What Happens If You Don’t Own Significant Assets That Can Be Sold to Pay Off Your Debts?
When most people think about bankruptcy, they understand that many of their valuable assets will be seized and sold to help repay their creditors. But what if you don’t have many (or any) assets? Can you still file for bankruptcy and put an end to the disruption of collection calls and garnisheed wages? Read on to find out.
What Is Bankruptcy?
Bankruptcy is a legal recourse that is available to people and businesses that are insolvent. It eliminates most unsecured debts like credit card bills, payday loans, income taxes owed to the CRA, and lines of credit, and allows you to make a fresh start.
Do You Lose Your Assets in Bankruptcy?
If you declare bankruptcy, many of your valuable assets will be seized by your Licensed Insolvency Trustee (LIT) and sold to help repay your creditors. In Ontario, that includes:
- Your home, if you have more than $10,000 of equity in it
- Your vehicle, if you have more than $6,600 of equity in it
- Non-registered investments
- Snowmobile, trailer, recreational vehicle, boat
- Income tax refunds in the year of your bankruptcy
- Valuables like costly jewelry
You will be allowed to keep some of your assets, depending on their value and whether or not they are considered exempt.
The following assets are exempt from seizure under a bankruptcy declaration in Ontario:
- Necessary clothing
- Furniture and appliances valued up to a total of $13,500
- Your vehicle, if you have less than $6,600 worth of equity in it
- Your home, if you have less than $10,000 worth of equity in it
- The tools of your trade or profession valued up to $11,300
- Farming animals, equipment, and supplies valued up to $29,100
- Registered pension plans
- RRSP and RIF balances, except for contributions that you made in the 12 months prior to declaring bankruptcy
- Term life insurance policies and other life insurance policies with a designated beneficiary
Keep in mind that bankruptcy also affects any assets owned jointly with another person and any debts that have a co-signer. Be sure to consult with the other person or persons before filing for bankruptcy.
What Happens If You Don’t Have Significant Assets?
If you don’t own a home, a vehicle, or any other assets of significant value that can be sold to help cover your debts, you can still file for bankruptcy in Ontario.
In addition to assigning your assets to the Trustee, you are required to report your monthly household income to the Trustee. Based on your monthly household income, and your size of family, you may be required to pay surplus income to the Trustee, for the duration of your bankruptcy. Surplus income is determined by comparing your monthly family unit income to the standard cost of living established by the Office of the Superintendent of Bankruptcy. If the household income is in excess of the standard cost of living (by $200 or more), you are required to pay 50% of the excess to the Trustee. If you do have surplus income, your bankruptcy period is extended from 9 months to 21 months for a first-time bankrupt and from 24 months to 36 months for a second time bankrupt.
If you don’t have assets or surplus income, you will be required to pay a fee to the Trustee to administer your bankruptcy. Typically, this fee can be paid on a monthly basis during the bankruptcy period. But your unsecured debts will be wiped out and you will no longer need to worry about your creditors.
Other Debt Relief Solutions
If you’re considering filing for bankruptcy, it should be because you are at a point where you will never catch up with your unsecured debts without intervention. If you do have assets that could be seized, particularly a home in which you have lots of equity, you should consider other debt relief solutions, such as consolidating your debts or filing a consumer proposal.
A debt consolidation loan allows you to pay off multiple high-interest unsecured debts, leaving you with a single monthly payment at a lower interest rate. It lowers your monthly debt costs and relieves the pressure of having to juggle various payments. However, to obtain a consolidation loan, you will need a good credit rating. There are several types of consolidation loans to consider, including personal loans or a home equity line of credit (HELOC).
If you have fallen behind on your debt payments but still have income coming in and can afford to make some payments, consider filing a consumer proposal. This is a solution that can reduce your debts (often by up to 70%) while allowing you to keep all your assets and avoid a bankruptcy filing. If your debts total between $10,000 and $250,000 (not including your mortgage on principal residence), a consumer proposal may be right for you.
If you’re drowning in debt but have no assets to sell or fall back on, filing for bankruptcy can still offer a way forward, though it may look different than you imagined. Consult with a Licensed Insolvency Trustee to find out more about your debt relief options. They can help you figure out the best course of action for your specific financial situation.
Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee and Consumer Proposal Administrator. Its professionals have assisted thousands of individuals successfully resolve their debt crises and overcome financial turmoil since 2002. Its passion – its mission – is your health and well-being!