When you’re burdened by overwhelming debt, declaring bankruptcy can appear like an attractive solution. However, the question, “What Do You Lose When You Declare Bankruptcy”, often triggers considerable anxiety. In Canada, the situation is less bleak than many imagine.
The Canadian Bankruptcy Landscape
While it’s a common fear that declaring bankruptcy equates to losing everything, the reality in Canada is quite different. Each year, approximately 100,000 Canadians declare bankruptcy, and contrary to popular belief, most retain possession of their homes and often their vehicles as well.
Understanding the Bankruptcy Process
Surrendering Non-Exempt Assets
When you declare bankruptcy, you’re required to surrender any non-exempt assets to a Licensed Insolvency Trustee (LIT). These assets are then used to pay off as much debt as possible.
Retaining Exempt Assets
Despite the surrender of certain assets, debtors can retain exempt assets, which vary based on the province of residence. This means that declaring bankruptcy doesn’t necessarily leave you with nothing.
The Role of Licensed Insolvency Trustees
Licensed Insolvency Trustees (LITs) play a crucial role in the bankruptcy process. They guide you through each step, helping you understand your rights and responsibilities.
Bankruptcy Exemptions by Province
Bankruptcy exemptions differ slightly across Canadian provinces, with some allowing debtors to retain higher-value assets than others. Ontario, for instance, has rather generous exemptions, often excluding all but high-value assets from surrender.
Examples of Exemptions by Province
Assets You Can Keep When Declaring Bankruptcy
Most debtors can retain the following assets when filing for bankruptcy in Canada:
- Your home, provided it has equity of less than a certain value, depending on your province.
- A vehicle, subject to a provincial limit.
- Personal belongings and clothes.
- Job-related equipment.
- Household furniture, food, and tools.
- Certain types of agricultural property.
- Any RRSP, RRIF, RESP, and DPSP savings, barring any contributions made in the year prior to filing bankruptcy.
If you own high-value assets, it might be worthwhile to explore alternatives to bankruptcy, such as a consumer proposal or debt consolidation.
Impact of Bankruptcy on Home Ownership
Contrary to popular belief, declaring bankruptcy doesn’t automatically result in the loss of your home. If you can continue to make your mortgage payments on time and the equity in your home is less than $10,000, you can keep your home even after declaring bankruptcy.
If your home’s equity is greater than $10,000, it might be more beneficial to consider a consumer proposal.
Impact of Bankruptcy on Mortgages
Since a mortgage is a secured debt, it isn’t automatically discharged when declaring bankruptcy. This means a secured creditor cannot simply cancel your loan because you’ve declared bankruptcy.
Keeping Your Car When Declaring Bankruptcy
When declaring bankruptcy, you can keep one vehicle below the provincial limit. For instance, in Ontario, you could retain a vehicle under the value of $7,117.
However, if your car payments are proving to be too burdensome, you have the option to return it to the lender, and your debts will be eliminated upon declaring bankruptcy.
Obtaining a Car After Declaring Bankruptcy
Contrary to popular belief, it’s still possible to secure a car loan after declaring bankruptcy. By diligently repaying credit or loans, you can begin rebuilding your credit score, making it easier to secure a car loan.
Consultation and Guidance
Declaring bankruptcy can have a complex impact on your assets, including your car and home. Booking a free consultation with a Licensed Insolvency Trustee can provide crucial guidance on preserving your assets while navigating bankruptcy.
Conclusion: Personal Bankruptcy Stories
While declaring bankruptcy can be a daunting prospect, it doesn’t necessarily mean losing everything. By understanding the process, exemptions, and laws pertaining to your province, you can make informed decisions about your financial future.