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Jul 14, 2017

What happens to gifts and winnings in personal bankruptcy?

Any Ontario resident can experience severe financial problems if adverse events like employment loss, unanticipated medical expenses or more occur. Personal bankruptcy can be filed, which will bring about the seizure of all non-exempt assets to be sold -- including assets received after the filing of bankruptcy. However, any gift, inheritance or another windfall such as lottery winnings received during this time will have implications.

When a person receives a gift after filing for bankruptcy, it must be reported to the trustee. This applies to both monetary and physical gifts. However, the trustee will only seize sizable amounts of money or valuable items such as an antique or an expensive piece of jewellery. Household effects and clothing form part of the list of bankruptcy exemptions, and only gifts exceeding those limitations can be seized.

If the person who filed for bankruptcy receives lottery winnings, that money will form part of the estate in bankruptcy. If the money was won during the bankruptcy period -- even if the individual only collects the money after the discharge -- it can be seized. If the value of the winnings exceeds the owed debts, including costs and interest, the remaining balance will be paid out to the bankruptcy filer.

When it comes to an inheritance, the trustee must be advised. He or she will inform the executor, who must then pay the inheritance directly to the trustee. The same rules apply as for lottery winnings -- any inheritance money exceeding outstanding debts will go to the filer. Any Ontario consumer who has questions about personal bankruptcy can benefit from consulting with an experienced bankruptcy lawyer who can provide answers and advice related to the bankruptcy laws and proceedings.

Source: bankruptcy-canada.com, "Gifts During Bankruptcy. How Are They Treated?", Accessed on July 7, 2017

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