What Can They Take During Bankruptcy in Canada? Understanding Your Exempt Assets

What Can They Take During Bankruptcy in Canada?

Many Canadians fear that declaring bankruptcy means losing all their possessions like their car, furniture, even retirement savings.

The truth is, bankruptcy in Canada includes specific asset exemptions that protect many of your belongings. While some assets may be sold to repay creditors, the law ensures you can keep essential items and certain investments. Here’s exactly what they can and cannot take during bankruptcy.

How Bankruptcy Affects Your Assets in Canada

When you declare bankruptcy, everything you own technically falls under the control of your Licensed Insolvency Trustee (LIT).

But that doesn’t mean you lose it all.

Federal law (the Bankruptcy and Insolvency Act, or BIA) sets the framework, and each province sets its own exemption limits that protect essentials like furniture, vehicles, pensions, and more.

Your Trustee will walk you through what applies in your province, but the key thing to know is: bankruptcy is designed to give you a fresh start, not strip you of everything you own.

What You Can Keep During Bankruptcy (Exempt Assets)

1. Household Goods and Personal Belongings

Everyday essentials are protected.

In Ontario, for example, furniture and appliances are exempt up to $14,180. And here’s the good news, the Trustee looks at what your belongings would sell for at auction, not what you paid for them. Most people’s household items come nowhere near that value, so you get to keep them.

2. Vehicle

You’re also allowed to keep one vehicle, up to a certain value. In Ontario, the limit is $7,117. If your car is worth more than that, you can usually pay the difference into the bankruptcy estate and keep driving it.

For example, if your car is worth $9,000, you’d pay $1,883. If you lease or finance your car, and your payments are up to date, it’s generally safe since it’s already pledged to the lender — you just need to continue making those payments going forward.

3. Tools of Trade

If you need certain tools or equipment to do your job, you can usually keep them. Each province sets a limit, but the goal is simple: bankruptcy shouldn’t stop you from being able to earn a living.

4. Pensions and RRSPs

Your pension is fully protected. Locked-in pension plans — the kind arranged through your employer or union — can’t be touched in bankruptcy.

RRSPs are also generally safe. Federally, contributions made in the 12 months before filing may be seized, but everything else is protected. That said, some provinces (like Alberta) offer full exemptions, and RRSPs held with life insurance companies may also be protected depending on the beneficiary. A Licensed Insolvency Trustee can help you understand how the rules apply in your province.

5. Life insurance

Life insurance rules depend on the type of policy.

Term life insurance has no cash value, so it’s always safe. Whole or universal life policies might have cash value, but if you’ve named your spouse, child, or parent as the beneficiary, they’re exempt too.

If you’ve named someone outside of that circle, the Trustee may be able to access the value — but in many cases, you’ll have the option to pay into the estate to keep the policy intact.

What They Can Take During Bankruptcy (Non-Exempt Assets)

Not everything is protected. Here are a few examples of what might not be safe:

• Expensive items that go over exemption limits (e.g., luxury cars, designer jewelry)
• A second property or vacation home
• Certain types of investments not covered by legislation
• Life insurance policies with cash value and no preferred beneficiary
• RRSP contributions made within the last 12 months

For example, if you own a boat worth $5,000, that wouldn’t be covered by exemptions. Your Trustee could sell it to repay creditors — or, if keeping it matters to you, you could pay $5,000 into the estate instead.

How to Keep Non-Exempt Assets

Even if something you own isn’t exempt, it doesn’t always mean saying goodbye to it. One option is the “buy-back,” where you pay its value into the bankruptcy estate (sometimes in installments).

Another option is avoiding bankruptcy altogether by filing a consumer proposal, which often lets you to hold onto more assets while still cutting down your debt.

Bankruptcy Is About Protection, Not Punishment

It’s easy to imagine bankruptcy in Canada as losing everything, but that’s not the reality. The system is set up to protect you. You can keep the basics you need for everyday life while still getting relief from overwhelming debt.

FAQs on Assets and Bankruptcy

Will I Lose My Home in Bankruptcy?

It depends on how much equity you have and the rules in your province. Your Trustee will walk you through it.

Can They Take My Car If It’s Paid Off?

Only if its value is above the exemption amount in your province. But even then, a Licensed Insolvency Trustee (LIT) can often help you explore options — like negotiating a buy-back or restructuring your proposal — so you may be able to keep your vehicle.

What Happens to My RRSP in Bankruptcy?

In most cases, your RRSP is protected — except for contributions made in the last 12 months, which may be seized to repay creditors. However, some provinces offer full exemptions, meaning your entire RRSP could be safe. A Licensed Insolvency Trustee can help you understand how the rules apply based on where you live and guide you through your options.

Filing for Bankruptcy Doesn’t Mean Losing Everything

Declaring bankruptcy in Canada isn’t about stripping you of everything, it’s about giving you a reset while protecting the essentials.

Knowing what they can and can’t take can help you feel more confident as you decide your next step. Every case is a little different, so the best way to get answers is to talk to a Licensed Insolvency Trustee.

Book your free, confidential consultation today and find out exactly what applies in your situation.