Bankruptcy Exemptions Explained

  • By Jillian Taylor-Mancusi

Bankruptcy Exemptions Explained

When it comes to bankruptcy, one of the biggest fears people have is losing everything they own. While it’s true that you will have to give up some of your belongings to help repay your debts, the idea of surrendering everything is a myth. Bankruptcy exemptions allow you to keep many of your assets.

The following are some of the most common questions people have about exemptions when going bankrupt:

What are bankruptcy exemptions?

Items you are allowed to keep when you file for bankruptcy are called bankruptcy exemptions. Each province has it’s own list of exemptions and accepted value thresholds. The Bankruptcy and Insolvency Act governs the bankruptcy process throughout all of Canada, but each province is responsible for setting it’s own guidelines governing bankruptcy exemptions.

Assets that are not exempt are taken by your trustee and sold. The proceeds are then distributed among your creditors to help pay off your debts.

What can I keep?

While exemptions vary from province to province, many are similar. As a general rule, you will most likely be able to keep the following, up to a certain amount:

  • Food
  • Clothing
  • Furniture
  • Any tools or items you need to earn a living
  • Farm land and livestock
  • Health aids
  • Pets
  • Pension plans and retirement accounts

The amount you get to keep is typically where provinces differ.

What about my home and vehicles?

No one wants to lose their home, and in some cases you won’t have to. The deciding factor is the amount of equity you have in your home, or how much money you would have left over after you sold your home and paid off your mortgage and taxes. This is a complicated part of bankruptcy and a trustee in your province is the best source of information.

If your home doesn’t have a lot of equity, you will usually be able to keep it. However, if you can’t afford your mortgage payments, selling your home may make the most sense.

The same principle of equity applies to vehicles. For example, in Alberta, exemptions for a motor vehicle are $5,640. If you have a car worth $10,000 but owe $6,000, the equity in your car is $4,000. In this case, the $4,000 in equity is would be exempt from seizure.

How can I find out what I’ll be able to keep?

Because the laws regarding exemptions vary, the best way to find out what you can keep if you file bankruptcy is to discuss your situation with a licensed insolvency trustee. He or she will give you a better idea of what you can expect to keep if you go bankrupt.
Bankruptcy is not a punishment in which you are forced to lose everything you know. By allowing you to keep many of your belongings, bankruptcy exemptions provide a fresh financial start without having to completely start over with nothing.

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