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Bankruptcy & your assets

Bankruptcy exemptions

 

Will I lose everything if I go bankrupt?

One of the main purposes of the bankruptcy process is to give people who are overwhelmed by debt an opportunity for a fresh start. That includes keeping certain possessions to help you get back on solid financial footing. You may be afraid that you will lose everything you own if you file for bankruptcy but this is not true. There are Federal and Provincial bankruptcy exemptions which allow you to keep certain assets and possessions.

RRSPs​ ​If you file for bankruptcy, under federal law, RRSP contributions are exempt from seizure, except for contributions made in the last 12 months.  Note that some provinces also provide an exemption for RRSPs with no claw-back. 
​Your home ​Many people are concerned they will lose their home if they file for bankruptcy. Learn more about bankruptcy and your home and how to protect it.
​Personal and business assets and possessions ​For each province, there is list of assets and possessions (e.g. your car, furnishings, business assets and property) that are exempt from seizure in a personal bankruptcy filing, based on provincial acts and laws. 
​Salary and wages ​If your wages are being garnished and you file for bankruptcy, this action will stop. If you earn income above a set level, you will be expected to make payments to the Trustee during the bankruptcy process until the date you are discharged. This amount is called surplus income and is based on standards issued by the Superintendent of Bankruptcy, as well as on your personal and family situations.
​Tax returns ​During your bankruptcy, your tax returns will be handled by the Trustee. When you file for bankruptcy, the Trustee prepares a pre-bankruptcy tax return from January 1 to the date of bankruptcy and any refund for that period. Any refunds of previous years not yet received will be kept by the Trustee.  A post-bankruptcy tax return for the period from the date of the bankruptcy to December 31 may be completed by the Trustee. Any refund resulting from this tax return may be assigned to the Trustee. You must pay any taxes payable regarding this post-bankruptcy return, whether or not you are discharged. Any GST cheques based on the tax returns that are filed by the Trustee for the period(s) up to and including the year of bankruptcy will be sent to the Trustee. Since the government calculates GST refunds, you may not receive one for a period of up to two years from the date of your bankruptcy.
​Lottery winnings or inheritances ​If you become entitled to receive financial assets, such as lottery winnings or an inheritance during your bankruptcy (after the date of bankruptcy, but prior to being discharged), they will be considered assets that must be shared among your creditors and must be turned over to the Trustee. The Trustee will pay your creditors and return to you any amount that is left over.
​Special gifts, transfers of property or special treatment ​Gifts or transfers of property by you to others during the 12 months (or, in some cases, up to five years) prior to your bankruptcy are subject to review by the Trustee and may be reversed by the court. If a creditor or a person related to you received special treatment, such as being paid while others were not, the Trustee may demand repayment from them. The Trustee must be advised of any such payments or transfers made during the 12 months prior to bankruptcy.
  
For complete information about bankruptcy exemptions contact your local BDO office or request a call.
 

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