What Protection can Bankruptcy Offer You?

What Protection can Bankruptcy Offer You?

Insurance is often talked about as, a way to protect your assets and your loved ones.  It makes sense and we can wrap our heads around that, but Bankruptcy as a protection?  That seems a bit odd, doesn’t it? Bankruptcy is the last resort, as it should be but there are many bankruptcy myths too.  One myth is that people lose all their assets when they file into bankruptcy and that is simply not true.

Bankruptcies fall under the Federal Legislation by way of the Bankruptcy Insolvency Act (BIA) and the Office of the Superintendent of Bankruptcy (OSB) is responsible for upholding the act.  The act provides several protections or exemptions for Canadians which we will look at now.

Bankruptcy Exemptions: What assets can you keep?

The idea of a bankruptcy is that it is the legal channel for the honest but unfortunate debtor to dig themselves out of their overwhelming debt.  The act is meant to instill faith in the system and rehabilitate the individual.  Unlike the game of Monopoly where if you go bankrupt the game is over, real-life bankruptcy is meant to help individuals rebuild their lives.  To this end, each provincial government sets out certain limitations of items and values that are exempt from your creditors.  These items cannot be taken away from you, thus, allowing you to keep some financial foundation to rebuild upon once you are discharged from bankruptcy. Please see the following information base on bankruptcy exemptions in Canada by provincial legislation

Exemption

BC

AB

SK

ON

Equity in your principal residence

$9,000 (Vancouver & Victoria $12,000)

$40,000

$50,000

$10,000

Equity in your primary vehicle

$5,000

$5,000

$10,000

$6,600

Household goods/furniture

$4,000

$4,000

Exempt

$13,150

Clothing and personal affects

Unlimited

$4,000

$7,500

Exempt

Tools of the Trade

$10,000

$10,000

Exempt

$11,300

RRSPs/RESPs/RIFs

Exempt - Unusual contributions may not be exempt

Exempt - Unusual contributions may not be exempt

Exempt - Unusual contributions may not be exempt

Exempt

Pension

Exempt other than contributions made in the last 12 months

Exempt

Certain types exempt

Exempt

For complete exemptions for all provinces and more details click here

Do all My debts go away after filing bankruptcy?

Not exactly.  Contrary to popular belief, not all debt goes away in a bankruptcy scenario -certain debts will survive. These include:

  • Fines or restitution orders from a Court.
  • Certain awards for damages from a Court
  • Debts for alimony or child support.
  • Debts arising from fraud, theft, and other illegal matters
  • Obtaining property by false pretenses.
  • Student loans*
  • The dividend that a creditor would be entitled to receive had they been aware of the bankruptcy.

Stay of proceedings -The Legal Protection

One thing that is very unique to the Bankruptcy and Insolvency Act is the legal stay of proceedings.  In all other options – credit counselling, debt management plans, etc. the creditors have the choice to accept the settlement or not.  Only a formal restructuring program, administered by a Licensed Insolvency Trustee, offers a legally binding stay of proceedings which in fact, forces the creditors into a settlement.  Once someone has signed into their bankruptcy, all creditor actions, including phone calls, demand letters, judgments and threats must stop -legally.  This is the highest and most important form of protection that a bankruptcy offers and is only available through a bankruptcy or consumer proposal in Canada.  The Stay of Proceedings is one of the biggest advantages of filing into a bankruptcy in Canada and how bankruptcy is the form of protection for the honest but unfortunate debtor from their creditors.

There is a great deal of protection that is offered to Canadians under the Insolvency Act and through a bankruptcy.  All registered investments like RRSPs, RESPs LIRA’s are protected from creditors, insurance policies with a beneficiary that is a parent, child or sibling are protected and many assets or portions of assets like your primary residence, car, and tools of the trade are all protected from your creditors.  Only a formal restructuring through a Licensed Insolvency Trustee in the form of a Consumer Proposal or Bankruptcy, provides Canadians with a legally binding protection from creditors called the Stay of Proceedings.  It’s like creating a fortris around the debtor to protect them against demand letters, phone calls, judgments and wage or bank account garnishments.

To see what protection you qualify for, contact us. Licensed Insolvency Trustees, Bromwich+Smith have debt relief specialists available to offer debt advice and debt restructuring entirely from the comfort of your own home. Now offering video appointments with clients, Bromwich+Smith’s Debt Relief Specialists are available for initial free and confidential consultation by phone at 1-855-884-9243 or request a call back at contact us page.

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