If you are considering obtaining relief from your debt burden by filing for bankruptcy, the trustee in bankruptcy will discuss with you the bankruptcy process including what will happen to the property you currently own as well as property that you may acquire after the bankruptcy occurs.
Property, as defined in the bankruptcy legislation, includes all property of any kind wherever situated that is owned by the bankrupt at the date of bankruptcy or that may be acquired by the bankrupt during the bankruptcy period (date of bankruptcy to the date of discharge). This would include any equity that the individual has in a particular asset such as a house.
The statute specifically excludes any property that is exempt from seizure under federal or provincial legislation, including registered retirement savings plans, GST tax credits not required for the bankruptcy administration and property held in trust for another person.
For most individuals, the most common types of property they will be concerned about will be cash, household furniture, automobiles, houses, life insurance policies, registered retirement savings plans, recreational equipment (boats, snowmobiles, etc.) and income tax refunds.
There may be other types of property that an individual may have depending on a number of factors including their occupation.
At your initial consultation, the trustee in bankruptcy will address the following issues with respect to your property:
1. The value of the asset;
2. Your interest in the asset (owned individually or jointly with another person);
3. Whether the asset has been pledged to a bank or other secured creditor as collateral for a loan and the outstanding balance owing on the loan;
4. In the case of life insurance policies, the type of policy, and any named beneficiaries; and
5. Whether the property is exempt from seizure (this means that the property cannot be removed by the trustee).
For example, when looking at an individual’s house, the trustee will determine the equity in the house (fair market value of the house less the estimated selling costs, legal fees and any mortgages on the house).
From this net amount, the exemption available to the individual is deducted to determine the net equity available to creditors.
In the definition of property, it includes property that may be acquired by the bankrupt during the course of the bankruptcy administration.
This is referred to as after-acquired property.
The most common example of after-acquired property would be if the bankrupt received an inheritance during the period of the bankruptcy or was fortunate enough to win the lottery.
In these circumstances, the trustee will take steps to have these assets made available to the creditors up to the amount of the total claims.
The surplus funds would be returned to the bankrupt.
Issues surrounding property in a bankruptcy can become complex.
The above is not a complete treatment of the subject.
Individuals are encouraged to consult with an insolvency lawyer or a trustee in bankruptcy to obtain a detailed understanding of how their property will be affected by bankruptcy.
» Wayne K. Palmer is a senior manager in BDO’s Brandon office. He is responsible for both the consumer and commercial practices in Brandon and surrounding areas, including Boissevain, Minnedosa, Neepawa and Dauphin. Wayne has more than 25 years experience in the financial recovery services field.