If you’re thinking about bankruptcy, chances are you’ve probably wondered, “Will I lose everything?” In a Manitoba bankruptcy you will still be able to keep many of your possessions. Each province has a list of exemptions, or things that can’t be seized by your creditors, even when you file an Assignment in Bankruptcy.
While your Licensed Insolvency Trustee (LIT) can tell you exactly what you’ll be able to keep and what you’ll have to give up, here’s a general overview of what you can expect:
Your Home
The first thing most people want to know is whether or not they will lose their home. This depends on the amount of equity you have in it. Equity is generally understood as the difference between the amount of money your home is worth and how much you owe on the mortgage. It is actually not that simple. In the case of a bankruptcy, the Trustee is going to be looking at realizable equity. They will calculate the following costs:
- Paying off the mortgage and penalties,
- Paying off second mortgages and liens. (For example, a builder’s lien)
- Paying your exemption, which in Manitoba is $1500 if the property is jointly owned, and $2500 if you are the sole owner. (*See note below)
- Is the property in joint ownership? If so, and the joint owner is not going bankrupt as well, they have a right to 50% of the equity. Even if the property is in your name only, is there anyone else who might have Homestead rights that need to be taken into account in the sale?
- Taxes owing on the property
- Carrying costs — maintenance, heat, and insurance during the sales period, which can be several months
- Costs associated with the actual sale of the property. This would include realtor fees and taxes
*Note: If you are a farmer, you have an exemption for your home and up to 160 acres of land.
After calculating the costs involved, the Trustee must decide whether there is sufficient realizable equity to warrant sale of the property. A LIT will not sell the home unless they are reasonably sure that there will be a clear benefit to the unsecured creditors.
Your Car
Manitoba provides an exemption in bankruptcy for a vehicle, as long as it is used for work or to get to and from work. That exemption is $3000. Again, the $3000 refers to the equity you have in the vehicle. If you owed $15,000 on a car valued currently at $18,000, it would be exempt. If you had a car currently valued at $4,000, and not encumbered to any creditor, you would have realizable equity of $1000. In this case, you could, if you wished, keep the car and make monthly payments on the $1000 equity, to the Trustee for the creditors.
Some people have a car that is worth far less than what is owed to a creditor with security on it. For example, if the car was worth $10,000, but the amount owing on it was $20,000, the Trustee would have no interest in it, but if you continued payments on that car, you would be paying $20,000 for a 10,000 car. Bankruptcy would give you the opportunity, should you wish, to give the car up to the secured creditor, and have the shortfall included in the bankruptcy. This decision has to be made at the beginning of the bankruptcy, however, because if you continue with payments on that vehicle after you have filed the bankruptcy, you have “recommitted” to the debt, and it is considered a new, post-bankruptcy debt.
In rare cases, an individual will have more than $3000 equity in a car at the time of bankruptcy, and be unable to pay that equity to the Trustee. In that case, the car would be sold or refinanced, and the proceeds go to the unsecured creditors.
Furnishings
In Manitoba, there is an exemption of $4500 for household items and furniture. Again, it is the realizable value of these items that matters. Because your furniture and appliances are used, it would be extremely unlikely and unusual for them to have any realizable value, and certainly not a value of more than $4500. Virtually everyone who files an Assignment in Bankruptcy keeps all of their furniture and appliances.
Clothing
In Manitoba, the exemption for clothing has no limit, which means you are allowed to keep all of your clothing.
Tools
People who use tools as part of their occupation are allowed to keep $7,500 worth of “tools of the trade”. Remember that tools are valued like other items that lose value over time, and the price you paid for your tool when it was new is not how the value is determined. Your Trustee usually uses garage or estate sale prices to help determine how much each tool is worth. You should be aware, though, that the $3000 car exemption is included in the $7500 exemption for tools of the trade.
Food and Fuel/Cash on Hand
The food and fuel supplies you own are also subject to an exemption limit. You are allowed to keep a 6 month’s supply or the cash equivalent. In other words, if you do not presently own a 6 month supply of food and fuel, you are allowed to keep the cash on hand that would be required to purchase these items.
RRSP’s and Locked-in Pension plans
RRSP’s and locked in pensions are fully exempt from seizure by your creditors, either in a bankruptcy or outside of a bankruptcy.
Life Insurance
The proceeds of your insurance policy (including cash surrender value) is exempt from seizure where there is a prime designated beneficiary (your parent, spouse, or child). If the beneficiary is your “estate”, there is no exemption.
Other Possessions
There are also certain things that cannot be seized, regardless of their worth. This includes:
- Pets
- Medical equipment and supplies
- Possessions you need for religious devotion
- If you are a farmer, the machinery and livestock required to run the farm for one year are exempt in a bankruptcy. (Unfortunately, these items are often already fully encumbered to a secured creditor by the time the farmer considers bankruptcy.)
When filing bankruptcy, the fear of losing everything is a concern to many people. The truth of the matter is that the majority of the people who file an Assignment in Bankruptcy, are able to keep their assets, thanks to the exemptions provided by Manitoba legislation. That being said, you will need to talk to a Licensed Insolvency Trustee, who will review your situation, debts and assets, and give you a clear picture of what your options are, and what you can expect if you file a bankruptcy. Contact LCTaylor to learn exactly how bankruptcy could help you.
Jillian Taylor-Mancusi, LIT
