Is It A Good Idea to Sell Assets to Pay down Debt?

Selling Assets to Pay down Debt

The decision to sell your assets to pay down debt is very difficult. Depending on the asset you’re thinking about selling, you might be faced with unexpected costs.

Selling your home or cashing out your savings account may not be the best way to resolve your debt issues.

There are better options out there to clear your debt without giving up all your assets.

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Before leveraging your assets to pay down debt, here are seven factors to consider:

1. The Legal Right

Ask yourself, do you have the right to sell the asset?

For example, if your vehicle is leased, you don’t have the legal right to sell it off because it’s not yours!

If you’re thinking about selling off your investments, they might be locked in.

This means you cannot access your money right away.

2. Liquidation Value

What’s the liquidation value of the asset?

How much money will it generate to pay off your debt?

Are there selling costs?

Are there tax implications?

For instance, if you withdraw funds from your RRSP, you are required to pay taxes on the amount taken out, leaving you with less money to pay your debt.

Items like mortgages and car loans are assets secured by another debt that require you to first pay the secured lender.

3. Amount of Cash

Will the amount of money be sufficient to pay off your debts entirely?

One serious mistake many people make is selling off their assets but not paying off all unsecured debt.

If you’re unable to procure sufficient cash from liquidating or selling off your assets, then you need to consider other debt relief solutions.

4. Protection from Creditors

Certain bankruptcy laws protect your assets from seizure by creditors.

If you file for bankruptcy, your trustee will not be able to seize those assets.

Examples include many household goods, RRSPs, etc.

Therefore it doesn’t make sense to liquidate such assets.

There are debt options out there that enable you to hold on to your home if you have some equity.

5. Using One Debt to Pay Another

Refinancing the home is an option many people consider when faced with insurmountable debt.

In this case, the homeowner is leveraging his or her current equity (the house) to consolidate all unsecured debts.

Although this is not selling your home, you’re simply using one type of debt (a second mortgage) to pay down another debt.

You’re also not eliminating the main debt issue.

In fact, you’re taking on higher debt repayment because interest rates are higher during renewal.

6. Pressure from Creditors

Are you facing pressure from collection agents or creditors to cashing in your RESP, RRSP, or TFSA to pay off the debt?

Do this only if it is possible to get rid of your entire unsecured debt.

Draining your life savings to pay one debt is not a feasible solution.

7. Recurrence of Debt

If you opt to refinance, will you be able to afford the payments?

It’s not that uncommon to sell off some of your assets to repay a debt, only to see the debt balance come back up.

Some people take out a debt consolidation loan only to discover that they’re unable to make the payments.

Is it a good idea to sell off assets to pay down your debt?

We recommend using your assets resourcefully to eliminate all debt.

Don’t waste your assets to pay down a small amount of debt.

Using a more strategic approach and work in conjunction with a Licensed Insolvency Trustee or LIT to pay off your debts.

Here are some alternatives you can use to clear your debts:

Look for a lump sum consumer suggestion to remove your debs entirely.

For example, let’s say you have $10,000 in a savings account but you have $25,000 in outstanding credit card debt.

You can submit a lump-sum proposal to creditors to eliminate the debt you owe with the $10,000 in saving you have.

You wouldn’t be able to do this if you attempted to repay the debt by yourself.

File a consumer proposal with a payment period of 5 years.

To keep all of your assets including your home and savings, submit a consumer proposal with a payment period of five years.

A Licensed Insolvency Trustee can help you draft this proposal.

This document will help create a deal with creditors that enables you to pay a percentage of your debt.

For instance, let’s say you owe $30,000 in credit card debt.

With a consumer proposal, this can be lowered to $10,000.

You may offer to pay this amount over a period of 5 years or $167 per month.

This payment is much more affordable and manageable.

It would enable you to hold on to all of your assets.

File for bankruptcy and keep most of your assets such as your car, home, and even RRSP.

Most people assume that when you file for bankruptcy, you will lose all of your assets.

This is far from the truth!

Canadian bankruptcy laws enable you to hold on to most of your assets.

In fact, there is an equity exemption for your home up to $10,000.

You may even pay out a larger equity amount to creditors as part of your payment.

The key take away from this blog is that before you think about selling any of your assets such as your home, car, jewellery, etc., realize that you have better options.

Selling off your prized assets won’t necessarily generate sufficient money to pay off all unsecured debts.

When you work with a Licensed Insolvency Trustee, you can hold on to all of your most meaningful assets like your home and RRSP.

Filing for bankruptcy doesn’t mean you have to get rid of your safety net.

A LIT will help you create a plan for debt elimination, giving you a restart for a better financial future.

To learn about better strategies to manage and pay off existing debt, consider hiring a Licensed Insolvency Trustee.

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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