Think bankruptcy puts your assets at risk? Filing a bankruptcy in Canada actually provides protection for assets and income. Learn more about how bankruptcy protects your assets. 

When a person is unable to pay their debts, this will often set off collection action from their creditors, which can lead to creditors attempting to seize assets and/or garnish wages.

Once a person files bankruptcy, the filing triggers a “stay of proceedings” – this essentially acts as a “ceasefire”, legally preventing your creditors from continuing to ask you for payment, from escalating their collection action, and from seizing your assets, including your bank account or wages. In these situations, filing bankruptcy protects assets that may otherwise be at risk from creditors.

…but wait, don’t I lose all my assets by filing a bankruptcy? 

Contrary to what you may have heard, most people who file bankruptcy actually keep all their assets! Here’s why:

When you enter into bankruptcy, provincial laws automatically give you entitlement to keep certain assets – these are often referred to as ‘exempt assets’, meaning that they are protected in the event of a bankruptcy.

In British Columbia, the law that gives these exempt (protected) asset allowances is called the “Court Order Enforcement Act“. Each province has its own exemption allowances; in BC the bankruptcy protected assets are:

  • Household Goods and Effects
    • Up to a $4,000 value, based on garage sale value (not replacement value)
  • A Vehicle, or Equity in a Vehicle
    • Up to a $5,000 value; or
    • Up to a $2,000 value if you are behind on child or spousal support payments
  • Home Equity
    • Up to a $12,000 value in Greater Vancouver and Victoria; or
    • Up to a $9,000 value elsewhere in BC
  • RRSPs
    • Up to an unlimited value
      • Except for contributions made in 12 month period prior to filing bankruptcy. Note, transfers between RRSP funds are not the same as contributions.
  • Clothing and Medical Aids
    • Up to an unlimited value
  • Work Tools (Tools of the Trade)
    • Up to a $10,000 value

It’s important to know that even if you have assets that are worth more than these allowances, you do not necessarily have to give the asset up in bankruptcy. There are a few potential avenues that would allow you to keep the assets. Conversely, it is not necessary to have any assets in order to make use of bankruptcy laws. Sands & Associates assists many people going bankrupt with no assets.

How does bankruptcy protect income?

Even if a creditor has already begun garnishing your income, filing a bankruptcy will remove the ongoing garnishment! This applies to virtually all creditors, including Canada Revenue Agency. 

Generally speaking, the only creditor who can continue a wage garnishment despite a bankruptcy filing is FMEP, collecting on child or spousal support payments.

Filing a Consumer Proposal (the number one alternative to bankruptcy in Canada) also gives an individual these protective benefits!

Get a financial fresh start today – book your free debt consultation with Sands & Associates!