What Can I Keep If I File For A Consumer Proposal Or Bankruptcy?

Are you worried about what you might need 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 work hard for seems overwhelming.

Do You Need to Give Up Assets for a Consumer Proposal?

Fortunately, if you file for a consumer proposal, you do not need 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—they are not a disciplinary process.

Bankruptcy is governed federally by the Bankruptcy and Insolvency Act, which defines three kinds of exemptions:

  • The 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 as defined by the province or territory where you live.

Alberta has an exemptions list in the Civil Enforcement Act. This outlines which of your assets and how much equity you can keep. The Civil Enforcement Regulation sets out additional exemptions. 

(Don’t miss this post next: When Should You File for Bankruptcy in Alberta?)

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    Which Assets Stay 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 is 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. 

    Who Qualifies as a Dependant?

    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. For example, a “Relative” is your spouse or interdependent adult partner, a parent or grandparent, a child, a brother or sister, a brother-in-law, sister-in-law, father-in-law, mother-in-law; an aunt or uncle; and a first or second cousin.

    We know the bankruptcy exemption rules are complicated at times. In addition, the exemption rules are subject to change periodically, including adjusting for inflation. Reach out to our Licensed Insolvency Trustees in Edmonton for assistance.

    TREATING EXEMPT ASSETS IN 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 do not need to liquidate that asset, such as your home or car. However, the law 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. 

    Examples of Exempt Assets

    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 because the excess equity could go toward paying 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 $100,900. Your equity would be $19,100. You are exempt for $40,000 as a single owner so that you would 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. Be sure to disclose all your assets, debts, and sale of any property within the last few years. Your LIT can then 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 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!

    Did you learn a lot about consumer proposals and bankruptcy in Edmonton from this post?

    This post was first published in 2020, but it was updated in 2021 just for you. 

    Title
    WHAT CAN I KEEP IF I FILE FOR A CONSUMER PROPOSAL OR BANKRUPTCY?
    Article
    WHAT CAN I KEEP IF I FILE FOR A CONSUMER PROPOSAL OR BANKRUPTCY?
    Description
    Are you worried about what you might need 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 work hard for seems overwhelming.
    Author
    Publisher Name
    Fox-Miles & Associates Licensed Insolvency Trustee
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