for her daughter with a total value of $1,200. The RESP company has advised the trustee that if the RESP is redeemed the trustee will receive $900, after paying back the $200 government grant and a $100 administration fee. Jane would like to keep her daughter’s RESP, so she offers to pay the trustee $100 per month for 9 months while she is bankrupt to “buy back” the $900 value of the RESP.

This is an acceptable solution for everyone. The trustee realizes the same $900 they would have received if they cashed in the RESP, and Jane gets to keep the RESP which to her is worth $1,200.

If you have a very valuable house, car or investment it will be sold in your bankruptcy, so before filing bankruptcy you should ask your trustee to fully explain all of your options to avoid selling your assets. Two options to consider would be to “buy back” your assets as described in the example above, or to file a consumer proposal to prevent your assets from being sold in a bankruptcy.

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  1. Neil

    Thank you for the informative article. I have heard of a similar situation if the house equity of the debtor exceeds that of the provincial exemption limit plus any mortgage and liens. Any excess equity can potentially be “bought back” in the form a loan from the LIT (Trustee) and thereby the house can be retained by the debtor rather than seized and sold. The size of this loan is limited by, I would assume, the practical realistic limit of the debtor’s monthly budget (to be able to afford the loan).

    In the case of Personal Property, is it correct to assume that the same method is used, namely, that the debtor can “buy back” the asset(s) by means of a loan issued from the Trustee? Thanks.

    And, I assume also that there is a limit to the amount of that loan based on the debtor’s current income. Is that assumption valid?

    And finally, is there any other option for the bankrupt debtor to arrange a friend or family member to “buy back” the asset with their own money if the bankrupt person does not qualify for a loan from the LIT due to the debtor’s budget constraints?

    Thanks for any insights or information that you may be able to provide.

    Reply
    1. Ted Michalos

      The only restrictions on “buying back” assets are those negotiated and/or imposed by the Court. Family members (or other third parties) may certainly buy the assets from the bankrupt estate instead of the bankrupt, but if they do so with the intent of giving them to the bankruptcy they should either set up a loan payable or they should not return title to the items purchased until after the bankrupt has been discharged. If you haven’t filed yet make sure you discuss this in detail your trustee so that you have a plan in place to deal with your assets. Do not file and then try to come up with a plan – that’s too risky.

      Reply

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