Question: My ex wife and I are doing everything we can to avoid bankruptcy in Ontario. While our finances are bad we are paying as much as we can. We took back a leased vehicle because we can’t afford the payments. We cashed an RESP in for $8,000 to buy a used vehicle and used the rest to pay some bills. I am selling a 4 wheeler for $2,000 and using that money to pay down some debt. If our efforts do not work will the fact we sold these assets to avoid bankruptcy cause us issues?
You must be careful about selling or liquidating assets prior to filing bankruptcy.
If you decide to file a consumer proposal in Ontario or declare personal bankruptcy you are required to disclose whether or not you disposed of any assets within the past year, and you must disclose what you did with the money.
Selling a $2,000 vehicle may not be a big issue, and using the money to buy another inexpensive vehicle is also probably not a big issue. There are, however, a few things you need know be sure of before you liquidate any assets:
1) You must be able to show, if asked, that you received fair market value for the asset you sold. You cannot sell an asset to a friend for less than it is worth, even to raise some extra money.
2) Keep track of how you used the funds. Selling items to pay for essentials such as food, rent and perhaps a replacement car are not activities that are likely to be questioned by your trustee. Bankruptcy law however is designed to ensure that all creditors receive equal treatment. If you use the money to prefer one creditor over another, it could be a problem, because the other creditors may oppose your discharge from bankruptcy and request the return of the money.
Before you start selling assets and repaying some, but not all, of your debt, it is always wise to meet with a licensed bankruptcy trustee to review all of your options, so that you understand all of the implications of your actions.