When you file for bankruptcy in Canada, pleasure boats and luxury yachts are generally considered non-exempt assets. This means your Licensed Insolvency Trustee (LIT) will likely seize and sell the vessel to repay your creditors, unless you can buy back the equity.
Filing for bankruptcy is a powerful tool to eliminate overwhelming debt, but it comes with strict rules about what you can and cannot keep. For many Canadians, a boat represents years of hard work and fond summer memories on the lakes of Ontario, British Columbia, or the Maritimes. However, under the Bankruptcy and Insolvency Act (BIA), recreational watercraft are rarely protected.
Step-by-Step Process: How Boats Are Treated in Bankruptcy
Whether you own a small fishing boat in Manitoba or a luxury yacht moored in Vancouver, the legal process remains relatively consistent across Canada. Here is how a Licensed Insolvency Trustee handles your marine assets.
Step 1: Disclosing Your Assets to the LIT
By law, you must disclose everything you own to your LIT, including recreational vehicles, boats, and jet skis. 📜 Hiding a vessel is a serious offence under federal law and can result in severe penalties or the dismissal of your bankruptcy.
Step 2: Determining the Vessel’s Value and Equity
Your LIT will assess the fair market value of the boat. If you own the boat outright, the entire value is considered equity. If you have a marine loan or mortgage, the equity is the boat’s value minus what you still owe the secured creditor.
Step 3: Evaluating Provincial Exemptions
Each province has its own list of exempt assets, which typically cover essential items like basic clothing, standard furniture, and an inexpensive vehicle for travelling to work. ⚠ Unfortunately, no Canadian province lists pleasure boats as an exempt asset unless it is your primary residence (a houseboat) or strictly required for your livelihood (such as a commercial fishing vessel).
Step 4: Liquidation or Buy-Back
If there is equity in the boat, the LIT has the authority to seize and sell it. Alternatively, if you have supportive family members, they may offer to purchase the equity from the bankruptcy estate, allowing you to keep the boat while still satisfying your creditors. Speaking to a local law firm or your LIT can clarify these buy-back options.
Marine Mortgages vs. Unsecured Loans
How you financed your boat plays a massive role in what happens next. Here is a breakdown of the differences.
| Secured Marine Mortgage | The lender holds a lien on the boat. If you cannot keep up with payments, the lender can repossess it. If there is no equity, the LIT will surrender the boat to the lender. |
| Unsecured Personal Loan | If you bought the boat using a standard line of credit or credit card, the lender cannot repossess the vessel. However, the LIT will sell the boat to pay off your general unsecured debts. |
Consumer Proposal: A Way to Keep Your Boat
If losing your boat is a dealbreaker, filing a Consumer Proposal might be the better legal avenue. In a Consumer Proposal, you negotiate a settlement with your creditors, including the Canada Revenue Agency (CRA) if you owe taxes, to pay a percentage of what you owe over a maximum of five years (up to 60 months). As long as you continue making your secured loan payments and complete your proposal, you keep all your assets, including your yacht.
How Much Does it Cost?
The base cost to file for personal bankruptcy in Canada is generally around $1,800 to $2,000 CAD, usually payable in monthly instalments of about $200. 💵 However, this does not account for surplus income payments or the loss of non-exempt assets like a yacht.
Frequently Asked Questions (FAQ)
Can I transfer my boat to a family member before bankruptcy?
No. Transferring assets for less than their fair market value is considered a preferential transfer or fraudulent conveyance. The LIT can reverse this transaction, and it may jeopardize your bankruptcy discharge.
What if my boat is worth very little?
If the boat is old and holds negligible value (e.g., under $500 CAD), the LIT may decide it is not worth the cost of seizure and storage, and they might abandon their interest in it.
Does living on my boat change things?
If the vessel is your primary residence, you may be able to apply the provincial principal residence exemption, such as the $12,997 exemption in Ontario or higher amounts in Alberta and BC. You should discuss this unique situation with a local lawyer or LIT.
Leave a Reply