If you receive funds from a GoFundMe or other crowdfunding campaign while in an undischarged bankruptcy in Canada, the Office of the Superintendent of Bankruptcy (OSB) classifies this money as a windfall. You are legally required to report and surrender these funds to your Licensed Insolvency Trustee (LIT) to be distributed to your creditors.
Understanding Crowdfunding and the Bankruptcy and Insolvency Act
In recent years, turning to online platforms like GoFundMe, Kickstarter, or Indiegogo has become a common way for Canadians to seek financial help during difficult times. Whether you live in Toronto, Vancouver, or Calgary, raising money for emergency expenses, medical bills, or living costs seems like a logical step when you are struggling. However, if you are currently going through a legal bankruptcy process in Canada, receiving this money can complicate your financial recovery.
Under the Canadian Bankruptcy and Insolvency Act (BIA), your financial situation is carefully monitored from the day you file until the day you receive your absolute discharge. 📊 During this period, any unexpected influx of money that is not part of your regular employment income is generally considered after-acquired property, often referred to as a windfall. This means that you do not have the legal right to keep the crowdfunded money for yourself. Instead, the law mandates that these funds must be handed over to your Licensed Insolvency Trustee.
We strongly recommend speaking directly with a local Licensed Insolvency Trustee from our directory before launching any online fundraising campaigns. They can provide you with proper guidance on how the funds will be treated under your specific circumstances, ensuring you do not accidentally violate federal bankruptcy laws.
Step-by-Step Process: What Happens If You Raise Money While Bankrupt?
Navigating the rules around sudden income during bankruptcy can be stressful. If a crowdfunding campaign has been started in your name, here is the general process you must follow to stay compliant with Canadian law.
Step 1: Identifying the Source and Beneficiary of the Funds
The first crucial step is determining who actually owns the money. 🔍 If a friend or family member sets up a GoFundMe campaign specifically for your benefit, and the funds are deposited into your personal bank account in Ontario, Alberta, or any other province, those funds belong to you. Because you are an undischarged bankrupt, the money immediately becomes an asset of your bankruptcy estate.
Step 2: Reporting the Funds to Your Licensed Insolvency Trustee
Honesty and transparency are fundamental requirements of the Canadian bankruptcy process. As soon as you become aware of the crowdfunding money, you must immediately notify your LIT. Failing to report this income is a serious offence under the BIA and can lead to severe penalties, including the refusal of your bankruptcy discharge or even criminal charges for hiding assets.
Step 3: Surrendering the Money to the Bankruptcy Estate
Once reported, your LIT will instruct you on how to transfer the crowdfunded money to the bankruptcy estate trust account. 🏦 The trustee will then calculate how these funds should be distributed fairly among your unsecured creditors, such as credit card companies or the Canada Revenue Agency (CRA). You will not be allowed to use this money to pay for personal expenses or outstanding bills.
Step 4: Completing Your Trustee Duties
After the funds are surrendered, you must continue fulfilling your regular bankruptcy duties. This includes submitting your monthly income and expense reports, attending mandatory credit counselling sessions, and making any required surplus income payments. Surrendering a windfall does not necessarily excuse you from your other legal obligations under the BIA.
How Much Does a Crowdfunding Windfall Cost You?
It is essential to understand the financial implications of receiving crowdfunded money while bankrupt. Here is a breakdown of how the funds are handled:
- 100% Surrender Rule: Generally, all net proceeds from a crowdfunding campaign deposited into your account must be turned over to the LIT.
- Trustee Fees: A portion of the funds collected by the LIT will go towards administrative fees regulated by the federal government.
- Creditor Distribution: The remaining balance is distributed proportionally to your proven creditors.
- No Tax Exemptions: Unlike some specific government benefits, GoFundMe donations do not fall under provincial execution exemptions (such as the Ontario Execution Act or the Alberta Civil Enforcement Act).
If your campaign raises $5,000 CAD, you must typically surrender the full $5,000 CAD to the trustee. 💸 If the raised amount exceeds your total debts plus the trustee fees, any remaining surplus would then be returned to you, though this is exceptionally rare.
How Long Does the Bankruptcy Process Take?
The timeline for a Canadian bankruptcy depends entirely on your prior insolvency history and your monthly income. For a first-time bankrupt individual with no surplus income, the process generally takes exactly 9 months. If your income exceeds the threshold set by the OSB, your bankruptcy will be extended to 21 months.
Receiving a GoFundMe windfall does not usually extend the duration of your bankruptcy, provided you report and surrender the funds immediately. 🕑 However, if you attempt to hide the money, your LIT will likely oppose your discharge, which can drag the process out in local courts for several years until the matter is legally resolved.
Understanding Windfalls vs. Exempt Income
| Type of Income | Treatment During Bankruptcy | Examples |
|---|---|---|
| Windfall (After-Acquired Property) | Must be surrendered to the LIT in full. | GoFundMe, lottery winnings, inheritances. |
| Regular Employment Income | Subject to OSB Surplus Income guidelines. | Salary, wages, hourly pay, bonuses. |
| Exempt Government Benefits | You keep 100% of these funds. | Canada Child Benefit (CCB), certain GST/HST credits. |
Frequently Asked Questions (FAQ)
What if a family member keeps the GoFundMe money and pays my bills directly?
If the money is never deposited into your personal bank account and is entirely managed by a third party (like a relative) who pays for your essential needs, it may not be considered your asset. However, you must still disclose this arrangement to your Licensed Insolvency Trustee, as it could affect your monthly income and expense calculations.
Can I keep a small portion of the crowdfunding money for groceries?
Generally, no. Under Canadian bankruptcy law, windfalls cannot be kept for personal expenses, regardless of how essential they are. The funds are legally considered the property of your bankruptcy estate and must go to your creditors.
What happens if I receive the money after my bankruptcy is discharged?
If a crowdfunding campaign is initiated and the funds are received after you have obtained your absolute discharge from the court, the money is yours to keep. The crucial factor is the exact date you become legally entitled to the funds.
Does this rule apply if I file a Consumer Proposal instead?
No. One of the main advantages of a Consumer Proposal in Canada is that you do not surrender your assets or windfalls. If you receive GoFundMe money while in a Consumer Proposal, you are generally allowed to keep it, provided you continue making your agreed-upon monthly proposal payments.
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