Are you struggling with unmanageable debt but worried about giving up your vehicle, RRSPs, or other assets if you declare bankruptcy? Fortunately, there are laws in place in Canada that allow you to get debt forgiveness and protection from your creditors, without losing all your assets. In fact, in British Columbia most people filing for personal bankruptcy keep all their assets. Read on to learn about what happens to your assets if you declare bankruptcy in BC.
What Does it Mean to File for Bankruptcy in Canada?
Bankruptcy is a legal solution to help people get relief from and resolution for their debt. In completing the process of bankruptcy in Canada, a person who previously was unable to manage their debt can get a financial fresh start.
- Working with a Licensed Insolvency Trustee (the professional who will handle the bankruptcy administration and guide you through the process) you may be able to have virtually all your debts forgiven, including but not limited to debts from credit cards, payday loans, taxes, CERB overpayments, student loans and more.
- No creditor or other party can prevent you from seeking the protection and relief of bankruptcy if you are unable to pay off your debt.
- Most often people complete the process of bankruptcy in only nine months, paying an administrative fee over this time, and completing some basic duties as part of the bankruptcy process.
Once you’ve officially filed for bankruptcy, this triggers what is called a ‘stay of proceedings’ which prohibits creditors from continuing to pursue you for payments, charging ongoing interest, taking collection actions, etc. Because of this stay of proceedings, bankruptcy offers immediate and powerful protection from your creditors, including stopping wage garnishments and other legal actions that can put your assets and income at risk.
Debt Forgiveness with Personal Bankruptcy: Step-by-Step
Your Assets in Bankruptcy – Bankruptcy Exemptions in BC
It’s true that most people filing personal bankruptcy in Canada keep all their assets, and this is because each province and territory has laws that specify assets that are legally exempt and therefore safe from seizure by creditors. Here in BC, asset exemptions set through the Court Order Enforcement Act entitle you to claim exemption amounts on the following assets, even when you can’t pay your debts:
- $4,000 for household furnishings and appliances (at resale or liquidation value, like what you could expect to get at a garage sale)
- Clothing and medical aids – up to an unlimited value
- $5,000 for a motor vehicle (this is reduced to $2,000 if you have an outstanding debt owing under Family Maintenance Enforcement Act)
- $10,000 for tools or other personal property used to earn income from your occupation, also known as tools of the trade (again, at a resale or liquidation value – not new or replacement value)
- $12,000 equity in your principal residence if you are within the Metro Vancouver or Greater Victoria area ($9,000 elsewhere in the province)
Are Pension Plans Exempt in Bankruptcy?
Most pension plans and many life insurance policies are also exempt. Additionally, under the Bankruptcy and Insolvency Act, there are some further exemptions including the following assets, which means that many assets are actually safer after filing for bankruptcy:
- Registered Retirement Savings Plans (“RRSPs”) (except for contributions in the 12 months prior to your bankruptcy)
- Registered Disability Savings Plans (“RDSPs”)
- Property you hold in trust for other people
Inheritances and lottery winnings that you acquire before being released (discharged) from bankruptcy are examples of property that would not be exempt.
Can a Consumer Proposal or Bankruptcy Help with Tax Debt?
Claiming Bankruptcy and Keeping Your Car (or Other Assets)
When it comes to larger assets like homes and vehicles, not only the value of the asset is considered, but also whether there is a secured debt owed against it and the resulting equity the person has in the asset (essentially the difference between the value of the asset and the value of the loan owed against it).
A secured debt means a creditor holds an asset as collateral with a lien or charge, such as a mortgage or vehicle loan, whereas unsecured debt does not hold any asset as collateral – your creditor has no additional means to collect on their debt – in bankruptcy these accounts are simply forgiven through bankruptcy.
When it comes to a home or vehicle, many people don’t own these assets free and clear, and if the asset is subject to a secured debt, there are a few options to consider in bankruptcy:
- If you want to keep the asset you could decide to continue with the ongoing payment arrangement (or try to negotiate new terms) with your secured creditor.
- If your mortgage (or other secured debt) payments are up-to-date and you want to continue with the agreement in place, these are not usually impacted at all by filing for bankruptcy.
- If your current mortgage is in good standing, generally lenders will honour mortgage renewals that come due during the period of your bankruptcy.
- Or you could decide to walk away from the asset and ongoing financing arrangements altogether, and any equity above and beyond your exemption would be paid into your bankruptcy estate.
- You may decide to sell the property through the bankruptcy, and each homeowner would be entitled to receive their exempt equity amount (up to $12,000 each) from the sale proceeds.
- If foreclosure proceedings were underway and the secured creditor was taking possession, any shortfall from the subsequent seizure and sale of your home would be written-off as part of the bankruptcy.
- If your mortgage (or other secured debt) payments are up-to-date and you want to continue with the agreement in place, these are not usually impacted at all by filing for bankruptcy.
The start of bankruptcy is a good time to evaluate whether you want to continue with an existing secured debt, especially one that may have fallen behind, or that you can no longer afford.
10 Facts You Should Know About Personal Bankruptcy
What Do You Lose When You Declare Bankruptcy?
Bankruptcy isn’t meant to be a punishment, it’s a solution to help you solve unmanageable debt, and while assets that are outside the exemptions are intended to form part of your bankruptcy ‘estate’ and be available towards satisfying your debts – the reality is that even if you own something beyond the exemption allowances, non-exempt assets are often kept by individuals and there are a few ways of achieving this, such as by:
Paying in the non-exempt value of your assets to your bankruptcy estate – this is sometimes referred to as ‘repurchasing an asset’ even though you will physically retain it the whole time. For example:
- You own free and clear a vehicle appraised at a value of $8,000, and are entitled to a $5,000 exemption allowance, leaving you with $3,000 non-exempt equity. You could choose to keep the vehicle and pay in $3,000 to your bankruptcy estate by way of monthly payments.
Alternatively, the most common (and often best) way to keep virtually all your assets, while still getting protection from your creditors and a legal solution to manage your debt is to file a Consumer Proposal rather than bankruptcy.
- You will not automatically lose your home or other assets if you file for bankruptcy or make a Consumer Proposal. If you move forward with bankruptcy or a Consumer Proposal, the biggest (and often only) thing you have to lose is your debt!
Talk Confidentially with a Licensed Insolvency Trustee About Your Situation and Debt Options
What is a Consumer Proposal?
A Consumer Proposal is a unique legal debt solution that is considered an alternative to both consolidation loans and bankruptcy. Filing a Consumer Proposal allows you to consolidate your debt without borrowing and cut the amount of debt you must repay down to what you can reasonably afford.
- By making (usually) monthly Consumer Proposal payments administered by your Licensed Insolvency Trustee, many Consumer Proposals are successful in cutting debt by up to 50-70% – with no borrowing costs or added administration fees.
- With a Consumer Proposal you keep all your assets unless you specifically decide to end the ongoing financial commitment through the Consumer Proposal.
- Like bankruptcy, when it comes to secured debts (a mortgage, vehicle loan, etc.) you have the option of keeping the payment arrangements in place if you want to keep the asset, or you could surrender the asset to end the ongoing obligation. (And if there’s a shortfall this could be included in the Consumer Proposal.)
A Consumer Proposal will trigger the same ‘stay of proceedings’ as a bankruptcy, protecting your income and assets from creditors, including legally preventing your creditors from:
- Continuing to ask you for payments or charging you further interest on your debt balances
- Escalating or continuing with collections (calls/texts/letters) and/or legal action
- Seizing your assets, including bank account freezes or wage garnishments
- This protection applies even to creditors like Canada Revenue Agency.
How Much Debt will a Consumer Proposal Eliminate?
Confidential Debt Advice
Understanding your situation and ways to deal with debt is best done with the help of a Licensed Insolvency Trustee. We are Canada’s only qualified debt help professionals and can assist you in exploring ALL possible solutions. If you’re struggling with unmanageable debt, or finding it difficult to pay down your debt, connect with a local Licensed Insolvency Trustee to have a free, confidential consultation about your options.
- There are many ins and outs to consumer debts and your rights, responsibilities, remedies can be complex. Avoid troubleshooting what can be a complicated legal subject, incorrectly disqualifying yourself from getting support and solutions, or unknowingly enlarging the problem – take an hour to find out the facts.
Licensed Insolvency Trustees are dedicated debt help professionals who offer impartial expert advice, and we understand how stressful financial troubles can be.
- Sands & Associates serves the entire province of BC, and you can get free, qualified advice and support from a non-judgmental professional in person at one of our local offices, over the phone, or over video chat – whatever is most convenient for you. No judgment, just support and solutions.
Talk with a friendly, local debt expert who cares. Book your free, confidential debt consultation with Sands & Associates today.
