What You Can Keep When Going Bankrupt in Ontario
Filing for bankruptcy in Ontario implies a significant financial decision with substantial implications. The process might seem daunting, especially when you’re uncertain about the assets you can retain. This guide aims to shed light on the topic, “Bankruptcy Ontario: What Can I Keep?“, to help you navigate through the complexity of bankruptcy laws.
Understanding Bankruptcy
Bankruptcy is a legal status declared when an individual cannot meet the financial obligations to their debtors. It is a last-resort strategy for debt management, typically when other options like debt consolidation, credit counselling, or consumer proposal fail to provide adequate relief.
When you file for bankruptcy, your assets are handed over to a Licensed Insolvency Trustee (LIT), who then liquidates these assets to repay your creditors. However, not all your assets are vulnerable to this process. Certain assets in Ontario are exempt from seizure in bankruptcy according to provincial and federal laws.
Misconceptions About Bankruptcy
One of the prevalent misconceptions about bankruptcy is the fear of losing everything. However, bankruptcy is not a punitive process but a legal way to get a fresh financial start. The law provides for certain exemptions to ensure you can maintain a basic standard of living.
Exempt Assets in Ontario
The provincial law in Ontario outlines a list of exempt assets that remain unaffected when you declare bankruptcy. These exemptions are designed to protect a certain level of your personal and essential belongings from the bankruptcy proceedings, ensuring they’re safe and secure.
Personal Clothing
Personal clothing is entirely exempt, with no set limit on the value. This provision ensures that you and your family can retain all your clothing, irrespective of their worth.
Household Belongings
Household furniture, appliances, food, and fuel in your primary residence are exempt up to a value of $14,180 (as of 2021, subject to yearly inflation adjustments).
Motor Vehicle
You’re allowed to keep one motor vehicle, provided its value does not exceed $7,117. If your vehicle’s value exceeds this limit, you might have to surrender it, or pay the trustee the excess amount to keep it.
Tools of Trade
Tools and equipment you use to earn your living are exempt up to a value of $14,405. This can include anything from a computer for a freelance writer to a set of tools for a mechanic.
Pension Plans and Life Insurance Policies
Most pensions and life insurance policies are exempt, along with Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) contributions, except those made in the 12 months before filing for bankruptcy.
Equity in Your Home
Equity is the value of the property left after deducting all secured loans. In Ontario, you can keep equity in your home up to $10,783. If your equity exceeds this limit, you may have to sell your home, or make arrangements to pay the surplus equity amount.
Federal Exemptions
In addition to provincial exemptions, certain property is also protected by federal law under the Bankruptcy and Insolvency Act. These include GST/HST credits, RRSP and RRIF savings, property held in trust for another person, and Registered Disability Savings Plan (RDSP) savings.
Non-Exempt Assets
Non-exempt assets are those you may have to surrender. These are sold by the LIT, and the proceeds after paying off any secured loans on those assets are distributed to your unsecured creditors.
Non-exempt assets can include:
- Excess equity above the exemption in the first vehicle plus any additional vehicles.
- Investments not protected in a registered account (including TFSA accounts).
- Cash in your bank account above a reasonable amount required for short-term living costs.
- Luxury items like jewelry, coin collections, and valuable art.
- Second homes or vacation properties.
- Tax refunds on income earned leading up to the filing date.
Avoiding Bankruptcy: The Consumer Proposal
If the idea of losing your non-exempt assets is daunting, a consumer proposal might be a more suitable option. This allows you to negotiate a repayment plan with your creditors while keeping all your assets. The payment terms are designed to be affordable for you, and once agreed upon, no further interest is charged on your debts. Any remaining debt after the completion of your consumer proposal is discharged.
The Bottom Line
Bankruptcy in Ontario is not a process to strip you of all your belongings but a legal mechanism to help you reset your financial status while ensuring your basic living standards. If you’re considering bankruptcy, it’s crucial to seek professional advice to understand fully what assets you can keep.
Remember, each case is unique and the exact assets you can keep might vary based on your specific situation. The figures provided are subject to change and are only accurate as of the time of writing.
