Understanding Asset Exemptions in Canadian Bankruptcy
There’s a common misconception about bankruptcy in Canada, that it leads to a complete loss of one’s assets. However, this isn’t entirely accurate. In reality, there are specific assets that are exempt from seizure during bankruptcy proceedings. This article aims to demystify asset exemption in Canadian bankruptcy, unraveling the different kinds of assets that are immune from seizure.
Bankruptcy: A Fresh Start, Not a Punishment
Bankruptcy is designed to offer individuals a fresh financial start, not to serve as punishment. As per the Bankruptcy and Insolvency Act, when an individual files for bankruptcy, all non-exempt assets are vested in the trustee. However, certain assets are exempt from seizure, meaning these assets can’t be seized by the trustee for creditors’ benefit and can be retained by the individual.
Federal and Provincial Exemptions
The Bankruptcy and Insolvency Act outlines certain exemptions. These exemptions are federal law, applicable to all Canadians. Additionally, each province has specific exemptions based on provincial legislation. In Nova Scotia, the Judicature Act of Nova Scotia, Personal Property Security Act of Nova Scotia, and the Insurance Act of Nova Scotia all contain exempt asset rules.
Exempt Assets in Canadian Bankruptcy
Here’s a comprehensive look at the types of assets that are exempt from seizure in bankruptcy proceedings in Canada:
RRSPs
According to Section 67(1)(b.3) of the Bankruptcy and Insolvency Act, RRSP or RRIF contributions made more than 1 year before the date of bankruptcy are exempt from seizure. There’s no limit on the amount that is exempt.
Pension Plans
Pension funds, designed to be an individual’s income upon retirement, are exempt from seizure. Section 71 of the Pension Benefits Act ensures the protection of accrued benefits in a pension plan.
Life Insurance Policies
Life insurance policies can be divided into term life insurance policies and whole life policies. Term life insurance policies, which have no built-in value, are not of interest to the trustee. However, whole life policies that build cash surrender value are considered an asset in bankruptcy. In Nova Scotia, if your insurance policy’s beneficiary is your spouse, child, parent, or grandchild, the value of the policy is exempt from seizure.
Household Furnishings
In bankruptcy, the liquidation value of furniture and personal effects is considered. In Nova Scotia, individuals can retain such assets up to a value of $5000.
Vehicles
If a vehicle is being financed, the debt is secured. To keep the vehicle, individuals must continue making payments as per the agreed terms and conditions. If the vehicle is fully paid for, it may be exempt from seizure. In Nova Scotia, vehicles up to a value of $3000 are exempt from seizure. This limit extends to $6,500 if the vehicle is used for employment-related purposes or required for transportation to a place of employment where no public transportation is reasonably available.
Medical and Health Aids
Items necessary for health and medical needs cannot be taken in bankruptcy proceedings.
Tools of Trade
The Judicature Act of Nova Scotia allows a debtor to retain farming equipment, fishing nets, tools, and implements used in their main occupation up to $7,500.
Fuel and Food
These items can be retained, and there’s no dollar limit on the amount.
Grains, Seeds, and Livestock
All grains, seeds, and livestock reasonably necessary for the domestic use of the debtor and his family can be retained.
Need More Information?
The best way to understand asset exemptions in bankruptcy is to consult a Licensed Insolvency Trustee. They can help you understand the laws applicable to your situation. If you own assets that are unencumbered and not exempt, a trustee can discuss your options for dealing with these assets. Often, individuals will opt to file a consumer proposal to avoid bankruptcy if there are significant assets. If you need more information, feel free to contact us for concrete answers.
Remember, bankruptcy is a legal process to help you regain control over your finances. It’s not a punishment, but a route to a fresh financial start. Understanding what kind of assets are exempt in bankruptcy in Canada allows you to make an informed decision about your financial future.
