Bankruptcy Exemptions in Ontario – Will I Lose My House or Car?
Will I Lose My House or Car if I go Bankrupt in Ontario?
There are a lot of misconceptions around filing for bankruptcy in Ontario.
In this article, you’ll discover how it will impact you.
Bankruptcy is always going to be the last resort when you are dealing with insurmountable levels of debt.
There are certainly other possibilities that you should consider before you essentially wipe the slate clean.
Debt consolidation or a consumer proposal are both worth considering.
However, bankruptcy will be the answer for numerous people struggling with high levels of debt, even with the issues it brings.
For instance, when you file for bankruptcy, your credit will be impacted for years after the fact and you will struggle to gain the trust that you need from lenders.
Of course, if you’re exploring bankruptcy in Ontario you might have a more immediate concern.
What will you get to keep, and what will you ultimately lose?
This is an important question because the assets that remain will highlight how much stability you will have by the end of this process.
What Is Lost During Bankruptcy?
One of the common misconceptions around bankruptcy in Ontario is that you’ll lose everything and that you’ll be back to square one with no assets to your name.
The good news is that this isn’t the case and there are always going to be assets that are not impacted by your bankruptcy.
During the process, you will need to surrender all your assets to the Licensed Insolvency Trustee.
These will then be turned into cash which can then be distributed around to all the creditors that you have unsecured debts with.
This occurs in accordance with the Bankruptcy and Insolvency Act.
However, you won’t lose everything.
The aim here will be to ensure that you can maintain a certain quality of living.
So, there are exceptions and these do vary depending on what province you live in.
For Ontario, you will only be required to surrender assets that are non-exempt.
The assets that are exempt you will be allowed to keep.
What Assets Are Exempt?
Assets that are exempt will be yours to keep as you pass through the process of filing for bankruptcy and come out of the other side.
- Any property in a disability savings plan and the payments that you may have received outside of the plan.
- All funds from a registered education savings plan and refunds or payments from outside of the plan. This includes plans to assist you in furthering your education as a post-secondary point.
- Any monies held through a registered plan that includes DPSP, RRSP, and RRIF.
There are of course other exceptions.
In Ontario, the Ontario Execution Act is in effect.
This protects more assets that will not be liquidated.
For instance, most pension plans and some life insurance plans are exempt.
RRSPs are also exempt from the exception of payments made within 12 months before the bankruptcy.
If the equity in the home is less than $10,000 then there is also automatically exempt from liquidation.
You can also keep your vehicle as long as it doesn’t have a value that is higher than $6000.
As such, you might lose a newer home.
You also get to keep the clothes that your family owns and any fuel, food, furniture, or equipment up to a total of $13,150 in value.
While this might seem mainly straightforward, there are definitely complications here that could impact you.
So, you need to make sure that you speak to your trustee and work out what you will and won’t get to keep.
At first glance then it seems that you could keep your home and you might also get to keep one of your vehicles.
Will You Keep Your Home?
As already mentioned a home with less than $10,000 in equity is automatically exempt.
But what if you have more than this?
Well, then you have two main options.
You can sell the home and surrender it which means that the funds will be added to the estate.
In this case, you will of course lose the home but in certain situations, this can make sense.
It’s going to depend largely on your individual financial situation.
Alternatively, you might want to think about paying the difference in equity to the trustee.
This means that you pay the total in equity you have in the home to the trustee with the exception of that first $10,000.
This then gets added to the bankruptcy fund and distributed with the rest of the liquidated assets.
If you do want to keep your home and you think this is important for your family, then you need to speak to your trustee.
They should be able to work with you to find the best way to ensure that this does happen.
Remember, in some cases, it can be beneficial to sell the home but homes are kept during a bankruptcy far more than most people realize.
What About The Car?
Another common question is whether you get to keep the car.
To keep the car automatically, it can’t equal more than $6,600.
If it’s worth more than that, again you’ll have two options.
It is possible to add the car to the bankruptcy liquidation and just like the house, this can be a good option in some circumstances.
However, you might need your car for a variety of reasons.
Some people rely on their cars for work or to take their kids to school.
If that’s the case it will be important to keep the vehicle which is possible.
Similar to the home, you would need to pay the difference in equity over the $6,600.
Whether this will be worth doing will depend on how much the car is worth and how much equity you would need to contribute.
Again, it’s important to speak to your trustee about keeping the car and how to do this, if that’s an important consideration.
Most people think that declaring bankruptcy means losing the car automatically but this is far from the case.
What If You Want To Keep All Your Assets?
It’s not possible to maintain hold of all your assets when you file for bankruptcy.
However, there are other options available to you and this is why bankruptcy should be considered a last resort.
When you speak to your licensed insolvency trustee, they should present these options to you which includes a consumer proposal.
So what is a consumer proposal in Ontario?
This is a debt settlement plan that is legally binding.
If you find yourself in a massive level of debt that you can’t afford to pay off, then you can speak to a Licensed Insolvency Trustee and they should be able to help you put a massive plan together.
With a proposal like this, you won’t be paying all the money back to the creditors.
Instead, you’ll only pay a fraction back which is free from interest.
The amount you pay will be based on what you can reasonably afford.
This could be as little as 30% of what you originally owed so you can save a lot of money.
You need to work with your LIT to develop a plan of action here and ensure that the proposal will be accepted or at least, is likely to be accepted by the creditors.
The majority of creditors will need to approve the plan for it to be accepted.
A key benefit of a consumer proposal is that it doesn’t damage your credit as much as bankruptcy and it’s not as long-lasting.
Your record will be clean just three years after the plan is complete.
Usually, a consumer proposal will take a max of five years.
However, it is worth exploring whether you can pay this off earlier.
This will allow you to improve your credit far more rapidly and avoid a potential delay.
You can also make sure that the money you owe is easier to manage.
It will be consolidated into one monthly payment to the trustee.
They will then be responsible for dividing it between the creditors.
Another key advantage is that as soon as you file a proposal, any debt collection actions must stop immediately.
As such, it can take aware of the stress that you might be under and the pressure that could ultimately be causing you quite a lot of anxiety.
Of course, with regards to these discussions, a consumer proposal will allow you to maintain full control of all your assets if it is accepted.
You are not required to surrender any assets all though you can certainly sell some to make it easier to repay what you owe.
You also won’t have to worry about issues with interest.
We hope this helps you understand the bankruptcy exceptions as they stand in Ontario.
You could certainly keep your house and your car, even without filing a consumer proposal.
Although, in many cases, a consumer proposal could be a far better option.
Get in touch today with one of our friendly expert team members for more assistance with your debt relief.