You should plan for your bankruptcy

October 18, 2017

That’s right, you should plan for a bankruptcy in the same manner as you would plan for a critical illness or any other unfortunate occurrence that may come your way. You are probably worried that in the event you became critically ill you could lose everything you own. By the same token you ought to be concerned that you could lose more in an insolvency proceeding than you need to.

So how do you protect your assets?

There are steps you can take that are expensive (creating a family trust for instance) and there are others that are far simpler depending on the complexity of your asset portfolio. The important thing to do either way is to take the steps before you get into trouble, if you wait until the wolves are at the door it may be too late.

It would be useful to speak with a Licensed Insolvency Trustee long before you get into trouble, a lawyer and a good financial advisor may also be of value. Here are a few considerations:

1. Set up a family trust before you get into debt. If you set it up to avoid existing creditors they may be able to breach the trust.

2. Do not invest money in TFSAs or RESPs since neither are exempt from seizure by a trustee or exempt from execution.

3. Ensure that the beneficiaries of your insurance policies fall with the designated class, either antecedents or descendants – the only step to the side is to a spouse, not a sibling.

4. RSPs are exempt from seizure but not contributions made in the twelve months prior to your bankruptcy.

5. In the case of an incorporated company remember that you are probably liable for all its debts either as a guarantor or as a director. You should speak with your lawyer about steps that might include securitizing an interest in assets of the corporation and as noted above ensuring that your personal assets are protected.