How Does Bankruptcy Affect Exempt Assets In BC?

Understanding the Impact of Bankruptcy on Exempt Assets in British Columbia

Bankruptcy is a legal process that provides relief to individuals or businesses that are unable to pay their debts. While the fear of losing personal assets can be overwhelming, it’s important to understand that certain assets in British Columbia (BC) are protected during this process. These ‘exempt’ assets are shielded from creditors and can be retained by the individual declaring bankruptcy.

For more in-depth information, reach out to a trusted Bankruptcy Canada Licensed Insolvency Trustee in your local area.

Exempt Assets: A Brief Overview

Exempt assets refer to certain property or belongings that are protected under the Court Order Enforcement Act and Regulations (COEA) in BC. These assets are safeguarded from creditors, meaning they cannot be seized or sold to repay debts.

The following list provides a general overview of exempt assets in BC and the limits of equity you can protect:

 

Clothing: Personal attire is exempt without any specific value limit.

Medical aids: Essential medical equipment and aids are exempt without any specified value limit.

Household furnishings and appliances: Up to $4,000 based on quick-sale value, not retail or replacement cost.

Motor vehicle: Up to $5,000 equity in one motor vehicle (reduced to $2,000 if you owe money for child or spousal support). Note: It’s the equity in the vehicle that matters, not the vehicle’s total value.

Principal residence: Up to $9,000 (or $12,000 if your residence is in the Capital Regional District or the Greater Vancouver area).

Tools of the trade: Up to $10,000 for tools necessary for your livelihood. A second vehicle may qualify as a tool of the trade, but specific conditions apply.

Life insurance Policy Cash Surrender Value (CSV): This applies when the named beneficiary is a preferred beneficiary (parent, spouse, child, or grandchild).

Registered Pension Plans (RPP): Exceptions may apply for over-contributions.

Locked-In Registered Retirement Savings Plans (RRSP): These are generally exempt.

Registered Retirement Savings Plans (RRSP): Contributions made more than one year before the bankruptcy date are exempt, calculated on a first-in first-out basis.

Deferred Profit Sharing Plans (DPSP): Contributions made more than one year before the bankruptcy date are exempt, calculated on a first-in first-out basis.

Calculating Asset Equity

Determining the equity in an asset involves several steps:

 

  • Assess the fair market value of the asset (the price it would fetch if sold immediately).
  • Identify if the asset serves as collateral for a loan or mortgage. If yes, what is the loan amount?
  • Subtract the loan amount from the asset’s value to find the ‘gross equity.’
  • Divide the gross equity by the number of owners to determine your share of the gross equity.
  • Deduct the applicable exemption amount from your share of the gross equity. The resulting figure represents the equity available to your creditors.

 

Dealing with Non-Exempt Equity

If there’s equity in the asset beyond the protected amount, you have options.

If you wish to retain the asset, you can:

 

  • Make a lump-sum payment to the Trustee equal to the non-exempt equity.
  • Arrange a payment plan with the Trustee to gradually repay the non-exempt equity.
  • Have a family member pay the non-exempt equity on your behalf.
  • Have a family member buy the asset from you and pay the non-exempt equity to the Trustee.

 

If you don’t wish to keep the asset or can’t afford to pay the non-exempt equity:

 

  • The Trustee may request you to surrender the asset for sale.
  • The Trustee may arrange for a third party to take possession of the asset.
  • After the asset is sold and all related costs are deducted, you will receive funds up to the maximum exempt amount, if available.
  • If the selling and seizure costs exceed the sale proceeds, you may not receive the full exemption amount.

 

Bankruptcy can be a complex process. Understanding how it affects exempt assets in BC can help alleviate some of the stress associated with it. Always consult with a professional to ensure you’re making the best decisions for your unique situation.

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