The bills are piling up, you’re facing penalty charges, late fees, and high interest rates, and you’re not sure how much longer you can keep juggling all your payments. It may be a sign that you’re insolvent, meaning you don’t have the income or assets to pay back your unsecured debts. That opens up options such as bankruptcy or a consumer proposal.
The big thing that frightens people away from bankruptcy is the belief that they could lose everything they have. In fact, there are a number of assets that are protected.
These are some of the assets that are exempt (or partially exempt) from seizure in a bankruptcy in Canada:
? Personal assets such as clothing and other items
? Household furniture & appliances in your primary residence
? Tools you use for work, i.e., carpentry tools, a laptop, etc.
? Equity in a motor vehicle
? Equity in your primary residence (in some provinces, including Ontario)
? Your pension plan and RRSP contributions (however, contributions to your RRSP made in the last 12 months are not exempt)
If these are the only assets you have, it can be a better idea to file a bankruptcy unless you have already declared bankruptcy before or you have another reason for not wanting to declare bankruptcy.
Here are some of the assets that are not exempt from distribution in a bankruptcy:
? Cash and money deposited in a bank account
? TFSA contributions, which are different from an RRSP
? RESP contributions, even if your child is the beneficiary (these can be bought back in order to keep the government grant that comes with RESP contributions)
? A second vehicle (car or truck)
? Second home, vacation property, or investment property (such as a rental house)
? Stocks, bonds, and other types of investments
? Family heirlooms
? Valuable collections, such as stamps or coins
?Expensive musical instruments, unless you are a professional musician (in which case they would count as tools of the trade)
This is not an exhaustive list and it’s always a good idea to discuss all your assets with a bankruptcy trustee, now known as a Licensed Insolvency Trustee, before you file for either bankruptcy or a consumer proposal.
If these represent a significant part of your wealth, a consumer proposal could be better for your financial health. When you get a consumer proposal in Canada, you keep these assets, but instead pay you creditors fixed monthly payments for up to 5 years. If you’re worried about bankruptcy wiping out savings you hold in TFSA or savings you’ve put toward your children’s education, consider a consumer proposal.
Bankruptcy trustees in Canada such as David Sklar & Associates are there to discuss your options. They act in the interest of both parties, finding a fair solution for you and your creditors. They are also responsible for distributing your assets in a bankruptcy or your payments to creditors in a consumer proposal. A bankruptcy trustee should always provide a free initial consultation to discuss your options. Be smart about how you get out of debt.