Making Sense Of Alberta Bankruptcy Exemptions
WHAT YOU NEED TO KNOW: Bankruptcy is a legal process meant to help honest, but unfortunate people who are overburdened by debt and unable to pay. The process provides relief with legal protection from the people or companies you owe money to. Once you declare bankruptcy you are released from your debt and all interest stops accumulating. Collection agencies can no longer call you or contact you to collect payment, and if your wages are being garnished, that will stop too.
In Canada, the Bankruptcy and Insolvency Act is the main legal document covering bankruptcy and other insolvency matters (like consumer proposals). It is federal legislation and applies to all provinces and territories, so proceedings are generally the same across the country. The Act sets out rules and outlines procedures for declaring bankruptcy or submitting a consumer proposal. As required by the act, a person declaring bankruptcy surrenders their property to a Licensed Insolvency Trustee in exchange for the discharge of their debts. The bankrupt person is required to surrender all assets that are not considered exempt.
A Licensed Insolvency Trustee Can Help You:
Determine the value of your assets.
Apply the exemptions to your situation.
Find solutions that make sense for you.
For the most part, the Bankruptcy and Insolvency Act defers to provincial legislation to determine what assets are exempt, but there are some items that are exempt under the federal legislation:
- Property in a registered plan (DPSP, RRIF or an RRSP) is exempt from any enforcement process (but a payment from the plan is not exempt);
- Property in a registered disability savings plan AND any payments out of the plan are exempt from any enforcement process;
- Property in a registered education savings plan, and any payments or refunds of payments out of the plan to assist the beneficiary in furthering their education at a post-secondary level are exempt from any enforcement process (but any other payments or refunds out of the plan are NOT exempt);
If you are wondering how these exemptions will apply in your specific case, then the best thing to do is meet with a Licensed Insolvency Trustee for a free consultation meeting.
For additional exemptions, we look to provincial legislation. Here you will find some differences between each province.
Alberta Bankruptcy Exemptions – Civil Enforcement Act
In Alberta we have the Civil Enforcement Act. According to the Act, the following items are exempt from “writ proceedings” (including bankruptcies):
- The food required by you and your dependents during the next 12 months;
- Necessary clothing for you and your dependents;
- Household furnishings and appliances up to a certain value;
- One motor vehicle up to a certain value;
- Medical and dental aids required by you or your dependents;
- Up to 160 acres of land if you are a farmer (with some conditions);
- A principal residence up to a certain value;
- Personal property used to earn income from your occupation (tools, etc…) up to a certain value;
- Personal property necessary to conduct farming operations for the next 12 months (if you are a farmer);
Exemption Limits – Civil Enforcement Regulation
The limits of each provincial exemption are set in a separate document that accompanies the Act, called Civil Enforcement Regulation. The regulation determines the limit of each exemption, or the maximum value of each exemption that is protected under the Act.
- The maximum exemption for clothing = $4,000;
- The maximum exemption for household furnishings and applianes = $4,000;
- The maximum exemption for a motor vehicle = $5,000;
- The maximum exemption for personal property used to earn income from your occupation = $10,000;
- The maximum exemption for a principal residence = $40,000;
So how does this apply to me?
If you declare bankruptcy and the value of your assets are greater than the maximum exemption for each item, you have two options:
- Pay the Trustee the difference in value and you can keep the asset;
- Sell the asset or surrender it to the Trustee who then sells it;
Will I Lose My Car?
The short answer is NO (…not necessarily). These exemptions are designed to help you maintain a vehicle for reliable transportation. A Licensed Insolvency Trustee will work with you to assess the value of your car and present you with options. It is common for a person to keep their current vehicle, although there are some situations where selling the car makes more sense.
Will I Lose My House?
Going bankrupt DOES NOT MEAN that you will lose your house. The most important thing to know is that you have options and a Licensed Insolvency Trustee can help you figure out what makes the most sense in your situation. The exemption for your principal residence is based on the amount of equity you have in your house. In cases where your equity exceeds the maximum limit the Trustee will work with you to find an appropriate solution.
It is also good to know that Lenders will not foreclose or force you to sell just because you declare bankruptcy. As long as you keep paying your mortgage you can keep your home.
Bankruptcy Exemptions For Joint Owners
It may be the case that you are the joint-owner (co-owner) of a particular asset, like a vehicle or your principal residence. If this is the case, how would these exemptions apply? It depends partly on your percentage of ownership. A Licensed Insolvency Trustee can provide more information and help you determine how the exemptions will apply in your specific case.