The decision to file bankruptcy can be a scary one. Our team of Licensed Insolvency Trustees are asked many questions every day about how bankruptcy works and how declaring bankruptcy will affect you and your family. We have pulled together a list of the most commonly asked questions about personal bankruptcy in Canada not answered in our main bankruptcy pages. Feel free to bring these, or any other concerns, up with your LIT during your free consultation.
- What you keep
- Questions about debts
- Wages and garnishments
- Lottery and windfalls
If you are looking for an explanation of key bankruptcy terms, you can find more information in our Bankruptcy Glossary.
What can I keep if I file bankruptcy?
Contrary to most fears, you do not lose everything when you file bankruptcy in Canada. There are certain assets that are exempt from seizure by the trustee. In Ontario, provincial exemptions are high enough that most people do not lose anything unless they have high dollar value assets. Ontario exemptions from seizure include:
- all personal clothing,
- most household furnishings (up to a maximum)
- a vehicle below a certain dollar value
- tools of the trade used to earn a living or run a business (up to a maximum)
- your home if the equity is less than $10,000
You keep all RRSP, RRIF and DPSP (Deferred Profit Sharing Plan) savings except contributions made in the 12 months before your bankruptcy.
If I file bankruptcy what happens to my house?
Whether you can keep your home will depend on how much equity is in your home and if you decide you can afford to keep up with your mortgage payments. In most cases you do have options to keep your home as explained in this short video:
Read more in this article about bankruptcy and your house.
Will my current mortgage be affected if I am bankrupt?
A mortgage is a secured loan and as such is not included in a bankruptcy. If you are not behind on your payments your mortgage lender cannot cancel your mortgage or foreclose on your home just because you file bankruptcy. If you are current on your payments most mortgage holders will renew your mortgage even if you are bankrupt or in a consumer proposal.
If I file bankruptcy can I keep my car?
An individual filing for bankruptcy is entitled to keep one vehicle below the exemption limit ($6,600 in 2017 under Ontario law). In a joint bankruptcy, each filer qualifies for one motor vehicle up to $6,600, if the vehicle is registered in that person’s name. Leased or financed vehicles are not included in your bankruptcy unless they have significant equity value over the loan amount. If you have multiple vehicles, or other assets that you would like to keep, speak to your licensed insolvency trustee about your options to retain other vehicles.
Read more in this article about bankruptcy and your car.
What happens to my tax refund if I file bankruptcy?
Any income tax refunds owing to you for any years up to the year you filed bankruptcy will be sent directly to the trustee by Canada Revenue Agency. This includes any tax refunds for any years prior to your bankruptcy, resulting from your pre-bankruptcy return and from your post-bankruptcy return. While you lose income tax refunds as part of the bankruptcy process, you keep your HST cheques and child tax benefits.
Do I have to list all my debts in a bankruptcy?
Yes. You cannot voluntarily exclude a creditor from your bankruptcy filing. The good news is bankruptcy will eliminate all unsecured debt including credit card debt, bank loans, lines of credit, accounts in arrears or in collection, payday loans and tax debt.
Are tax debts included in a bankruptcy?
Personal income tax debts, HST and other tax debts can be included in a bankruptcy and can be discharged (eliminated) by bankruptcy in Canada. There may be additional duties required to obtain your bankruptcy discharge including the requirement to keep all tax filings and installment payments current. CRA has the power to register a lien against property prior to bankruptcy and filing bankruptcy does not remove the lien. You should advise your trustee of any tax debts prior to filing to fully understand any rights and remedies CRA may have.
Can I file bankruptcy for student debt?
Your student loan debt is eligible to be automatically discharged if you have been out of school for more than 7 years and:
- You declare bankruptcy, or
- You file a consumer proposal.
This waiting period can be shortened to 5 years if you can prove financial hardship.
What happens to co-signed debt if I file bankruptcy?
If a spouse, parent, friend or other family member has co-signed a loan for you, the lender will look to that person to repay the full amount of the loan even though you filed bankruptcy.
Can I keep my credit card after I file for bankruptcy?
No. You are required by law to hand over all credit cards to your LIT once you file. During your credit counselling sessions, your LIT will provide information on how to rebuild your credit after bankruptcy including how to apply for a secured credit card.
What debts are not discharged by bankruptcy?
Bankruptcy eliminates most unsecured debts however, there are certain debts that cannot be included in, or discharged by, bankruptcy in Canada. These include:
- spousal and child support payments
- alimony payments
- debt arising out of fraud
- court imposed fines
- student loans less than 7 years (see our section on student loan debt for more details)
- restitution orders
In addition, secured debts like your mortgage and secured car loan are not affected by bankruptcy and you can keep these assets, if you wish, as long as your payments are up to date.
What happens to my wages in a bankruptcy?
You keep your wages in a bankruptcy. You will be required to submit proof of income and expenses monthly to your trustee. Your trustee will use this to determine your average net income for the purposes of calculating “surplus income”. If your income exceeds the government set threshold limit, you will be required to make surplus income payments during your bankruptcy. If your wages are being garnisheed, bankruptcy will stop most garnishments.
What happens to lottery winnings, inheritances and windfalls in bankruptcy?
Inheritances received, or due to you, because of the death of someone during bankruptcy become an asset of the bankruptcy. Lottery winnings and similar windfalls received during your bankruptcy also vest in the trustee for the benefit of your creditors. Bonuses and commissions from employment would be considered income and not subject to seizure by the trustee however they will impact the calculation of surplus income. Book a free, confidential debt assessment to find out if bankruptcy is the right option to help you eliminate your debt.