The concept behind personal bankruptcy in Canada is this: you assign (surrender) everything you own – except properties listed as bankruptcy exemptions (explained below) – to a trustee in bankruptcy in exchange for the elimination of your unsecured debts.
Bankruptcy Exemptions Basics
When it comes to bankruptcy exemptions, the rules vary in each province. Below is the list of some of the types items listed as exempted in most provinces:
- clothing and / or personal items;
- a vehicle within a certain value limit;
- furnishings worth up to a certain amount;
- tools of the trade up to a set amount;
- Certain types of life insurance.
The dollar amounts set by each province vary, but in all cases the amounts are assessed based on liquidation value. In other words, what the trustee could receive if they sold them in a yard sale or auction.
Technically, everything else that you own is seized by the trustee and sold to repay your creditors.
For details on bankruptcy exemptions in each of the provinces, please visit our Bankruptcy Exemptions in Canada page.
What happens with my house after filing bankruptcy?
Like consumer proposals, bankruptcy only deals with unsecured creditors. Unless you have accumulated significant equity in your home, it will probably be unaffected by your bankruptcy. Certain provinces even allow an exemption or exclusion from seizure for a certain amount of equity. If you own your own home make certain to discuss the disposition of your home in detail with your trustee before you file bankruptcy.
Can I file for bankruptcy and keep my car at the same time?
If you have clear title to your car (you haven’t pledged it as security for a loan), and the car is worth more than the allowable exemption limit, then you will be required to either pay the trustee the value of the car from your post-bankruptcy earnings or the trustee will be forced to seize and sell your car. If you have a car, or any other type of vehicle, make certain to discuss the disposition of your car with your trustee before you file bankruptcy.
How are my RRSP’s affected?
In most provinces, including Ontario, most RRSP’s are considered an exempt asset in a bankruptcy except for contributions made in the immediate 12 months preceding the filing of a bankruptcy. For more detailed information about RRSP’s and other registered retirement plans see our article Bankruptcy and Registered Retirement Plans.
What do I do now?
We recommend that you consider consumer credit counselling or call an accredited trustee in bankruptcy to arrange for free, no obligation personal consultation. They will be happy to answer your questions related to filing bankruptcy and bankruptcy exemptions, and provide you with other useful information on debt management matters.