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Will I lose everything if I go bankrupt in Ontario?

By Janette Martin

The answer is no, you will not lose everything if you file for bankruptcy in Ontario.

My name is Janette Martin and I am an estate manager working with Trustee Benny Mendlowitz here in the Hoyes Michalos & Associates Inc. North York office.

There are many misconceptions about what happens to a person when they file for bankruptcy in Ontario.  Some people think they are not allowed to work (not true), some people think that their family will become responsible for their debts (not true, unless they have co-signed for you), and some people think that either their creditors or the trustee will come to their house to take away their belongings and sell them to pay their debts.

When you file for bankruptcy, as your trustee, we have many responsibilities.  One of our responsibilities is to determine what assets you own and what their value is.  There are several  laws that protect your assets from seizure.  If an asset is not protected by law, then we must sell that asset and we will eventually distribute the money received from the sale to your creditors.

The rules regarding exempt assets change periodically, so it is best to consult with a Hoyes Michalos team member to discuss your specific situation, but here’s a simple overview:

The Execution Act of Ontario exempts a person’s basic belongings. These Ontario bankruptcy exemptions mean that if you go bankrupt in Ontario, the following assets are exempt from seizure by your trustee.

• $5,650 worth of personal possessions (clothing, jewelry, sports equipment, etc.);
• A motor vehicle (cars, trucks, etc.) worth up to $5,650, provided there are no liens against it;
• $11,300 worth of furnishings;
• $11,300 worth of tools of the trade (equipment that you use to earn a living).

So, if you go bankrupt in Ontario, you won’t lose your basic personal possessions, and inexpensive car, and your household furnishings, up to the “garage sale value” limits noted above.

While this list covers the basics, there are other assets that we commonly see, such as life insurance, RRSP?s, automobiles and real estate.

If your life insurance is term insurance, there is no cash value to it, therefore your trustee will not take it.  If your life insurance is whole life, it will at some point have a cash surrender value.  Depending on whom the beneficiary of the policy is, the Insurance Act of Ontario may protect the cash surrender value.  Also, if you have an RRSP with a life insurance company it may be protected depending on who the beneficiary is.

If your RRSP is with an institution other than a life insurance company and you have not made any contributions to it within the 12 months  before you file bankruptcy, the RRSP would be exempt.  Your trustee will only take the contributions made within the 12 months before your date of bankruptcy.

If you own a car or a house, your trustee will calculate the equity in that asset by first determining it?s fair market value and then subtracting the amount of the loan secured against the asset.  In Ontario, the equity in your car is exempt to an amount set under The Executions Act of Ontario, but unfortunately there is no exemption for equity in a home in Ontario.

You will also lose your tax refund if you file bankruptcy.

If you have avoided seeking help because you are worried about what you will lose, you can see that filing for bankruptcy has very little impact on most people.   If you have an asset that you want to keep that you would otherwise lose in a bankruptcy there are other options you can consider. A consumer proposal is a good alternative to bankruptcy, and you don’t have to worry about losing your assets.

Filing a consumer proposal is equivalent to making a deal with your creditors.  You can offer your creditors a monthly payment over a period of years in exchange for being able to keep your assets.  You are in a way “buying back” your assets from your creditors, so the amount that you offer them in your proposal must be equivalent to the realizable value of the asset.

Sound complicated? Not sure if a consumer proposal or bankruptcy is the right solution for you? If you are having a difficult time keeping up with your payments to your creditors, you can visit our website for a free on-line review of your situation, or call Hoyes Michalos at 310-PLAN (that’s 310-7526, no area code required, and that number works for all of our Ontario offices), or e-mail us today to arrange for a free initial consultation.

Full post as published by Hoyes Michalos and Associates Ontario Personal Bankruptcy Blog on January 31, 2011 (boomark / email).