What Can They Take During Bankruptcies?

Posted on February 29, 2024 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

For many Canadians, the first thought when thinking about bankruptcy is, “I’m going to lose everything.” However, even in bankruptcy, there are assets that you can keep, known as bankruptcy exemptions. Every province and territory has their exemptions besides the federally regulated exemptions. In Ontario, the exemptions are set out in the Execution Act of Ontario.

What Assets Can I Keep in Bankruptcy in Ontario

In a personal bankruptcy, the following are exempt from seizure in bankruptcy:

  • All necessary clothing for you and your dependents with no dollar limit
  • Household furnishing and appliances up to $14,180
  • Tools and property used to earn a living to a maximum of $14,405
  • One motor vehicle not exceeding a value of $7,117
  • Equity in your home if that amount is less than $10,783
  • RRSP and RRIF savings, except contributions made within the last 12 months

It is critical to understand that all prescribed limits set out by Ontario law are based on the resale value on an as-is basis. For example, if you have work tools, they will likely show wear and tear from use. For calculations for bankruptcy, they will be valued based on what they would sell for as-is, not based on replacement value.

A similar principle is applied to your vehicle. You can keep one vehicle (car or truck) up to the limit set in the exemptions based on the actual resale value. Generally, the trustee will use the black book value to estimate your vehicle’s value and determine if it is exempt.

Questions About Bankruptcy and Exempt Assets

What Happens to My Wages in Bankruptcy?

Generally, you can keep your wages during a bankruptcy. If anything, bankruptcy will stop most wage garnishments. However, you must provide your trustee monthly proof of income and expenses. Your trustee will determine your average net income to calculate potential “surplus income.” The government has set a threshold limit for income in bankruptcies. If your income exceeds this limit, you must make surplus income payments.

Can I Keep my Bank Account if I’m Bankrupt? 

While you can keep your bank account in bankruptcy, we strongly advise you to open a new bank account at a bank that you do not owe any money to before filing the documents. This will prevent your bank from seizing funds for unpaid debts after you file.

Generally, funds in a bank account are not exempt from seizure. However, you typically can keep a small amount in your new bank account to cover short-term living expenses like rent or food.

What Happens to My Tax Refunds?

Your Licensed Insolvency Trustee (LIT) will file (at least) two tax returns for you during the year you declared bankruptcy:

  • A pre-bankruptcy return (January 1 to the day before your bankruptcy)
  • A post-bankruptcy return (date of bankruptcy to December 31)

Any tax debt on your pre-bankruptcy return is included in your bankruptcy; any on your post-bankruptcy return are your responsibility to pay. Any tax refunds applicable to the date of bankruptcy and on your post-bankruptcy return will be sent to your trustee to divide between your creditors. However, you will get to keep any HST cheques and Child Tax Benefits.

Can I Keep My Leased Vehicle?

In bankruptcy, leased vehicles are treated differently than owned vehicles. You do not own your leased car. Instead, you are granted the right to use the vehicle in exchange for lease payments, similar to the lease on a house. Regardless of its value, you can keep the leased vehicle if your lease payments are current.

ALSO READ: Can You Include Your Car Loan in a Consumer Proposal

You can also surrender your leased vehicle and include the shortfall debt as a debt to be eliminated in your bankruptcy. This option is feasible if you cannot afford your lease payments.

Can I Keep My House if I File for Bankruptcy?

If the equity in your house is less than $10,783 and your mortgage payments are current, you can keep your house in Ontario unconditionally. If it is over this amount, you can arrange to buy back the equity in your home.

What Happens to My RRSP in a Bankruptcy?

Except for any contributions made in the 12 months before your bankruptcy, you can keep all RRSP, DPSP and RRIF savings. However, RESP, TSFA and other investment savings are not exempt from seizure.

What About Lottery Winnings, Inheritances and Other Windfalls?

Lottery winnings and similar windfalls or inheritances received, or due to you, due to the death of someone during bankruptcy, will become an asset of the bankruptcy and be sent to your trustee for the benefit of your creditors.

On the other hand, bonuses and commissions are considered income and would not be subject to seizure. They will, however, be included in the calculation of surplus income.

What Assets Can I Keep?

Bankruptcy Exemptions in Ontario

  • Clothes for you and your family: Unlimited
  • Furnishings and appliances: up to $14,180
  • Tools of the trade: up to $14,405
  • One motor vehicle: up to $7,117
  • If the equity in your home does not exceed $10,783, your home is exempt; if the equity exceeds $10,783, then your home is not exempt from seizure
  • Most pension plans and certain types of life insurance policies
  • RRSPs, except for contributions in the 12 months before the date of bankruptcy

File a Consumer Proposal and Keep Everything

There is an alternative to bankruptcy. If you have non-exempt assets that could be seized in bankruptcy or if they exceed the exemption limits, you may want to consider a consumer proposal.

One of the most significant benefits of a consumer proposal is that you can keep all your assets. It is a federally regulated, legally binding negotiated debt settlement arrangement in which you make monthly payments to repay a portion of your debt. Speak to one of our Licensed Insolvency Trustees to see if a consumer proposal is the right solution for you.

You Don’t Lose Everything

As you can see, you do not lose all assets in a bankruptcy in Canada. Depending on the province you are in, there are different exemptions from seizure. A Licensed Insolvency Trustee at Chande Debt Solutions can review your financial situation to determine if bankruptcy or a consumer proposal are the most advantageous solutions to your financial problem.

The experienced Licensed Insolvency Trustees of Chande Debt Solutions are focused on personal debt relief and insolvency services. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well informed and don’t rush into any solutions. All of our consultations are free, without time limits.
Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.

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Mihir Chande
Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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