What Do I Lose If I Go Bankrupt?
The Bankruptcy and Insolvency Act (B.I.A) is a balancing act. The creditors want to get as much money as possible from you. On the other hand, you do not want to give up anything. The B.I.A. tries to balance these two opposing views in order that you become rehabilitated and, with a fresh start, get on with the rest of your life.
Credit and Collection people try to frighten you by telling you that you will lose everything by going bankrupt. This is simply not true. Some assets are protected by law – for example – locked in pensions, RRIFs (Registered Retirement Income Funds), RRSPs (Registered Retirement Savings Plans) – note – contributions to an RRSP in the 12-month period prior to filing the bankruptcy are not protected. In Ontario, personal assets that are protected from creditors include furniture (to a value of $11,300), clothing (to a value of $5,650), one car (to a value of $5,650), tools of a trade (to a value of $11,300).
We should make special mention of the exemption of a Tool of Trade. A Tool of Trade is anything that is tax deductible on your income tax return. The obvious tools are those that belong to a plumber, carpenter or electrician. But what if you are a salesperson who uses his car for business purposes. If the salesperson owned two cars (or one car and one motorcycle), one vehicle could be exempt as a personal vehicle ($5,650.00), the second could be exempt as a Tool of Trade ($11,300.00).
Even if you have equity in an asset such as a house, you can still keep the house by negotiating with your trustee to pay to the creditors over time the amount of the equity. Equity is the difference between what the house is worth less the pay out figure on the mortgage outstanding on the day you filed for bankruptcy. This same calculation takes place for a cottage, boat or any other non-exempt asset.
Your trustee will meet with you before you sign the papers to file the bankruptcy. Make sure you ask every question possible.
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