Can Ontario’s bankruptcy exemptions protect your most valuable assets? Indeed, they can. One of the most pervasive myths about bankruptcy is that you cannot file when you have assets you’d like to keep. This is simply not true. The purpose of bankruptcy is to afford you a fresh start, unencumbered by debt, with greater control over your financial future.
Contrary to popular misconceptions, you can file for bankruptcy if you have assets. You’ll keep your home. You’ll still be able to lease or own a car. And your retirement savings will go largely untouched. In fact, you will not have to worry about going without the things you need to continue to take care of yourself and your family, make a living, and launch yourself on the path to financial freedom.
The best thing about bankruptcy is that it gets rid of your debt and stops collection activity, allowing you to get on with your life right now. However, the pressing question most people have when they consider such a definitive step is:
What Assets Can You Keep in Bankruptcy?
In Ontario, the exemptions are generous. We’ve attempted to answer the most frequently asked questions to help you understand this important process. Of course, you’ll want to speak to a Licensed Insolvency Trustee at Adamson & Associates who can help you take a comprehensive look at your particular situation. Bankruptcy is not the only option.
Frequently Asked Questions: Ontario Bankruptcy Exemptions 2020
Can I Keep My House?
If you’re a homeowner, the news is very good. It is highly likely that you will keep your home in an Ontario bankruptcy. The exemption amount is up to $10,000. In order to calculate the realizable equity in your home, take the appraised value and subtract the amount of your outstanding mortgage, property taxes and selling costs.
For instance, let’s say that your home is worth $500,000 and you have an outstanding mortgage of $470,000. Selling costs are $22,000. In this case, your remaining equity is $8,000. This does not exceed the exemption amount so you would definitely keep your home. If, however, you believe that you would exceed the allowed exemption, you should speak to your Trustee about other options, such as a consumer proposal.
Can I Keep My Retirement Savings?
Ontario largely protects your company or government pension plan. However, for RRSPs there is a so-called clawback provision, which could potentially affect contributions made in the 12 months prior to bankruptcy. Since you wouldn’t normally make direct contributions to an RRIF, it is exempt. But your Trustee can let you know definitively. As for DPSPs, if you are still an employee of the company, all contributions are protected. If you are no longer employed there, you may be affected by the clawback provision for the 12 months prior to bankruptcy.
Can I Keep My Car?
Most people need a car to transport themselves and family members to work or school. The exemptions include one motor vehicle valued up to $6,600. This is based on the black book value. So if you have a car worth less than $6,600 with no car loan, you keep your car. It is still possible to keep your car if the black book value exceeds this amount. Your Trustee can help you determine your options. What happens if you owe money on your car? In that case, if the amount you would have remaining after the loan is paid off does not exceed $6,600, you keep the car. Otherwise, you will need to consult with your Trustee to determine your options.
If you are leasing a car, it’s not really yours. So as long as the payments are current, you keep it no matter how valuable it is. Of course, whether you are leasing or purchasing, if the payments are a problem for you, you’ll want to consider your options alongside your Trustee.
Can I Keep My Wages?
You keep your wages. In fact, if your wages are being garnished, all collection activity stops. Bonuses and commissions are considered income, as well, and they are exempt.
Can I Still Have a Bank Account?
Banks can seize funds for unpaid debt once you file, so you should move your money to a different bank. These funds are not exempt, however. You’ll work with your Trustee so that you have the money you need to cover your living expenses, including rent, food and other necessities.
What Tools and Equipment Can I Keep?
Many people work in a profession that requires them to provide their own equipment. This may include hand or power tools, computers and office equipment, or any tools needed to earn income. You can keep the tools or property that you use to earn a living up to $11,300. Although this amount may seem low, keep in mind that the resale value of a three-year-old computer will be significantly lower than the original purchase price.
What Household Goods Can I Keep?
In addition to your sofa, television and bed, etc, Ontario bankruptcy exemptions include items such as rugs, appliances, cooking utensils and decorative art objects. The exemption is $13,150, based on the resale value. This would not be a lot of money if you had to replace all of your household belongings. However, if you were to sell your well-loved $3,000 living room sofa, you might only get $150 for it. That’s the resale value. If you have questions about whether or not an item is considered household goods, you should ask your Trustee.
Are There Clothing Exemptions?
There is no limit to the amount of clothing you can own. Although clothing is considered an asset, unless you have a closet full of collectible designer duds, they have little value to anyone other than yourself.
Will I Get to Keep My Tax Refund?
Your Trustee will file two tax returns in the year that you file bankruptcy: one pre-bankruptcy and one post-bankruptcy. Any refunds during the bankruptcy year go to the Trustee. After that, the tax refunds are yours to keep. You also keep HST cheques and Child Tax Benefits.
Speak to a Licensed Insolvency Trustee About Bankruptcy in Ontario
It is possible to keep your assets even when they exceed the exemption limitations. You can either use a buy-back arrangement or a consumer proposal. There are advantages to each. Buy back affords you complete bankruptcy protection while allowing you to keep your assets with a manageable payment plan. A consumer proposal lets you keep valuable RRSP contributions and other assets while reducing your debt to a fraction of its previous amount. Your Trustee will work with you to determine the best possible course of action for your situation.
Bankruptcy is an important decision. You’ll want to talk over your options with an expert. Licensed Insolvency Trustees are the only people who are licensed by the Federal Government to assist you in Ontario. Call a Licensed Insolvency Trustee at 519-310-JOHN (5646) to set up your free, no-obligation consultation at Adamson & Associates today.