Featured answer
| You do not automatically lose everything if you file bankruptcy in Ontario. Many assets are protected by Ontario exemption rules, while non-exempt assets, such as equity in a home or vehicle, may need to be paid or realized for the creditors. The answer depends on your assets, debts, income and expenses, and whether another solution, such as a consumer proposal, is a better option. |
Bankruptcy does not mean losing everything
One of the biggest fears about bankruptcy is the idea that you will lose everything you own. In Ontario, that is not how the process is designed. Bankruptcy is meant to provide a fresh start while still treating creditors fairly.
Therefore, certain essential assets are protected by exemption rules. Other assets may need to be reviewed for equity. A Licensed Insolvency Trustee can explain this and what it means in your particular situation. Review the full range of debt relief options.
What the trustee reviews
The Licensed Insolvency Trustee will review your home, vehicle, household goods, tools, savings, investments, tax refunds, insurance policies and any other valuable assets. The key issue often boils down to equity.
Equity means the value of an asset above what you owe against it. A vehicle with a loan may have little or no equity if the loan balance is close to the vehicle value. For example, a vehicle has $2,000 of equity if it is worth $20,000 and is secured by a loan with a balance of $18,000.
Ontario exemption rules matter
Ontario law includes exemptions for certain personal property. These rules are detailed, specific to each Canadian province, and the amounts change over time. That is why it is important not to rely only on general online information. The current rules are set out in the Ontario Execution Act.
A Licensed Insolvency Trustee can review the current Ontario exemption limits and explain whether your specific assets are protected.
What happens to a home in bankruptcy?
If you own a home, the Licensed Insolvency Trustee will review the fair market value, mortgage balances, hypothetical selling costs, the provincial exemption, and your ownership share. If there is little or no equity after taking these factors into consideration, the home may be treated differently than a home with significant equity.
If there is no equity during the course of a bankruptcy, the Licensed Insolvency Trustee and the creditors would not wish to sell the home because there would be no equity to distribute to the creditors.
If, however, there is equity, that value will need to be paid to the estate or otherwise dealt with if the person wishes to keep their home. This is one reason homeowners often compare bankruptcy with a consumer proposal, where people keep their equity and make payments to their creditors.
What happens to a vehicle in bankruptcy?
The Licensed Insolvency Trustee will review the vehicle’s value, loan balance, provincial exemption and whether the vehicle is needed to carry on a business. If the vehicle is leased or financed and you are current with the payments, you may be able to keep the vehicle and continue payments with the secured lender, but this depends on the lender agreement and equity.
Why a consumer proposal may protect assets
A consumer proposal is usually structured so you keep assets while making an affordable payment to the creditors. Creditors will usually compare the proposal to what they might receive in a bankruptcy scenario, and most creditors are open to accepting proposal offers that are fair and reasonable.
If you have assets that you want to protect, it is important to review your options, including a proposal, with a Licensed Insolvency Trustee before deciding whether bankruptcy is necessary. Official guidance on comparing options is available from the Office of the Superintendent of Bankruptcy page on comparing debt solutions.
Do not transfer assets before getting advice
Some people panic and think about giving assets to family or selling property before filing their proposal or bankruptcy. This can create serious problems, as the creditors may have the right to undo these transfers and go after the asset under insolvency law. A Licensed Insolvency Trustee must review transfers and transactions before bankruptcy or proposal filings.
Always get legal or professional advice before moving assets. For more information on the consequences of bankruptcy, see the Office of the Superintendent of Bankruptcy page on bankruptcy discharge and its consequences.
The main takeaway
You may not lose all assets in an Ontario bankruptcy, but the answer depends on equity, exemptions, secured debts and your overall financial situation. A Licensed Insolvency Trustee can compare bankruptcy with a consumer proposal and your other options and help you understand the safest path.
Frequently asked questions
Can I keep my home in bankruptcy?
It depends on the value of the home, your ownership percentage, your equity, the mortgage balance(s) and the Ontario exemption rules. A Licensed Insolvency Trustee can review these figures with you before you move ahead so that you can make an informed decision.
Can I keep my car in bankruptcy?
As with other assets, it depends on the value of the car, the loan balance, and the Ontario exemption rules.
Is a consumer proposal better if I have assets?
It may be. A consumer proposal may allow you to keep assets while making payments to creditors.
Speak with a Licensed Insolvency Trustee
Speak with David Sklar & Associates for a confidential review of your debts, assets, income and monthly budget. A Licensed Insolvency Trustee can explain your options and help you choose a realistic next step. Book a free consultation today.
