WHAT CAN I KEEP IF I FILE FOR A CONSUMER PROPOSAL OR BANKRUPTCY?
You may be worried about what you are required to give up to file for a consumer proposal or bankruptcy in Edmonton. Understandably, money is already tight, and the idea of giving up assets you need and worked hard for seems overwhelming.
Fortunately, if you file for a consumer proposal, you are not required to give up any assets, including your house or car. The ability to keep your assets is one of the reasons why a consumer proposal has such an appeal.
If you file for bankruptcy, you do not need to give up all of your assets either. Bankruptcy exemptions exist for reasonable living expenses and to enable you to earn a living still. Bankruptcy is not meant to be a punitive process.
Bankruptcy is governed federally by the Bankruptcy and Insolvency Act, which defines three kinds of exemptions:
- Property you hold in trust for other persons.
- GST credit payments and prescribed payments relating to your family’s essential needs; and
- Other exempt property defined by the province or territory where you live.
Alberta has an exemptions list in the Civil Enforcement Act, which outlines which of your assets and how much equity you can keep. Additional exemptions are also set out in the Civil Enforcement Regulation.
Which Assets are Protected in a Bankruptcy?
Depending on your circumstances, the following exemptions may apply:
- Food required for you and your dependents for the next 12 months
- Clothing for you and or your dependants up to $4,000
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $5,000
- Tools of your trade up to $10,000
- Medical and dental aids for you or your dependents, with no limit
- Your principal residence (including a mobile home) up to $40,000. However, if you co-own your home, this amount will be reduced based on how much of the home you own
- Social allowance, handicap benefit or a widow’s pension as long as the proceeds from the payment are separate from your other funds
- Registered plans, including RRSPs, RRIFs, RESPs, pensions, RDSPs, DPSPs (except for contributions made in the last 12 months). Note: transfers between registered plans are exempt, but payments made from these plans are not exempt
- Certain life insurance policies
- If your primary occupation is farming, up to 160 acres of land if your principal residence is located on that land and is part of your farm
- If your primary occupation is farming, any personal property necessary for farming operations over the next 12 months; and
- Sentimental items, including pets.
For these above rules, you may be wondering who qualifies as a dependent. “Dependant” is defined under the Civil Enforcement Regulation as one or more of the following: your spouse or adult interdependent partner, your child who is under age 18 and lives with you, any relative of yours or your spouse or adult interdependent partner who, because of mental or physical infirmity, is financially dependent on you. Any other person who the court determines is financially dependant on you. “Relative” is defined as your spouse or adult interdependent partner, a parent or grandparent, a child, a brother or sister, a brother-in-law, sister-in-law, father-in-law, or mother-in-law; an aunt or uncle; and a first or second cousin.
The bankruptcy exemption rules are complicated at times. The exemption rules are subject to change periodically, including adjusting for inflation. Reach out to our Licensed Insolvency Trustees in Edmonton for assistance.
How Are Exempt Assets Treated in a Bankruptcy?
Once you have selected your exemptions, the law requires that you exchange what you own for the unsecured debts you owe or that you repurchase the difference from your Licensed Insolvency Trust (LIT) at an auction value. If you can pay the value of the equity above the exempt amount to your LIT, then you are not required to liquidate that asset, such as your home or car. The law simply requires you to use that equity to pay some of the money you owe to your creditors, which is why you would need to come up with extra funds to keep that equity. Equity is the difference between the value of the asset and how much you own on the asset.
For example, if you own a car worth $14,000 and an outstanding loan balance of $10,000 for that car, your equity in the vehicle is $4,000. From the perspective of your LIT, you will be able to keep your vehicle because of the exemption for one motor vehicle in Alberta $5,000. By contrast, if you have $8,000 owing on the same car, your equity in the vehicle is $6,000. You may not be able to keep your car unless you can pay $1,000, as the excess equity must be used to pay your creditors.
As another example, if you have a home worth $120,000 and a mortgage of $100,000 and property tax arrears of $900, the total lien is for $100,900. Your equity would be $19,100. You are exempt for $40,000 as a single owner, so you would be able to keep the home. If the mortgage owed was $75,000 with a property tax arrears of $900, the total lien would be $75,900. Your equity would be $44,100. Since the principal residence exemption is for $40,000, you would need to be able to pay $4,100 of that equity to your LIT to pay your creditors to keep that home, while also continuing with the payments of your mortgage.
How will my Assets Be Treated Under a Bankruptcy or Consumer Proposal in Edmonton?
It is essential to speak to your LIT about your specific situation and disclose all your assets, debts, and sale of any property within the last few years. Your LIT can inform you about the treatment of your assets, depending on the option you choose and your circumstances. For example, the debt solution you want will impact how much of an inheritance you can keep that you receive during the process, should one arise.
Speak to a Proposal Administrator or Bankruptcy Trustee in Edmonton
At Fox-Miles & Associates Inc., our LITs serve the Edmonton area, including Sherwood Park, Fort Saskatchewan, St. Albert, Spruce Grove, Stony Plain, Leduc, Hinton and Edson. We can submit a consumer proposal or bankruptcy and provide debt help for you or your business. For more information, contact us for debt help in Edmonton. Call us at 780-444-3939 today!