What Happens if You Receive a Gift During Bankruptcy?

You are in the middle of your bankruptcy and the unexpected happens. You receive a large gift. You don’t remember the trustee telling you about this and you are afraid to call the trustee. What will happen?

Your trustee should have discussed this with you before you decided to declare bankruptcy before you signed any documents because it is always nice to know the full implications of bankruptcy ahead of time. Of course that’s why we have so much bankruptcy information on our site for a person considering bankruptcy in Ontario to learn more about the process before filing.

In a bankruptcy, the trustee is required to know what monies come into the household. You are required to submit proof of income as part of the process. Your trustee should have told you this included sources such as inheritances, winnings from lotteries and casinos and gifts even though these are events that don’t happen every day.

Having said that, let’s look at what may or may not happen depending on the circumstances.

Definition of “Gift”

If your income is very tight and someone is giving you money to make it through the month, that “gift” of money will technically be added to your income numbers. However chances are this is because you are having trouble getting by which may mean you are below the surplus income limit anyway. If you remain below the limit, all is well and there is no impact for you.

If you received a large gift from a relative for Christmas or a birthday or a wedding present, then there could be a problem. The Bankruptcy and Insolvency Act says that all gifts need to be given to the trustee. They are like an asset that is recoverable if you receive it before you are discharged (the date you are released from the obligation to pay your creditors).

Now if you really didn’t understand that last sentence, another way of saying it is like this:

When you file for bankruptcy, the trustee looks at everything you own and if it is something that has to be made available to the trustee, then you either purchase it back from the trustee to keep it or the trustee would sell or redeem the item. An example of this type of item is a Tax Free Savings Account. Filing for bankruptcy means you have no choice in this happening.

Likewise with a gift of money, or even a gift of an item such as a car or an investment. If you have not finished the bankruptcy process, it can become something that has to be made available to the creditors. If you cannot afford to buy it back from the trustee then it is very possible that the trustee will take steps to obtain the monies or item and provide the proceeds from it to the creditors. Not disclosing you received this item if asked by the trustee could cause problems for your discharge.

The last factor to consider is whether or not the gift has any cash value. A trustee must realize on assets for the benefit of the creditors. If the gift can’t be turned into cash, then there may be no impact to you.

This type of situation doesn’t happen very often during the bankruptcy process, but if it does, you must disclose the information to you trustee. This is part of your duties in a bankruptcy. Failure to do so could affect your discharge.