During bankruptcy in Canada, assets like home equity, non-exempt vehicles, surplus income, some investments, luxury items, high-value personal property, tax refunds, and windfalls like lottery winnings or inheritances can be seized to repay creditors.
However, specific rules apply to each of these asset types – and people are often surprised to find that their home, vehicle, and many other items cannot be taken.
In this guide, we’ll take a look at which of your assets (the things you own) can be taken to pay towards your debts when you declare bankruptcy. We’ll also explain some typical bankruptcy exemptions – things that can’t be taken after a bankruptcy filing.
What Can Be Taken After Declaring Bankruptcy?
When thinking about bankruptcy, people typically assume that the Licensed Insolvency Trustee can take all your assets (everything you own) – but this is far from the truth.There is very strict legislation laid out in the Bankruptcy and Insolvency Act that ensures both you and the unsecured creditors you owe are treated fairly – including lists of exempt assets (things that can be taken) and non-exempt assets (things that can’t be taken).
Although the rules vary slightly from province to province, the following list will explain assets that may be taken when you file for personal bankruptcy – along with some further details that explain the rules in more detail.
Equity in Your Home
The most common myth about bankruptcy is that you will always lose your home. In reality, this is very rarely the case. When you file for bankruptcy, the equity in your home can only be taken if it’s above the provincial exemption limit.If your equity is above your local provincial limit, a Licensed Insolvency Trustee may sell your home and use the non-exempt portion to pay creditors. But if your equity is below the exemption, you can usually keep your home.
Non-Exempt Vehicles
Provincial laws determine if you can keep your motor vehicle when you file for bankruptcy. Most provinces have a value limit for exempt vehicles, and only if your vehicle’s value is above the provincial exemption limit it may be seized and sold by the trustee to pay your creditors.That said, if your vehicle is needed for work or has a low resale value, you may be able to keep it. Ordinarily, if your vehicle is leased or subject to a finance agreement, bankruptcy will not affect your ability to keep it – as long as you can keep up with the payments.
Surplus Income Payments
Surplus income payments are mandatory payments a bankrupt person must make if their income is above a certain amount set by the government. The amount varies based on the number of people in your household.For example, a single person might have a threshold of around $2,500 per month. If your monthly income is above that amount, you’ll have to make payments to your creditors, usually 50% of the surplus.
These monthly payments will usually continue for a period of time during the bankruptcy and will be assessed month-by-month by the Licensed Insolvency Trustee handling your bankruptcy.
Some Investments and Savings
Not all investments and savings are protected in bankruptcy. Registered retirement savings plans (RRSPs) and life insurance policies are generally exempt – but contributions made in the 12 months before filing may be seized.Non-registered investments such as stocks, bonds and other savings accounts are usually not exempt and can be used to pay your creditors.
The trustee will liquidate these assets to pay your debts – however, owing to the complexity of personal finances, it’s best to talk to a Licensed Insolvency Trustee to find out which of your investments are subject to this rule.
Recreational and Leisure Items
Luxury and recreational items like boats, ATVs, vacation homes, or high-end electronics are not considered essential and are therefore non-exempt from bankruptcy. These assets can be seized by the trustee, sold and the proceeds distributed to your creditors.High-Value Personal Property
High value personal property like expensive jewelry, art collections or valuable antiques can be seized if their value is above provincial exemption limits.Each province has its own exemptions; for example in Alberta bankruptcy exemptions include up to $4,000 worth of household goods.
If the value of your personal belongings is above those limits the trustee may seize and sell the non-exempt items to pay off your debts. However, items necessary for daily living like furniture and clothing, regardless of the dollar value, are usually exempt.
Tax Refunds
In a bankruptcy, any tax refunds owed to you for periods before and during the bankruptcy process are part of the bankruptcy estate. This means the refunds will be seized by the trustee and used to pay your creditors.If you are expecting a tax refund, you should be aware that it will likely be redirected to your bankruptcy estate. However, tax refunds for periods after your bankruptcy discharge are usually not affected and can be kept by you.
Lottery Winnings, Inheritances, or Other Windfalls
Any unexpected windfalls like lottery winnings, inheritances or large cash gifts received during the bankruptcy process must be reported to your trustee. These assets become part of the bankruptcy estate and can be seized to pay your debts.Even if these windfalls are received after you’ve filed but before you’re discharged from bankruptcy they can still be claimed by your creditors.
Transparency is key – as not reporting these windfalls can result in penalties or an extension of your bankruptcy period.
What Cannot Be Taken During Bankruptcy?
There are certain assets that will not be affected by filing for bankruptcy. These are known as “bankruptcy exemptions” and may be protected either by federal or provincial law.These exemptions are designed to let a person who is filiing for bankruptcy to maintain a basic standard of living and continue working while they deal with their financial situation.
While people typically think of the physical items they need to continue with life – there are also some financial assets that are protected too.
It’s important to understand that the laws in each province are slightly different relating to non-exempt assets – however, the following overview will give you an idea of the assets exempt in all provinces. You should speak to a Licensed Insolvency Trustee for a more detailed understanding of the situation where you are filing for bankruptcy.
Assets That Are Exempt in All Provinces
- Property that you are holding in trust for another person
- Property that is exempt according to provincial laws
- GST/HST tax credit payments
- Other than contributions within 12 months of a bankruptcy, savings held in a Registered Retirement Income Fund (RRIF), Registered Retirement Savings Plan (RRSP), Deferred Profit Share Savings Plans (DPSP) and Registered Disability Savings Plan (RDSP)*
- Certain payments intended to help with the special needs of individuals, including CERB (Canada Emergency Response Benefit), and CRB (Canada Recovery Benefit), Canada Childcare Benefit. These payments are not counted as income when your LIT works out if you have surplus income payments during bankruptcy proceedings.
Summary: What Can They Take During Bankruptcies?
If you’re considering bankruptcy, it’s essential that you look into what can and cannot be taken as part of any action a Licensed Insolvency Trustee takes.While provincial law varies, typically, assets like equity in your home, non-exempt vehicles, certain surplus income, some investments, some luxury items and high-value personal property, tax refunds, and windfalls like lottery winnings or inheritances can usually be seized to repay your creditors.
Despite this, many of the myths surrounding bankruptcy are simply not true – for example, most people who file for bankruptcy are able to keep their home, their car, and most of their personal possessions.
Everyone’s financial situation is different, and as such, it’s extremely important you talk to a Licensed Insolvency Trustee to help understand which of your possessions would potentially be included in a bankruptcy filing – so you can take your next steps fully informed, and understand other debt solutions – such as a consumer proposal.
Key Takeaways
- Certain assets can be seized during bankruptcy, such as home equity, non-exempt vehicles, and luxury items.
- Surplus income and financial windfalls (e.g., lottery winnings and inheritances) may also be used to repay creditors.
- Investments and savings may be subject to seizure, with exceptions for specific registered plans like RRSPs.
- Provincial exemptions protect essential personal property and other assets, varying by location.
- Consult a Licensed Insolvency Trustee to fully understand which assets may be affected in your specific situation.