Toronto Bankruptcy Trustee

What if I win a lottery or receive an inheritance while in bankruptcy?

It is important to remember that you have duties in a bankruptcy. Two of the duties are to report your income each month to the bankruptcy trustee and another duty is to give any windfalls (lottery, inheritance) to the bankruptcy trustee. As long as the savings are not the result of a windfall, and as long as the savings are from your part of your earnings, then you can keep them.

Any “windfall” must be given to the Trustee to distribute to your creditors. If there is any money left over after your creditors are paid their claims in full, interest on your indebtedness to them at five percent per year and all trustee costs are paid , the balance will be returned to you.

What happens to my R.R.S.P. and/or pension plan?

Pensions are protected under Federal legislation as are. RRSP’s that are not pension roll-overs, or are held by life insurance companies. All other RRSP’s must be paid over to the Trustee to distribute to your creditors. If you have a non-life insurance funded RRSP, you should discuss your rights with your agent and with your family solicitor.

Can I keep an asset that I have pledged as security to a secured creditor?

Bankruptcy has no effect on the rights of secured creditors. Therefore, if you own an asset that is subject to a security interest, you may be allowed to retain the asset provided that:

• The Trustee has determined that the security held by the secured creditor is valid and enforceable.
• The Trustee has determined that there is no equity in the asset or that the asset is exempt from seizure under provincial and federal laws.
• The Trustee has provided the secured creditor with a Release of Interest.
• The secured creditor has agreed to allow you to retain possession and use of the asset and
• You can afford to make monthly payments to the secured creditor.

You can elect to surrender secured assets and cease making payments to secured creditors, and allow the secured creditor to recover the assets pledged to them as security. In these circumstances you will not be responsible for any resulting shortfall that may arise from the sale of the asset held as security by the secured creditor.

Remember that if you give your exempt assets to secured creditors as security for their loans and advances, these creditors can seize and sell the assets unless arrangements can be made by you to pay them.

If you make an agreement to keep the assets after filing bankruptcy and fail to make the payments in the future, the secured creditors may be in a position to seize the assets and garnishee your income.