When you file for bankruptcy, you must sell some of your assets to cover a portion of the debt that is owed.
However, not all of your assets are eligible to be seized and some of them are considered exempt, so you will be allowed to keep them.
But many people are unsure about the rules around exempt assets in bankruptcy and they don’t know what they will be able to keep and what they won’t.
When you file for bankruptcy, all of your assets will be vested with a bankruptcy trustee, but certain assets are exempt.
Although the rules differ slightly depending on where you live, the exempt assets in bankruptcy remain the same, in most cases.
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Furniture and personal effects are exempt in most places, up to a certain value.
For example, in Ontario, you are allowed to keep any furniture up to the value of $11, 300 and any other personal effects up to the value of $5,650.
The trustee will assess the value of these assets and if they are worth less than the specified amount, you will be allowed to keep them.
The value limits vary depending on location, but you will always be allowed to keep some furniture and personal effects.
Cars are always exempt assets in bankruptcy, but there are limitations.
You will be allowed to retain one vehicle, up to the value of $5,650.
If you have more than one car or your car is worth more than $5,650, you have a few options.
If you want to keep the car, you will have to pay the difference.
For example, if you have a car that is worth $8,000, you can keep it if you pay $2,350.
If you do not want to pay the difference, the car will be seized and sold.
Life insurance policies and investments are also exempt assets in bankruptcy.
If you have pension plans or RRSPs, they are considered exempt under Provincial Legislation.
However, any contributions made in the last year are not exempt and will be paid to the trustee.
The rules are a little more complicated where life insurance policies are concerned and it depends on the type of policy that you have.
Term policies, which have no cash value, are considered exempt.
However, a whole or universal life insurance policy, which has a cash value, is not considered exempt unless the beneficiary is in the designated class.
This includes a direct relation to you, like a child or spouse.
It does not include more distant relatives, like aunts and uncles.
If the policy is not considered exempt, you may have to negotiate a payment plan with your trustee so you can keep it.
The rules around exempt assets in bankruptcy can get quite complicated, so before you file for bankruptcy, it’s important that you understand which assets you will get to keep.
If you need more advice about exempt assets in bankruptcy, we are here to help, so get in touch today.
You can reach us by phone or fill out an evaluation form and we will get back to you.
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