How Will Bankruptcy Affect My Retirement Income And Investments
2014-10-22
If you are retired and have a large debt load, you may be considering filing for bankruptcy. You may also be wondering, however, what will happen to your retirement income and investments if you declare bankruptcy.
There are three main sources of income when you retire: government-sourced income, income from exempt assets and income from non-exempt assets.
Government Retirement IncomeThe most common sources of government retirement income are Canada Pension Plan and Old Age Security income. Neither income is affected when you file for bankruptcy. In fact, there may be an advantage to filing for bankruptcy if you owe Canada Revenue Agency for outstanding personal income tax and you are entitled to CPP. Only CRA is allowed to garnish your CPP income to collect the amount owed to them for outstanding personal income taxes. By filing an assignment in bankruptcy, CRA will be required to cease the garnishment of your CPP and you will receive the full amount of CPP you are entitled to. That being said, the income received from CPP and OAS will be included in the calculations to determine if you have surplus income during your bankruptcy.
If you are retired and have a large debt load, contact one of our Licensed Trustees to discuss the best option for your particular situation.
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What Assets Can I Keep In Bankruptcy In New Brunswick
- Furniture, household furnishings and appliances used by the debtor or a dependent to a realizable value of $5,000 or to any greater amount that may be prescribed
- Food, clothing and fuel necessary for the debtor and his family for 3 months
- Two horses and sets of harness, two cows, ten sheep, two hogs and twenty fowl, and food therefor for six months
- Necessary tools, equipment and books to the value of $6,500 used in the practice of the debtors trade or profession
- Necessary seed grain and potatoes required for planting purposes to the following quantities: forty bushels of oats, ten bushels of barley, ten bushels of buckwheat, ten bushels of wheat and thirty-five barrels of potatoes
- One motor vehicle having a realizable value of not more than six thousand five hundred dollars at the time the claim for exemption is made, or not more than any greater amount that may be prescribed, if the motor vehicle is required by the debtor in the course of or to retain employment or in the course of and necessary to the debtors trade, profession or occupation or for transportation to a place of employment where public transportation facilities are not reasonably available
- Necessary medical and health aids
- Pets belonging to the debtor
- Pension plans
- Registered Retirement Savings Plans , Registered Disability Savings Plans and Registered Retirement Income Funds are exempt from seizure
For further details on what you can keep, book a free consultation with a Licensed Insolvency Trustee.
Is It Possible To Keep My Car
This is usually the next question on everyones minds. Were happy to report that you do not necessarily have to lose your car as a result of bankruptcy. Albertas Civil Enforcement Act, in addition to your cars equity, is the foremost deciding factor when it comes to keeping your car. If the equity of your car is $5,000 or less, you keep your car! Keep in mind that you want to hold off on making any significant modifications to your car during the bankruptcy period that could increase its value beyond $5,000. What if your cars equity is greater than $5,000? In this case you have two options:
Option A:
You may surrender your car to your Trustee, who will utilize those funds to pay your debts. This option can make the most sense if you are someone who does not rely on their vehicle or does not have the money to pay out the difference in equity.
Option B:
As you may have guessed, oftentimes, people will choose to pay the difference and keep their car. This means if your cars equity is worth $6,000 and the exemption policy is $5,000, you would need to pay $1,000 to keep the vehicle.
Are you hoping to settle your debts AND keep your car? Talk to a Licensed Insolvency Trustee they are your best resource for helping you maintain your vehicle. Thousands of Canadians have been able to keep their personal cars while settling their debts through bankruptcy!
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Is Bankruptcy The Only Solution When Youre Overindebted
No, there are alternatives to bankruptcy. Here are a few of them:
- Consumer proposal
A consumer proposal is a settlement offer to your creditors to repay part of your debts and/or repay the debts over a longer period of time, for a maximum period of 5 years. Thats why its sometimes called a proposal to creditors, even though thats not the official name. For more information, click here.
- Debt consolidation
Debt consolidation means combining all of your debts and paying off a single loan. Its a way of simplifying your finances. From this point on, you make one payment a month. The interest rate is also lower than on the debts owed to your previous creditors. For more information, click here.
- Voluntary deposit
This is an agreement with the court where you commit to paying back your debt to your creditors. Its an alternative to bankruptcy or a consumer proposal. Your advisor will let you know if this is the right solution for you. For more information, click here.
Keeping Your House And Going Bankrupt
Filing for bankruptcy is often seen as the last-ditch solution for anyone in debt.
When all other options have been exhausted, this can help you become debt-free and have a fresh financial start.
Its not for everyone, and there are some concerns that many people have.
Namely, can you keep your house if you file bankruptcy?
Nobody wants to live in debt, but you equally want to have a roof over your head.
Need Help Reviewing Your Financial Situation?Contact a Licensed Trustee for a Free Debt Relief Evaluation
The confusion comes from the idea that bankruptcy means you have to hand over your assets.
In truth, many of your assets are added up and used to help pay your creditors as much as possible.
Does this mean that someone is going to come and repossess your home?
In the majority of cases, you can and will keep your house when filing for bankruptcy.
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Consider Your Financial Situation
Do you actually need to file for bankruptcy? Would an alternative, less drastic solution be better suited to your needs? Each situation is unique, but the following signs are a strong indicator that some kind of intervention is needed:
If debt is creating a significant issue in your life, it’s time to explore debt relief options that may or may not include bankruptcy.
Will I Lose My House
Whether or not you will lose your house depends on the value of your house, and the amount owing on your mortgage. Most people that declare bankruptcy in Ontario and own a house will have a mortgage on the house.
The Ontario Execution Act stipulates that your principal residence is exempt from seizure IF the equity in your home does not exceed $10,783. If the equity does exceed $10,783 then your principal residence is subject to seizure and sale.
In that case you are required to pay the equity in your house if you go bankrupt. . For more information read our FAQ What Happens To My House In A Bankruptcy?
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What Assets Can I Keep In Bankruptcy In Saskatchewan
- Registered Retirement Savings Plans are exempt from seizure with the exception of any contributions made to RRSPs during the 12 month period prior to the date of bankruptcy
For further details on what you can keep, book a free consultation with a Licensed Insolvency Trustee.
For Non-Farmers:
- Necessary and ordinary clothing of the family
- The books of a professional person
- The trailer or portable shack occupied by the debtor as living quarters.
- RRSPs, RRIFs and DPSPs are exempt from seizure
For Farmers:
- Furniture, furnishings and appliances to a value of $10,000
- The cash equivalent of produce sufficient to provide food and fuel for heating until the next harvest
- All livestock, farm machinery and equipment, including one car or truck, necessary for the next twelve months operations
- One motor vehicle, if required for business or profession, but not in addition to the one above
- Tools and equipment to a value of $4,500 used by a farmer in his trade or profession
- Equity in a personal residence to a value of $32,000
- Seed grain equal to two bushels per acre of land under cultivation
- Cash equivalent of crop equal to:
- unpaid harvesting costs
- living expenses to next harvest
- necessary costs of farming until next harvest
Can I Keep My House When Filing Bankruptcy
Contrary to popular belief, you do not automatically lose your home when filing bankruptcy. In fact, it is common to keep your home, provided you can pay your mortgage payments on time. Keeping your house when filing bankruptcy is very much dependent on the equity of your home. This can be calculated by establishing the equity of a sale following real estate commissions, outstanding property taxes, and other associated selling costs. If the remaining equity is less than $10,000 when filing bankruptcy, you can keep your home and continue building equity. If the equity is greater than $10,000, a consumer proposal would likely be a smarter option.
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Myth No 1 Bankruptcy Is An Easy Way Out
is not an easy way to get out of your financial problems or to fix your credit. The reality is that when a person files for bankruptcy it is recorded on their and stays there for over 6 years. During this time, it will be very difficult to obtain credit. Bankruptcy also has a huge emotional cost. Feelings of shame and regret can remain with a person long after the information has been removed from their credit report.
When Is The House Liable For Seizure
Determining whether the house has equity is not enough to decide whether it will be liable for seizure.
In Ontario, the Execution Act rules clearly on the issue. Under subsections 2 and 2, any principal residence with equity $10,000 or less may not be seized. Conversely, a person declaring bankruptcy cannot keep their house if the equity exceeds $10,000.
In Quebec, the law is not as specific. Each situation must be analyzed individually.
It is up to the LIT to make a decision. They must determine whether selling the house will result in a profit for the benefit of creditors.
The LIT must therefore anticipate the costs associated with selling the house, such as
- Mortgage payments
- Other maintenance costs
- Etc.
Having made the calculations, the LIT will seize the house if they deem there are profits to be made by selling it. Otherwise, the owner can keep the house, as long as they continue to make payments.
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Can You Afford To Keep Your Home
The first question to ask yourself is: do I want to keep my house? If your house is worth less than what is owing on the mortgage, or if you cannot keep up with the mortgage payments and other house expenses, it may be prudent to surrender your house and go bankrupt. The resulting shortfall would be included in the bankruptcy.
The next consideration is whether or not your mortgage is current. If you are behind on your mortgage payments that is a strong indication that you are not able to afford the house, and it is more likely that the lender will want to foreclose on your house if you go bankrupt.
In addition to your mortgage payments being current, it is important that property taxes and utility payments are also up to date, as arrears in property taxes and utilities can be added to the mortgage, which may cause the lender to foreclose on your house.
You must next ask yourself whether or not you truly can afford your house. Many people look only at the mortgage payment and say Im better off paying $1,000 per month in mortgage payments than paying $1,000 per month to rent. Unfortunately its not just the mortgage payments that matter you also must pay property taxes, utilities, condo fees, and maintenance costs on your home, which may mean you are actually paying closer to $1,500 or even $2,000 per month for your home. In that case it may be cheaper to rent. .
Bankruptcy Exemptions For Farmers
Up to 160 acres of land is exempt if your principal residence is located on that land and is part of your farm. Any personal property necessary for your farming operations over the next 12 months is also exempt from bankruptcy. For more information about bankruptcy exemptions in Alberta, speak to a local Licensed Insolvency Trustee.
British Columbia bankruptcy exemptions
In British Columbia, property exempt from seizure in bankruptcy is set by the provincial government and applies to the equity in an asset. Equity is the difference between the value of the asset and what you owe on the asset.
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Keeping Your Payments Current
Under Canadian bankruptcy law a secured lender, like a mortgage holder, is not permitted to cancel their loan simply because you have declared bankruptcy. If you are up to date with your payments, you can continue to pay your mortgage, even while you are bankrupt.
However, if you are in arrears or , the mortgage holder is not required to allow you to continue with the mortgage. Even if you are not bankrupt, if you are in arrears the mortgage lender can start foreclosure proceedings and sell your house.
Bankruptcy And Assets: Which Are Exempt
Every province and territory in Canada has its own list of exemptions, designed to leave you with enough resources to make a fresh financial start.
In Canada, the federal Bankruptcy and Insolvency Act defines three kinds of exemptions:
- Property you hold in trust for other persons.
- GST credit payments and prescribed payments relating to your familys essential needs.
- Other exempt property defined by the province or territory in which you live.
What are your likely exemptions? What can you keep in a bankruptcy? A Licensed Insolvency Trustee has up-to-date information on exemptions for every province and can advise you on how these apply to your situation. Your first consultation is free and confidential contact a Trustee today!
The provinces and territories generally define other exempt property as including some or all of the following categories, up to limited values that vary greatly from province to province:
- Food and heating fuel needed by you and your dependants
- Clothing needed by you and your dependants
- Household furnishings and appliances
- Pensions or retirement savings
- Miscellaneous categories in some provinces
The tools exemption and the farm exemption cannot both be taken you may claim one category only, which applies to your principal occupation.
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Which Assets Can You Keep When Filing Bankruptcy
In most cases, the following assets are what you may keep when filing bankruptcy in Canada:
- Your home, provided it has equity of less than $10,000
- A car or motor valued to a provincial limit
- Personal belongings and clothes
- Furniture, food, and tools in your house
- Some types of agricultural property
- Any RRSP, RRIF, RESP, and DPSP savings
If you have a lot of high value assets, it is worth discussing bankruptcy alternatives like consumer proposal or debt consolidation with your Licensed Insolvency Trustee.
Will I Lose My Car
If you go bankrupt in Ontario you are allowed to keep one motor vehicle worth less than $7,117. If your car is worth more than $7,117, you are required to pay the amount over that amount to the trustee if you want to keep your car. If your car is leased or has a loan registered against it, the loan amount is subtracted from the value of the car to determine the net value. More information is available in our FAQ What Happens To My Car If I File For Bankruptcy?
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What If I Have Very Little Equity
If you have recently mortgaged or re-financed your home, you may have very little equity in it . If this is the case, there is a chance you can keep your home, and continue your mortgage payments, if you can find a way to pay this amount into the bankruptcy through other means. This is a matter you can discuss with a Licensed Insolvency Trustee for clarification.
Myth No 2 Anyone Can File For Bankruptcy
Public perception seems to be that anyone can go bankrupt. While bankruptcy is a viable option for some people, there are costs and fees for declaring bankruptcy and it is not the right solution for everyone. Depending upon your income level and the assets that you own, it can be a very expensive way to resolve your financial problems.
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