Filling for Bankruptcy and Keeping Your Assets

Declaring bankruptcy without losing your home or car is a common concern during consultations with a licensed insolvency trustee (LIT). In most cases, the answer is reassuring: you are not automatically at risk of losing these assets. Generally, it is possible to keep your home and car as exempt assets during bankruptcy. However, whether you can keep your assets depends on your financial situation, which is where the expert guidance of a LIT becomes essential.

What Is Bankruptcy?

Bankruptcy is a legal process for individuals or businesses that are unable to pay their debts. During this process, a licensed insolvency trustee may oversee the sale of the debtor’s assets to repay creditors. Bankruptcy in Canada can be initiated voluntarily by the debtor (voluntary bankruptcy) or by creditors (compulsory bankruptcy) when the debtor cannot meet their financial obligations.

The bankruptcy process provides an opportunity to resolve financial problems and repay outstanding debts. In Canada, the licensed insolvency trustee, formerly known as the bankruptcy trustee, is the only professional authorized to file a bankruptcy petition with the Office of the Superintendent of Bankruptcy. They also ensure that creditors receive the maximum possible recovery while protecting the debtor’s rights.

Your home is often your most valuable asset, and your car can also represent a significant investment. Let’s take a closer look at how your trustee evaluates your home and vehicle during the bankruptcy process.

Will I Lose My House if I Declare Bankruptcy?

In a personal bankruptcy, the trustee aims to maximize recovery for creditors. This means the trustee generally seeks to seize only assets that can generate funds when sold. When it comes to your home, the key factor is the equity available in the property, which determines whether it may be affected during the bankruptcy process.

What Is the “Equity” Available in a Home?

Home equity is the difference between the market value of your property and the amount of the mortgage balance. For example, a home valued at $300,000 with a mortgage balance of $200,000 has $100,000 in equity.

If your home has little or no equity, the trustee typically will not sell it, allowing you to keep your property. However, if your home has significant equity, the trustee may consider using it to repay your creditors.

In cases where equity is high, declaring bankruptcy might not be the most suitable solution. Alternatives like a consumer proposal or debt consolidation could be more effective. During your initial consultation at M. Roy & Associés, your trustee will review all available options and help you choose the best solution for your financial situation.

Why Is Selling a House Rarely Advantageous?

Homeowners often refinance their mortgage to consolidate debts before facing a LIT. In many cases, the mortgage balance is high, leaving little or no equity, which makes selling the home less beneficial.

Even when a sale could generate a profit, it is usually conducted without legal warranty at the buyer’s risk, which can reduce the sale price by approximately 10%, in addition to real estate agent fees. Taking these factors into account, it is rare for a home to have substantial equity available for seizure during bankruptcy.

Moreover, beyond home equity, your monthly income must be sufficient to cover all expenses without falling back into debt. This includes mortgage payments, property taxes, maintenance and repairs, insurance, and utilities.

What Happens to My Car in Bankruptcy?

Similar to your primary residence, a LIT will evaluate whether selling your vehicle would generate a significant profit. In most cases, a financed car has little to no realistic value, since its market value is often lower than the remaining loan balance due to depreciation over time.

Under bankruptcy law, you may be able to keep your car if it is necessary for work rather than simply convenient. However, if your vehicle has a high market value and you live near public transportation, it could potentially be seized. Conversely, if you live far from public transit, you are generally able to retain your car. Every situation is unique, and the trustee makes the final decision.

What if My Car Is Leased and Not Purchased?

The LIT evaluates the value of your assets during bankruptcy. In the case of a leased vehicle, the car is not considered part of your assets, so the trustee cannot use it to repay creditors. As a result, as long as your monthly income allows you to make the lease payments, you are generally able to keep the leased car.

If you are facing financial difficulties or would like answers about the seizure of your home, contact an advisor at M. Roy & Associés. Our professionals are available to answer your questions and help you overcome your financial challenges and protect your assets.