What Happens to My Assets When I Go Bankrupt?

Navigating Bankruptcy: Understanding the Fate of Your Assets

Bankruptcy is a daunting process, and it’s only natural to wonder: “What Happens to My Assets When I Go Bankrupt?” This comprehensive guide aims to dispel your doubts, providing you with a clear understanding of how bankruptcy affects your property.

Introduction to Bankruptcy

Bankruptcy, although formidable, serves a purpose. It offers a fresh financial start to individuals who are overwhelmed by debts. Contrary to popular belief, declaring bankruptcy doesn’t necessarily mean you’ll lose all your possessions. Certain assets, known as exempt assets, are protected under provincial regulations.

Bankruptcy and Exempt Assets

Exempt assets are properties that aren’t included in the bankruptcy estate, meaning they are not available for distribution among creditors. The extent of exemption depends on your province’s regulations.

RRSPs and Bankruptcy

Registered Retirement Savings Plans (RRSPs) are one of the key considerations in a bankruptcy. They are generally exempt, barring contributions made 12 months prior to the bankruptcy declaration.

RESPs, Cash, and Bankruptcy

Registered Education Savings Plans (RESPs), despite being in your child’s name, are seen as cash assets as they can be cashed in anytime. Therefore, they are not exempted, and trustees will realize upon them. Similarly, all cash on hand, such as savings accounts, needs to be turned over to your trustee.

Your House in Bankruptcy

Your house isn’t automatically lost in a bankruptcy. However, several factors need to be considered:

  • If there’s no equity available in your house for unsecured creditors, the trustee will not seize your property. As long as you’re not in arrears and continue making payments, your mortgage company will usually work with you.
  • If there’s any equity in your house, you must pay the value of that equity to your trustee to keep your house.
  • If you’re in default on your mortgage payment, or if you fall behind during your bankruptcy, your lender may initiate Power of Sale Proceedings to sell your property.

Cars and Other Vehicles in Bankruptcy

Vehicles are subject to provincial regulations when it comes to bankruptcy. For instance, in Ontario, you’re allowed to keep one vehicle valued at a maximum of $5,650, whereas in Quebec, there’s no value limit.

Tax Refunds in Bankruptcy

Your tax refunds must be surrendered to your trustee for distribution to your creditors for the duration of the bankruptcy, including the year you file.

Inheritances and Lottery Winnings in Bankruptcy

If you’re fortunate enough to win the lottery or receive an inheritance during your bankruptcy, these must be turned over to your trustee. If any money remains after your creditors and trustee’s fee are paid, it will be returned to you.

Final Thoughts

Bankruptcy can be complex and intimidating, but understanding how it affects your assets can make the process less stressful. To explore your options and get tailored advice, it’s always beneficial to consult with a trustee or a financial advisor.

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