Personal Bankruptcy and Asset Seizure

Although it’s common to think that bankruptcy means the loss of all your assets, the reality is more nuanced. Some assets, depending on their value and nature, may benefit from legal protection. In the event of personal bankruptcy, the law provides protection for essential assets, and guarantees that certain possessions remain beyond the reach of creditors. This distinction between seizable and unseizable assets is crucial to understanding how bankruptcy may affect your assets, and to helping you navigate this process.

What Assets Can Be Seized in Bankruptcy?

During a personal bankruptcy process, the role of the licensed bankruptcy trustee in insolvency (formerly known as the trustee in bankruptcy) is to maximize the recovery of creditors. Assets seized in bankruptcy are those that are likely to generate liquidity and have high equity. Seizable assets include :

• TFSA (Tax-Free Savings Account);
• TFSAFPSP (Tax-Free Savings Account for First-Time Home Buyers);
• RESP (Registered Education Savings Plan);
• RRSP (Registered Retirement Savings Plan) contributions over the past 12 months;
• Inheritances ;
• A portion of your salary;
• Your home, if it has a high net worth;
• Your vehicles, if they have significant value;
• Non-registered investments;
• Luxury goods;

Can My House and Car Be Seized in Case of Bankruptcy?

Your home and car may be seized when you declare bankruptcy. A licensed insolvency trustee will evaluate all your assets to maximize recovery for creditors.

However, the net value of these assets is decisive. It is common for a mortgage refinancing to have been carried out to consolidate debts before consulting a trustee. A high mortgage balance generally indicates low residual equity, making the sale of the property unattractive. Therefore, if the equity in your home is insufficient, it may not be foreclosed.

High-value vehicles are also subject to foreclosure. However, the law states that a vehicle essential to your work cannot be seized. On the other hand, if your car has a good market value, and you can use public transport to get around, it could be seized.

Is the Furniture in My House Seizable?

Under the Bankruptcy and Insolvency Act, the furniture in the principal residence used by the household is protected from seizure, up to a value of $7,000. The trustee is authorized to seize all seizable goods exceeding this value, as long as their market value contributes to maximizing recovery for creditors.

Why Are RRSP Contributions Made in the Last 12 Months Subject to Seizure?

RRSPs contributed in the 12 months prior to bankruptcy may be seized to prevent abuse. This measure is designed to prevent people anticipating bankruptcy from transferring funds into their RRSPs to avoid seizure.

What Assets Cannot Be Seized in Bankruptcy?

The law provides a complete list of assets that cannot be seized in bankruptcy. These include :

• Child support allowances;
• Part of your gross income;
• Essential food, fuel, and clothing;
• Tools necessary for the practice of your profession;
• Documents and family portraits;
• Assets needed to compensate for a disability;
• Pets;
• RRSPs (excluding those contributed in the last 12 months);

Consumer Proposals, an Option for Keeping Your Assets

A consumer proposal is often preferable to bankruptcy. It allows you to establish a payment arrangement that does not require the seizure of your assets. If the consumer proposal is accepted by the creditors, you will be able to keep your assets, as long as your financial situation allows.

Although the proposal has an impact on your credit rating, it allows you to negotiate a realistic repayment plan with your creditors. This gives you the opportunity to reduce the total amount to be repaid and consolidate your payments into a single monthly payment.

A consumer proposal is a viable option for many people facing financial difficulties. A qualified professional, such as a licensed insolvency trustee, can provide you with personalized advice based on your specific financial situation.

At M. Roy & Associates, we believe there should be no barriers to getting help. That’s why we offer a free, confidential initial meeting with an advisor. For more information, contact us today toll-free at 1-877-352-6661 or fill out our online form.