What I Wish People Understood About Bankruptcy | Do you lose all of your assets in a bankruptcy?

What I Wish People Understood About Bankruptcy | Do you lose all of your assets in a bankruptcy?

Everyone has heard of bankruptcy. But, as with anything a person may not have personally experienced, it’s easy to develop false assumptions about it based on tidbits of information heard in the news or from people you know. Unless a person has gotten up-close-and-personal with bankruptcy, there are some things they probably don’t know – things that might help if they or someone they care about are struggling with debt.

As a Licensed Insolvency Trustee, one thing I wish people understood about bankruptcy is that people don’t usually lose all of their assets in bankruptcy. In fact, in many cases people don’t lose any assets at all.

Why Don't People Always Lose Assets In A Bankruptcy?

There's a common misconception that if someone becomes bankrupt, everything they have gets sold to pay creditors and they're left with nothing. Others are sometimes surprised when they see someone they know to be bankrupt continuing to go about their lives seemingly as usual. There can be a suspicion in these cases that the person is flouting the bankruptcy rules or that the system is somehow “rigged”.

The truth is, people often don't lose their assets in bankruptcy for one or more of the following reasons:

They filed a creditor proposal, not a bankruptcy

Sometimes, the media and others refer to any kind of financial restructuring as “bankruptcy”, which likely stems from the way the word is used in the United States. In Canada, “bankruptcy” is a very specific type of financial restructuring, a last resort. Licensed Insolvency Trustees can often assist people with a less drastic type of financial restructuring, called a Consumer Proposal. This is still a formal legal restructuring, and the laws relating to a Consumer Proposal are contained in the federal Bankruptcy and Insolvency Act, so sometimes people confuse this with bankruptcy. But there are some major differences between a bankruptcy and a Consumer Proposal.

One of the main differences is that individuals who file a Consumer Proposal are not required to turn over any of their assets as part of the process. Instead, they make a new legal agreement with their creditors to make payments into a proposal “fund”, which is then used to pay down some or all of the debt. Sometimes, part of the agreement is that the individual will sell certain assets to generate the money for the “fund”, but it's not a requirement. More often, if the individual has valuable assets that their creditors could have seized, they'll offer to pay the value of those assets into the fund over a period of time, such as monthly payments for five years. In that case, they keep the assets but their creditors still get to benefit from their value.

They don’t own any assets

People don’t often share a lot of information about their finances, especially if they are experiencing financial difficulty. So others might be surprised to find out that the house a person lives in or the car they drive is leased or belongs to a family member or the company they work for. In these cases, they don’t own the assets so there's nothing to turn over to the Trustee if they file a bankruptcy. As long as they can continue to honour their agreement with the owner, they can keep using the assets.

Their assets are fully encumbered by secured debt

Many people don’t realize that when a person files a bankruptcy, the bankruptcy does not deal with secured debt – debt that is owed to a creditor who has taken an asset as security for their debt. A common example of this is a home mortgage. Although the home may be owned by the inhabitant, the bank has registered on the home’s title as a secured creditor. This gives the bank the right to seize the asset and/or sell it to get paid back. Since secured creditors are left out of the bankruptcy system, they can continue to deal with the person by letting them continue making payments, or they can get paid by selling the asset.

People who file bankruptcy are more likely to have fully encumbered assets, meaning there's no value left in the asset after deducting what's owed to the secured creditor. In that case, the asset has no value for the other creditors, so it's left to the individual and the secured creditor to figure out what to do about the debt. Typically, as long as the individual can keep the secured creditor satisfied by continuing to make monthly payments, they can keep the asset.

Their assets are exempt

Each province in Canada has laws that make certain assets exempt from seizure by creditors, which means that the people owed money can’t take those assets or force an individual to sell them in order to get paid. The Trustee in a bankruptcy is subject to those same laws.

The reason for these exemptions is to allow the individual to keep enough to live on while they rebuild their financial lives. Without these exemptions, it would be much harder for bankrupt individuals to rebuild, and they'd be more likely to need to rely on social assistance programs in the aftermath of a bankruptcy filing.

In Alberta, the Civil Enforcement Act governs exempt assets which include:

  • Up to $40,000 in equity (sale value minus secured debt) in a primary residence
  • Up to $5,000 in value (or equity) in one vehicle
  • Certain personal and household goods
  • Most RRSP and RESP savings
  • Certain tools of the trade for generating income

If the individual’s assets (or the value left after deducting secured debt on those assets) don't exceed the above limits, they likely won’t lose the assets in a bankruptcy.

They've made a deal with the Trustee to “buy it back” 

Sometimes, it's important to the individual to keep assets that they're supposed to hand over to the Trustee. In that case, they can attempt to negotiate with the Trustee to keep the asset, by paying the Trustee for its value. Often, this involves assistance from family and/or payments to the Trustee over time. So even though the person may have previously paid for the item, they essentially pay for it again so that they don’t have to release it to the Trustee.

Find Out What You Can Keep

In each of the above cases, assets that wouldn't have been available to be seized by creditors can be kept by the bankrupt individual in bankruptcy, while assets that would've been available to be seized by creditors are either seized by the Trustee or their value is paid over to the Trustee. So, in essence, bankruptcy doesn't change what can or cannot be kept. It's simply an orderly process for collecting all of the assets that would've otherwise been available and distributing them to creditors fairly.

Too many people delay coming to see a Licensed Insolvency Trustee due to fear over losing their assets. As a result, they often end up spending months, years or even decades struggling with their debt before they reach out for help. I wish people knew it didn’t have to be that way.

If you are struggling with debt and want to explore your options, we can help. Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals navigate their options for dealing with overwhelming debt. If you would like a free, no-commitment consultation to review your options, contact us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

Frequently Asked Questions

Bankruptcy is a legal way to get some or all (depending on your financial situation) of your debt forgiven when you can't pay it. For more information, see our bankruptcy page or contact us.

There's a common misconception that if someone becomes bankrupt, everything they have gets sold to pay creditors and they're left with nothing. 

The truth is, people often don't lose their assets in bankruptcy for one or more of the reasons we've discussed in What I Wish People Understood About Bankruptcy: Will I Lose All Of My Assets? :

There are many factors unique to your situation which must be considered to determine what you could keep in a bankruptcy. To be sure, the best way to find out is to contact a Licensed Insolvency Trustee for a free no-committment assessment.

Sometimes it helps to know how much your creditors would get in a bankruptcy, as this can help you figure out what a fair settlement with your creditors looks like. The amount your creditors could expect to receive if you made a bankruptcy filing is very much dependent on your situation.

A Licensed Insolvency Trustee will review your assets, debts, income, and family situation, while considering the applicable provincial laws about exempt assets, in order to determine what impact bankruptcy would have on your creditors. Be careful taking advice from anyone else about bankruptcy – only a Licensed Insolvency Trustee can provide bankruptcy filing services, so they have the training and experience to provide information you can rely on. 

For more details on the features and benefits of Bankruptcy, visit this page or contact us.

There are several factors which must be considered to determine which options are feasible for you and to select the best one, including:

  • What assets do you own?
  • Who do you owe money to and how much?
  • What sort of income are you bringing in and how predictable is it?
  • What is your family situation?
  • Your personal goals and priorities

Check out our Consumer Proposal and Bankruptcy pages for information about each of these options and their pros and cons. For more indepth information about these and other options, we've provided a plethora of information on our blog

For a fulsome review of your situation and advice about which option is best for your specific circumstances, contact a Licensed Insolvency Trustee for a free no-committment assessment.

The cost of a bankruptcy is determined based on many factors such as your assets, your income, and your family situation. However, you typically pay less in a bankruptcy than you would in a Consumer Proposal, because your creditors don't have as much ability to impact your payments in bankruptcy. For more information about how these options compare, reach out to us for a free consultation.

If you don't get discharged from your bankruptcy, your Trustee will eventually apply for its own discharge. Once your Trustee gets its discharge, your creditors' rights to collect the pre-bankruptcy debt are revived, so you are no longer protected from asset seizures, wage garnishees or any other collection action.

You also remain responsible to disclose the fact of your bankruptcy in situations where you are requesting credit, and your bankruptcy will continue to show up on your credit report. Because of this, you may find you cannot get credit when you need it, or you may find that the interest rate you are offered is very high, making it difficult to buy assets.

Review our blog Getting Back On Track: How Not To Stay An Undischarged Bankrupt for information on how to get discharged frm your bankruptcy so that you can move on with your life.


With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt. 

Contact us today at 1-403-899-3890‌ for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.

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