Many people who are in financial difficulties worry about contacting a licensed insolvency trustee (a bankruptcy trustee is now called a licensed insolvency trustee in Canada) because they don’t want to lose their assets. People assume that the trustee will sell everything they own, so they don’t even really want to talk to a trustee.
This is really unfortunate, as it results in many people continuing to struggle with debt or turning to an unlicensed debt consultant which often costs them more money in the long run.
So what exactly does a licensed insolvency trustee do when it comes to dealing with your assets if you decide to proceed with declaring bankruptcy?
The truth is that in the majority of cases the value of most assets people own when they file bankruptcy falls below the exemptions for personal assets set by law. For the majority of people that means they do not lose their car, do not lose their home and do not lose their personal belongings. In fact, most people who file a bankruptcy do not lose anything other than their debt in the bankruptcy process.
When determining asset value, a licensed insolvency trustee looks at the net realizable value. For most smaller assets that means what you could get if you sold the asset in a yard sale or garage sale. For things like a car or home, that would be what the trustee could sell the asset for after paying all selling costs and secured debt like a mortgage. If there would be nothing left over for the creditors, the trustee won’t take any action to seize or sell the asset.
But what if you do have assets that are subject to seizure?
In some cases people have assets that are not exempt from seizure under the law. Things like RESPs for example are not currently protected under the law. So if you have money invested in a RESP the trustee will give you three options. You can:
- Surrender the RESP account to the trustee who will cash in the value for the benefit of your creditors,
- You can buy back the asset (pay its value) to the trustee and keep the asset,
- Consider a consumer proposal as an alternative.
This would apply to any asset you own that has value above any exemption limit. So if you do own a car worth a lot of money, you can pay the trustee any value above the exemption and keep the car. The same holds for a boat, any GICs or other assets that otherwise should be surrendered to your trustee.
What about my home?
Another asset that people are very worried about is their home. In most bankruptcies people have often refinanced their home prior to talking to a bankruptcy trustee (which they shouldn’t by the way – talking to us first can often save your home & equity value).
If there is little to no equity in the property, after paying the mortgage, any penalties and real estate commissions, then it’s sale would produce no value. In these cases the trustee would not bother seizing and selling your home because realizing on the asset would produce no money for the creditors. So if you have little to no equity you keep your house, as long as you can afford to keep paying the mortgage.
If the equity value in your principal residence in a bankruptcy is less than $10,000 in Ontario, your trustee and creditors are prohibited from seizing your home. Again, as long as you can keep up with your mortgage payments, you can keep your home.
If the equity value in your home exceeds $10,000 then again you have three options:
- Buy out that equity value from the bankruptcy estate.
- Surrender the home to the trustee to sell.
- Consider a consumer proposal.
In the event your home is sold by the trustee, secured creditors will be paid first, with the balance going into your bankruptcy for the benefit of your other creditors.
As mentioned above, a consumer proposal is an option if you do have assets that may be realized on by your trustee after filing bankruptcy. In a consumer proposal your assets are not affected, you keep everything and no unsecured creditor has any claim on anything you own. You remain in control through the whole process.