FAQ - Assets

General

Will I lose everything in bankruptcy?

No. There are certain common assets that are protected in a bankruptcy situation.

The assets that you are allowed to keep in Alberta are determined by:

a. The Civil Enforcement Act.
You are generally able to keep the following property:

• Food required by you and your dependents during the next 12 months.
• Necessary clothing up to a value of $4,000
• Household furnishings and appliances to a maximum value of $4,000
• One motor vehicle with equity not exceeding a value of $5,000
• Medical and dental aids required by you and your dependents.
• Where you are a bona fide farmer and your principal source of livelihood is farming: 160 acres if your principal residence is located on that 160 acres and the 160 acres is part of your farm.
• The equity in your principal residence, including a mobile home, up to a value of $40,000. If you are a co-owner of the residence, the amount of the exemption is reduced to an amount that is proportionate to your ownership interest. For example if two people own a house, and both people are filing a bankruptcy, they can protect $20,000 equity each. Equity is the difference between selling price and mortgage. Selling costs are not considered.
• Personal property (i.e., tools, equipment, books) that you require to earn income from your occupation up to a value of $10,000.
• Where your primary income is from farming operations, personal property that you require for the proper and efficient conduct of your farming operations for the next 12 months.

British Columbia

Property Exempt from Seizure:

• Household goods - $4,000
• Tools of the trade - $10,000
• Motor vehicle - $5,000, ($2,000 for maintenance debtors)
• Home equity - $12,000, ($9,000 outside the GVRD and Capital Regional District)

Plus all necessary clothing and all required medical aids (of a debtor or a dependent).

b. Federal Legislation also allows you to keep:

• cash surrender value of life insurance policies (including some R.R.S.P.'s) where the beneficiary named is the spouse, child, parent or grandchild.
• generally, pension plans.

If I declare bankruptcy, what happens to my assets?

With the exception of the assets protected as exempt assets, your assets, whether in your possession or in the possession of a third party, will be transferred to your Trustee for the benefit of your creditors. Assets belonging to others, which are in your possession, will be turned over to them once they have proven their claims to the Trustee. The value of the assets above those defined as “exempt assets” must be turned over to the Trustee. These assets will be sold and the proceeds will be distributed among the creditors.

Income Taxes

What happens to my income tax returns?

The Trustee must file the following returns:

• The prior years' income tax return if unfiled at the date of bankruptcy.
• A pre-bankruptcy income tax return for the period from January 01 to the date of bankruptcy. If there is an amount owing for the period prior to the bankruptcy date, it will be discharged in the bankruptcy.
• A post bankruptcy income tax return for the period from the date of bankruptcy to December 31. Again, the Trustee will retain any refund from this income tax return however, if there is a balance due on the post bankruptcy income tax return, the amount due is your responsibility.

What happens if I find that I am entitled to a refund for my prior year’s income tax returns?

Any refunds relating to tax years up to and including the year of bankruptcy, are property of the bankruptcy estate and must be used to pay creditors via the Trustee.

When will I get a copy of my tax returns?

Copies of tax returns and assessments will be sent with the copy of the Trustee’s Application for Discharge.

What happens to the GST credits and Child Tax Benefit I receive from the government?

Your GST credits will be paid to the Trustee on behalf of your creditors as long as the Trustee has not been discharged. If there is a delay in processing the post bankruptcy return, more GST could be paid to your bankrupt estate. If there is delays in the closing of your estate, any GST cheques payable to you will be paid to the Trustee. If there are no delays, the Trustee will receive GST cheques until he is discharged..

The Child Tax Benefit will continue to be paid to you. It must be included in family income for the purpose of calculating your monthly payment to your Trustee.

House and Car

If I declare bankruptcy will I lose my house?

The laws of Alberta allow an exemption is a maximum of $40,000 equity on your principal residence (British Columbia - $24,000). As long as your mortgage payments are up to date, you pay the property taxes and keep insurance in place, the mortgage provider will be unable to act against your residence. You should renew your mortgage prior to filing an assignment because there is no guarantee that the financial institution will renew the mortgage while you are bankrupt. The protection is available if you plan on living in the house and plan to stay a resident. If the residence is listed for sale at the time you file your bankruptcy, you may have lost the ability to claim the exemption. You should cancel any listings that you have on your property before filing bankruptcy.

There is recent case law that takes the position that if the equity in the property increases above the $40,000 before the bankrupt is discharged, the surplus must be paid to the estate. It is important that you obtain an appraisal (accredited) and confirmation of your mortgage and outstanding property taxes as soon as possible so that your exemption can be determined prior to property values increasing.

If the equity in your residence exceeds $40,000, you will have to make arrangements to pay the amount over and above the exemption for the benefit of your creditors.

Will I be able to keep my vehicle?

Alberta Provincial law allows a person filing bankruptcy to keep the equity in a motor vehicle not exceeding $5,000.

IF I CANNOT SELL MY HOME FOR ENOUGH MONEY TO PAY ALL OF MY CREDITORS, WHAT OPTIONS DO I HAVE ?

Be careful. The equity in your property is protected by law and there is no good reason to abandon such protection. You have protection for $40,000 of equity in your home assuming you are the only resident owner.

If you decide to abandon the equity in your house and cannot pay your creditors in full, they may decide to proceed against you after they have received the payment from the sale of your principal residence.

We would strongly suggest that you settle with your creditors using a proposal in which case they would have to settle your debts in full for their share of the proceeds from the house.

We do not recommend selling your house without discussing your rights with a good insolvency lawyer.

I owe some money to a friend and I am considering transferring my equity in my residence to settle my friend’s debt. Are there any traps that I should try to avoid?

You cannot treat your friend differently than your other creditors.

You cannot give your friend a preference over your other creditors. A reversal of that preference could result in a loss of the exemption that you would be allowed in the property.

You should discuss your proposed transfer with an insolvency lawyer.

If the mortgage was part of the original deal with your friend and it survives a review for its legitimacy, then the payments can be made.

Lottery or Inheritance

What if I win a lottery or receive an inheritance while in bankruptcy?

Any "windfall" must be given to the Trustee to distribute to your creditors. If there is any money left over after your creditors are paid their claims in full, interest on your indebtedness to them at five percent per year and all trustee costs are paid , the balance will be returned to you.

RRSP or Pension Plan

What happens to my R.R.S.P. and/or pension plan?

Pensions are protected under Federal legislation as are. RRSP’s that are not pension roll-overs, or are held by life insurance companies. All other RRSP's must be paid over to the Trustee to distribute to your creditors. If you have a non-life insurance funded RRSP, you should discuss your rights with your agent and with your family solicitor.

Secured Assets

Can I keep an asset that I have pledged as security to a secured creditor?

Bankruptcy has no effect on the rights of secured creditors. Therefore, if you own an asset that is subject to a security interest, you may be allowed to retain the asset provided that:

You can elect to surrender secured assets and cease making payments to secured creditors, and allow the secured creditor to recover the assets pledged to them as security. In these circumstances you will not be responsible for any resulting shortfall that may arise from the sale of the asset held as security by the secured creditor. Remember that if you give your exempt assets to secured creditors as security for their loans and advances, these creditors can seize and sell the assets unless arrangements can be made by you to pay them. If you make an agreement to keep the assets after filing bankruptcy and fail to make the payments in the future, the secured creditors may be in a position to seize the assets and garnishee your income.

Post Bankruptcy Activities

Do I still handle my own money?

Yes, you continue to receive your income and bank your money. It is a good idea to get a new bank account at a different bank if you owe money to the bank you presently deal with. You must keep track of your income and expenses and submit statements on these items to your trustee on a monthly basis.