Bankruptcy & Co-Signers
When someone is declared bankrupt, the bankrupt’s assets vest in the Trustee and the Trustee may take possession of and sell these assets for the general benefit of the bankrupt’s creditors.
If there are co-signors on a debt, when one of the co-signers files for bankruptcy the other co-signer is then responsible for the debt in full less any amounts that the creditor MAY receive from the bankruptcy. However, payment of funds from the bankruptcy will take a minimum of 1 year and the creditor will likely require payment by the co-signor well before any distribution.
It should be noted that there are items that are exempt in the province of Ontario. Section 67 of the Bankruptcy and Insolvency Act has 4 categories regarding exempt property.
- property held by the bankrupt in trust for other persons;
- property of the bankrupt that is exempt from seizure under the applicable provincial law where the property is situated and where the bankrupt resides;
- GST credit payments and prescribed payments relating to the essential needs of individuals; and
- Contributions to Registered Retirement Income Funds or Registered Retirement Savings Plans more than 12 months before bankruptcy.
The Provincial exemptions are set to allow a person to retain basic property/items.
In Ontario, the Provincial exemptions are as follows:
- necessary and ordinary clothing of the debtor and his or her family – (NO LIMIT);
- household furniture, utensils, equipment, food and fuel contained in and forming part of the debtor’s permanent home up to a prescribed amount or $11,300;
- business tools, instruments and other chattels not exceeding a set amount or $13,150.00 ;
- an automobile up to a prescribed maximum value or $6,600.00 ; and
- Most pension plans and life insurance policies.
- Equity in principal residence if it is less than $10,000. (If the equity is more than $10,000, there is no exemption at all)
