Bankruptcy Exemptions in Canada: Province by Province
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Bankruptcy Exemptions in Canada:Province by Province
We understand that the very mention of the word bankruptcy is enough to make people worry. It is, after all, seen as a last resort, something you only go ahead with when all other attempts to solve your financial problems have failed.
But there are a lot of misunderstandings about bankruptcy. Many people are unaware that there are numerous exemptions that the creditors legally cannot touch, even after you’ve filed for bankruptcy. In Canada, this varies from province to province, but there are certain assets that are universally untouchable.
So, let’s try to clarify some of those misunderstandings about bankruptcy, starting with the biggest question of them all…
Will I lose my home?
No one wants to hear that they are going to lose their home, and this is the biggest stigma surrounding bankruptcy in Canada. There are exemptions to prevent this from happening, but if you have a lot of equity in your home, then bankruptcy may not be the right solution for you.
When you apply for bankruptcy in Canada, you are obliged to use any assets that have equity in them to pay towards your debtors. To put that into perspective, if your home is worth $200,000 and you owe $150,000 on the mortgage, you may have to pay your Licensed Insolvency Trustee the $50,000 in equity to pay towards your debts in order to keep your home.
Imagine if you don’t have long left before your mortgage is paid off in full and you’ve built up a lot of equity – depending on how much debt you owe, this equity could be completely swallowed up by the creditors. So, yes, you would keep your home but there would be no equity in it.
The amount of equity that you would have to forfeit fluctuates depending upon which province you live in (see below) but using your assets to pay for your debts is something that is standard throughout Canadian bankruptcy proceedings. This is why bankruptcy may not be the best solution for everyone and is considered to be a last resort.
Will I lose any other assets when I file for bankruptcy?
There’s a lot of scaremongering surrounding the word ‘bankruptcy,’ but you will categorically not ‘lose everything.’ Yes, you may have to pay something back to your creditors , but you also have to have the means to live day-to-day.
Every territory and province in Canada has its own rules and regulations surrounding how much in the way of equity and assets you are allowed to keep, and there are also varying costs that you have to pay, but, by law, you have to be left with enough for you and your family to get by.
There are some bankruptcy costs that are non-negotiable, irrespective of where you live in Canada, which we’ll explore below.
Individual exemptions according to province and territory
Personal exemptions by province/territory
Each province and territory has its own unique list of possessions and assets that are exempt from bankruptcy proceedings. These include:
Wages & salary
There is a fallacy surrounding your wages when it comes to filing for bankruptcy in Canada. Bankruptcy will actually stop the majority of your wages and salary from being swallowed up by your creditors with payments that you can’t afford, and they will definitely not take every last cent from you. However, if you have a certain amount of surplus income after paying all of your expenses, then this will probably end up going to your creditors for the duration of your bankruptcy order.
Registered Retired Savings Plan (RRSPs)
With the exception of a handful of provinces, any contributions that you have made to your RRSPs in the last 12 months will be used as payment toward your creditors.
Inheritance and/or Lottery winnings
If you are fortunate enough to receive an inheritance or win the lottery after you’ve filed for bankruptcy but before you’ve been discharged from bankruptcy, then that money has to go to your Licensed Insolvency Trustee to distribute amongst your creditors. If there is any money left after the debts have been paid then you can keep the remaining monies.
Your Licensed Insolvency Trustee will need to prepare a pre-bankruptcy tax return. This will run from January 1st to the date that you file for bankruptcy. If you are due any tax refunds from this time period (or if you are owed any tax refund from the previous tax year where you didn’t file tax returns), your Harris & Partners LIT is obliged to take that money and use it as payment towards your creditors.
Gifts of value, transfers of property, and preferential treatment
Any gifts of significant value (jewelry, cars etc.) or transfers of property that you’ve made in the 12 months leading up to the bankruptcy will have to be reviewed by your LIT. If this happens with related parties, this can go back as far as five years. There is the possibility that these transactions may have to be reversed to pay off your creditors.
In addition to this, your Harris & Partners LIt will also have to be made aware of any payments or preferential treatment that you have directed towards your creditors in the first quarter of the year leading up to your bankruptcy filing (again, this is longer for related parties at 12 months).
For more information about bankruptcy exemptions according to province, click the button below to have a confidential chat with our Licensed Insolvency Trustees about solving your financial difficulties.