Debt Relief Experts
Many Canadians who face serious financial difficulties fear that filing for bankruptcy will cause them to lose all of their property. However, this is a misconception, because there are federal and provincial laws that provide bankruptcy exceptions to what you must surrender. And if you do have assets you want to keep, the Bankruptcy & Insolvency Act also provides for an option that allows you to retain all your assets (things you own).
In this post I’m going to explain both non-exempt (what you lose) and exempt (what you keep) property in a bankruptcy as well as what happens to your assets in a consumer proposal.
Table of Contents
What are non-exempt assets? (What you lose)
After you file for bankruptcy in Canada, some of your assets may be sold to repay money you owe to your creditors. These assets are called non-exempt property. The concept behind non-exempt property is simple: If you have valuable assets and you file for bankruptcy, the value of these assets should be used to pay off some of the debts that will otherwise be forgiven in your personal bankruptcy.
Value means the equity in these assets, after repaying any secured loans or registered liens. For example, if you own a home worth $800,000 and you have a mortgage of $675,000 you have equity in your home of $125,000. It is this equity that will be surrendered, subject to any exemption limits. I’ll explain more about dealing with home equity in a bankruptcy below.
Common items you may need to surrender to the trustee could include:
- A second vehicle
- Valuable artwork, coin collections, jewelry
- Stocks, bonds and investments not protected in a registered account
- Cash in the bank beyond what is reasonable to pay for living costs for a short period
- Equity in your home, subject to specific exemptions I’ll mention below
- A second home or vacation property like a cottage
- An inheritance
- A tax refund on income up to the date of filing
What property is exempt in a bankruptcy? (What you keep)
Bankruptcy is not meant to be punitive which means you do not lose everything even if you declare bankruptcy. Both federal bankruptcy law and provincial exemption laws provide a list of certain assets that are exempt (protected) from seizure by a Licensed Insolvency Trustee.
Federal exemptions are those specifically mentioned in Section 67(1) of the Bankruptcy & Insolvency Act (the BIA or the Act). The BIA says that assets not available to satisfy your creditors include:
- Property held in trust for another person
- Property that is exempt by provincial laws
- GST / HST tax credit payments
- RRSP, RRIF
- The courts have ruled RDSP savings are also exempt under the Act
- Prescribed payments relating to special needs of individuals which the Office of the Superintendent of Bankruptcy has ruled to include CERB, CRB, Child Tax Benefit and HST cheques are not considered income for the purposes of calculating surplus income.
As mentioned, the limitations amounts are based on equity, after any amount owing. Value is also based on resale or liquidation value, what you could reasonably get in a garage sale for example for home furnishings. The result of this is that in most bankruptcies across Canada, people keep their personal belongings and household furnishings.
Exemptions by province
Each province has its own laws that prohibit the seizure of certain assets. Below is a list of bankruptcy exemptions by province.
- Alberta
Limitation amounts are set by provincial law, specifically the Civil Enforcement Act and its regulations.
- Necessary food for 12 months
- Clothing up to $4,000
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $5,000
- All medical and dental aids
- Principal residence up to a certain value
- Tools used to earn an income up to $10,000
- Farm property (up to 160 acres with conditions)
- Farming equipment with certain conditions
- RRSP, RESP, RDSP balances except for unusual contributions
- Life insurance where beneficiary is spouse, child, parent or grandparent
- Most pensions are exempt
- Up to $40,000 in equity in your personal residence (pro-rated for joint ownership).
- British Columbia
British Columbia limitation amounts are defined in the BC Exemptions Regulation.
- All clothing
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $5,000 ($2,000 if behind on child support)
- Tools and property necessary for work up to $10,000
- All medical and dental aids
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Most pensions and certain life insurance policies are exempt
- $9,000 equity in your personal residence ($12,000 in Vancouver and Victoria)
- Manitoba
Limitation amounts are regulated in the Manitoba Executions Act.
- Necessary food & fuel for 12 months
- All necessary clothing
- Furniture and household appliances up to $4,500
- One motor vehicle up to $3,000 (must be used for business or transportation to work)
- Tools of the trade up to $7,500
- Certain farm equipment, livestock, tools, seed stock
- Up to 160 acres farmland & related buildings
- All health aids
- Registered savings plans (RRSP, RRIF, DPSP) except unusual contributions
- Some pensions
- $2,500 in home equity ($1,500 if co-owned)
- New Brunswick
Exempt assets and provincial limits are listed in the Memorials and Executions Act.
- Food and fuel for 3 months
- All clothing
- Furniture, furnishing & appliances up to $5,000
- Tools used for trade up to $6,500
- One motor vehicle up to $6,500 if used for work
- Specifics for farm property including animals, feed and seed
- All medical & health aids
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Certain government pensions
- Newfoundland
Exempted property is listed in the Judgement Enforcement Act with amounts in the regulations.
- Necessary food and fuel for 12 months
- Clothing up to $4,000
- Household furnishings and appliances up to $4,000
- $500 total exemption for items of sentimental value
- One motor vehicle up to $2,000
- Tools of trade or business (including farming, fishing, or aquaculture) up to $10,000
- Registered savings plans (RRSP, RRIF, RDSP)
- Up to $10,000 equity in your personal residence
- Nova Scotia
Exemptions are listed in the Judicature Act with limitation amounts set by regulation.
- Unlimited food & fuel for family
- All clothing
- Household furniture and appliances up to $5,000
- One motor vehicle up to $6,500
- All medical and health aids
- Tools of the trade (including farm equipment, fishing) up to $7,500
- No limit on feed, seeds, livestock for domestic use
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Some pensions
- Ontario
Exempt assets are listed in the Execution Act with amounts set in its Regulations. Please note these amounts are current as of 2021 but are increased annually for inflation.
- All clothing
- Household furniture, equipment, food and fuel up to $14,180
- One motor vehicle up to $7,117
- Tools to earn a living up to $14,405
- Up to $31,379 for farming animals and equipment
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Most other pension plans and certain life insurance policies
- If your principal residence equity is less than $10,783 it is exempt, otherwise there is no home equity exemption
- Prince Edward Island
Exemptions and limits are regulated in the Judgment and Execution Act.
- All clothing
- Household furniture, equipment, food and fuel up to $2,000
- One motor vehicle – up to $6,500 if used to get to work, otherwise $3,000
- All medical and health aids
- Tools to earn a living up to $2,000
- Personal property used in farming or fishing up to $5,000
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Some pensions
- Quebec
Provincial bankruptcy exemptions are listed in the Code of Civil Procedure. The Quebec government website also lists unseizable property.
- All food and fuel
- All clothing
- Household furniture and appliances up to $7,000
- One vehicle required for work
- All farming exempt
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Certain pensions
- Equity in personal residence up to $20,000
- Saskatchewan
Exempted assets are listed in The Enforcement of Money Judgements Act with amounts in the related regulations.
- Clothing and jewelry up to $7,500
- All household furniture and appliances
- One vehicle up to $10,000
- All tools of the trade
- Specific exemptions for farmers including livestock, equipment, feed and seed
- If your home equity is less than $10,000 it is exempt, otherwise there is no home equity exemption
- Certain pensions and life insurance including DPSPs
- Up to $50,000 in home equity
- Yukon
Exemptions are listed in the Yukon Exemptions Act.
- Food and fuel up to 12 months
- No limit on clothing
- Household furniture, utensils and equipment up to $200
- Animals, books and tools to earn a living up to $600
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Up to $3,000 equity in your home
- Northwest Territories
Exempt assets can be found in the NWT Exemptions Act.
Limitation amounts are set by the territorial Exemptions Act.
- Food and fuel for 12 months
- No limit on clothing
- Household furniture and appliances up to $5,000
- One vehicle up to $6,000
- Hunting tools up to $15,000
- Tools of the trade up to $12,000
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Equity in principal residence up to $50,000
- Nunavut
Exemptions are regulated in the Nunavut Consolidation of Exemptions Act.
- Food and fuel for 12 months
- Unlimited clothing
- Unlimited household furniture and appliances
- All medical and dental aids
- Unlimited hunting and tools of the trade
- Up to $35,000 in home equity
- Registered savings plans (RRSP, RRIF) except contributions made in the last 12 months
- Certain pensions and life insurance policies
Treatment of home and car
Because secured debts, like your mortgage or car loan, are not included in a bankruptcy, it is important to understand how their rights affect assets you own. It is possible to declare bankruptcy and keep your car. We have also written a more detail article on how bankruptcy affects your house.
How does the treatment of non-exempt assets in bankruptcy compare to a consumer proposal?
A consumer proposal is the most common alternative to personal bankruptcy in Canada. In fact, it is the solution most Canadians use to deal with their debts.
Just like in the case of bankruptcy, a consumer proposal offers debt relief and provides legal protection from creditors. A consumer proposal can stop collection calls, a wage garnishment and lawsuits.
The main difference between the two is that you can keep all your assets with a consumer proposal, including non-exempt assets.
A consumer proposal is a legal agreement to settle your debts for less than you owe, in exchange for which you agree to make pre-arranged payments to pay off the settlement amount. While you do not lose assets in a proposal, the value of your non-exempt assets will affect how much you will need to offer your creditors.
Consumer proposals are much simpler than bankruptcies, and the terms are determined upfront. Your payments can be spread out over a period of up to five years, making your monthly payments more affordable than a bankruptcy if you have significant non-exempt assets you wish to keep.
The goal of filing for bankruptcy, or making a proposal to creditors, is to get debt relief when you reach a point where you can’t pay off what you owe on your own. Bankruptcy is not punitive, but instead it eliminates almost all your unsecured debts and allows you to start fresh
To determine which assets you may keep or lose, or to discuss whether you should file a bankruptcy or consumer proposal, contact us to book a free consultation with a Licensed Insolvency Trustee.
