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London, ON N6B 2M4


September 5, 2017

Regardless of whether you are a lender or a borrower remember the old maxim “those who fail to plan, plan to fail.”

Now let’s be absolutely clear we are not making the suggesting that you should plan to go bankrupt but should be thinking about the consequences if you are exposed to a bankruptcy whether it is your own or someone who owes you money.

Planning involves thinking ahead, not scrambling at the end.  There is a huge difference.  Planning for the possibility of a bankruptcy is not a bad idea, and should be an part of your financial plan whether you are a lender or a borrower.

You should be asking “what will happen to me if I should get myself into financial trouble?”  That is certainly better than believing that “it could never happen to me”.   And you can be in financial trouble if you are trying to collect uncollectable debts or trying to pay debts that are unpayable.

You can get into financial trouble for all sorts of reasons whether you are a lender or a borrower.  |What happens if the person you loaned money to goes bankrupt?  Will you lose all of the money you loaned?  Were there steps you could have taken to protect your interests (loan)?

Let’s say that you loan money to a family member and that family members files for bankruptcy – if your lending was secured by a proper mortgage you will be able to collect the money in spite of a bankruptcy and the family member will be less likely to have to pay the trustee for the equity on the property.   In that sense both the lender and the borrower appear to get some measure of protection as family members are more inclined to work with each other than main stream creditors.

Of course as a lender you can ask for security from people other than family members.  As a borrower are your assets creditor proof?  In some professions family trusts are commonly used to avoid exposure to creditors.

Talk to a Licensed Insolvency Trustee or a lawyer to get more information about what happens to assets when faced with bankruptcy regardless of which side of the desk you are on.