Gifts During Bankruptcy - How Are They Treated?
How Are Gifts Treated During Bankruptcy?
When you file for bankruptcy, it is only natural to wonder whether the people working on behalf of your creditors can collect the gifts you receive.
Canadian law permits insolvency agencies to collect all “non-exempt assets” and then distribute the funds they generate to creditors equitably.
In some cases, this involves the collection of gifts, but usually only if they are substantial.
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How Does The Law Treat Gifts During Bankruptcy?
When you file for bankruptcy, a licensed insolvency trustee handles your case.
Under the current rules, trustees have the right to obtain any gift to provide funds to repay their clients, but in practice, this is rarely how it works out.
Trustees, for instance, won’t rummage around in your closets, looking for presents from grandma to sell on eBay.
Instead, they will usually only collect gifts if they are worth a significant amount of money.
So, for instance, if grandma sent you $3,000 by cheque, they may then use this money to contribute to paying off whatever debt you owe.
Similarly, if somebody gave you a car or other piece of equipment with a high resale value, you will have to declare this to the trustee too.
In general, though, trustees won’t attempt to collect minor gifts.
You don’t have to worry about the Christmas jumper your aunt gave you during the holidays.
How Does The Law Treat Inheritance?
Conceptually, inheritance is similar to a gift.
It is freely-given money and assets you receive from a relative or friend.
The law, therefore, treats it similarly.
If you receive an inheritance while going through bankruptcy, you should immediately inform the trustee.
They will then liaise with the executor of the estate and carry out the necessary paperwork.
Any money you owe creditors will flow from the executor to the trustee, who will then distribute it according to whatever scheme they are using.
The good news, though, is that once you pay off your debts and any interest owed, any remaining money goes to you.
How Does The Law Treat Lottery Winnings?
Some people are fortunate enough to receive lottery winning between the date that they file for bankruptcy and completion of the legal process.
The law currently states that lottery winnings are the property of the bankruptcy estate.
In practice, this means that any funds you win must first flow to the trustee.
The trustee will then take money out of the pot equal to the value that you owe your creditors and return the rest to you.
It is important to note that it doesn’t matter when you claim your lottery winnings.
Waiting to claim a prize until after the completion of the bankruptcy process doesn’t disqualify your creditors from using it to collect funds.
The crucial piece of information is the date on which you bought the ticket.
If you purchased it during the bankruptcy process, then you will need to inform the trustee.
Remember, navigating a bankruptcy can be a challenging process, so it is always beneficial to have professionals on your side.
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