What Happens To My Belongings If I File For Bankruptcy?
/Filing for bankruptcy is a scary thing to consider but is sometimes needed if you have debts that you can’t manage to pay. Whether the pandemic has tanked your business or an unexpected expense has severely impacted your finances, it’s useful to understand how bankruptcy works.
Every country has its own policies around bankruptcy. As we have readers from over 50 countries who enjoy Money & Mimosas, the information we share in this article is general and may or may not apply to your location. As with every article, we highly encourage you to do your own due diligence and seek expert advice. In this article, we will explore one of the main questions posed, “what will happen to my belongings if I filed for bankruptcy?”
What Can I Keep If I Go Bankrupt?
You can keep some of your belongings when claiming bankruptcy. The assets you can keep are called bankruptcy exemptions because they cannot be seized by a Licensed Insolvency Trustee when you file.
Why Are Some Assets Exempt?
Bankruptcy is intended to allow an unlucky but honest debtor to get a new financial start. When you file for bankruptcy, you will have to surrender all your assets to a trustee. Those assets are then converted into cash, and the money is used to pay your creditors.
However, if you are going to get a fresh start, you need to be able to hold onto some dignity and some assets that will act as a starting point for you and your family to put your finances back together. These bankruptcy exemptions are defined in law.
What Bankruptcy Exemptions Can I Expect?
For most people, exemptions are limits amounts of:
Food and heating fuel
Health aids
Clothing
Furniture
Tools for trade
Farmland, animals, equipment, and supplies
Pensions
Your car
Your house
The limits on the value of these exemptions that you may keep are decided by the province. In most cases, for a house, the limits are tough enough that most people will need to sell the house to pay their creditors. An item like a car would need its value confirmed with an appraisal.
What If There Is A Mortgage On My Car Or House?
The exemption will apply to the amount of equity that you hold. If there is a secured debt against an asset, then the equity is the value after the unpaid debt amount has been deducted.
For example, if you own a car that is worth $10,000, but you have a loan secured against it worth $6,000, then your equity in the car is $4000. If the exemption on cars in your province is $5,000, then you can keep your car.
Remember that a secured creditor might still choose to repossess an asset if you go bankrupt. This will vary depending on the creditor’s policy.
Can I Keep My Bank Account?
A bank account is not an exempt asset. However, make sure you arrange your banking carefully, so you aren’t making payments to your creditors that you don’t need to.
If you do claim bankruptcy, then you can keep some of your assets that will allow you to go on living your life, providing for your family, and making a living. What you will be allowed to keep will differ depending on your own circumstances and where you live. The rules can be confusing, so always consult an expert.
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