Bankruptcy Exemptions: Your Guide to Exempt vs. Non-Exempt Assets in a Bankruptcy in Canada

Bankruptcy Exemptions Your Guide to Exempt vs. Non-Exempt Assets in a Bankruptcy in Canada

Canadians are often reluctant to consider bankruptcy even when they are in a dire financial situation. They’re concerned that they could lose everything, but that is one of the most common misconceptions about bankruptcy.

Consumers have a number of protections when they face insolvency. Provincial law outlines exempt assets that are not affected by filing for bankruptcy. Knowing with certainty what you get to keep and what you may have to sell can give you the confidence to seek bankruptcy assistance when you need it.

Avoiding bankruptcy may still be your goal, and there are ways you can get out of debt without having to go down that path. However, once you know which assets you can keep with confidence, it may not seem like such an intimidating prospect.

Contact A Trustee

Ontario Bankruptcy Exemptions: Assets You Get to Keep

Bankruptcy exemptions in Ontario are designed to give debtors a certain level of protection from creditors. A number of personal and essential belongings are sheltered from insolvency proceedings by bankruptcy laws in Ontario, and you can move forward knowing that they’re safe. Exempt assets include:

  • All of your clothing
  • One motor vehicle worth up to $7,117
  • Household furniture, equipment, and food up to $14,180
  • Tools or equipment used to earn a living up to $14,405
  • RRSP and RRIF contributions except those made in the 12 months before filing for bankruptcy
  • Most pensions and life insurance policies
  • Equity in your home up to $10,783 (although there is no exemption if your equity is above the limit)

Amount limits are increased each year for inflation. The above figures are for 2021 as set in the Regulations of the Execution Act.

Equity is the value of an asset left after repaying secured loans (i.e., your mortgage or car loan). For example, if you have a mortgage of $650,000 and your home is appraised at $700,000, you have $50,000 of equity in the property. Equity is built both by paying down your mortgage and when the value of your home rises.

Exempt Assets Under Federal Law

In addition to these Ontario bankruptcy exemptions, some property is also protected by federal law. Federal exemptions are laid out in the Bankruptcy and Insolvency Act. They include:

  • GST/HST credits (other than for unpaid trustee fees)
  • RRSP and RRIF savings
  • Property you hold in trust for another person
  • Registered Disability Savings Plan (RDSP) savings
  • CERB, CRB, Child Tax Benefit, and HST payments are not considered income when Surplus Income is calculated for people filing for bankruptcy

Non-Exempt Assets: Assets You May Have to Sell

Non-exempt assets are those that you most likely will not get to keep. These assets are surrendered to the Licensed Insolvency Trustee who handles their sale. The proceeds after any secured loans on those assets are paid off are then distributed to your unsecured creditors. Non-exempt assets include:

  • Excess equity above the exemption in the first vehicle plus any additional vehicles
  • Investments not protected in a registered account (this includes TFSA accounts)
  • Cash in your bank account above a reasonable amount required to pay for short-term living costs
  • Jewellery, coin collections, and valuable art
  • Inheritances
  • Second homes or vacation properties
  • Tax refunds on income earned leading up to the filing date

Bankruptcy is not meant to be a punishment. Non-exempt assets are sold in order to give your creditors a chance to recoup their losses. Once the proceeds from the sale of non-exempt assets are distributed to your creditors and Surplus Income payments have ended, any remaining funds that you owe are discharged.

If you’re concerned about the non-exempt assets you could lose, talk to us about your concerns. As debt professionals in Toronto and other cities in Ontario, the Licensed Insolvency Trustees at David Sklar & Associates can help you find the best path out of debt for your circumstances.

Trying to hide or shelter non-exempt assets can lead to criminal charges. When you file for bankruptcy, you will have to disclose any information regarding property that you recently had before filing. If it was sold, those funds must be accounted for, and it may need to go to the bankruptcy estate to repay your creditors.

Bankruptcy Exemptions in Other Provinces

The details are slightly different across Canada, and if you live in another province, you should expect different exemption limits. For example, in Alberta, equity in your principal residence up to $40,000 is exempt, while in the Northwest Territories, up to $50,000 is exempt. In British Columbia, $9,000 in equity is exempt unless the property is in Vancouver or Victoria, in which case $12,000 is exempt. Meanwhile, Nova Scotia and New Brunswick have no residential property exemption.

Can You Keep Your Home When You File Bankruptcy?

Keeping your home is understandably going to be a top priority before you deal with debt, but you shouldn’t ignore debt problems because you’re worried about losing your home. Once you start missing payments, collectors can take legal action against you, such as a wage garnishment or bank account garnishment. When you start losing control of your finances, there’s a cascading effect that could affect your ability to pay your mortgage.

Consider a consumer proposal as an alternative to bankruptcy if you are otherwise in danger of losing your home.

What Happens to Your Car in Bankruptcy?

Whether or not you can or should keep your car in bankruptcy depends on the value of your vehicle, the state of your auto loan, and the reasons you’re unable to keep up with debt.

The value of your car depreciates rapidly, which may help you hold onto your vehicle if you have to file for bankruptcy. When you need your vehicle in your day-to-day life, it can be a relief knowing that it’s not at risk because of your bankruptcy.

However, automobile ownership can also be expensive. When you’ve purchased a more expensive car than you can afford, it can be difficult to fix that mistake. Often vehicle owners are “upside-down” on their loan, meaning that the value of the vehicle is less than the remainder on the loan. For those planning on filing for bankruptcy, they can voluntarily surrender their vehicle, converting the remainder of the loan into an unsecured debt, which can then be discharged in bankruptcy.

File a Consumer Proposal: How to Keep All Your Assets

If you own significant non-exempt assets that you don’t want to lose, bankruptcy may not be the best option for you. Instead, you can protect your assets with a consumer proposal and still deal with your unsecured debts.

Consumer proposals have become the more common method of going through insolvency since they were introduced. In 2019, 60% of consumer insolvencies were consumer proposals.

A consumer proposal provides legal protection from creditors. It will stop wage garnishments, court judgements, and collection calls from your creditors, and it will discharge you from a large amount of debt if you cannot afford to pay it. The difference between consumer proposal and bankruptcy is that instead of having to give up any assets to repay your creditors, you agree to settle part of your debts through a repayment plan.

You will work with the Licensed Insolvency Trustee to find a compromise that suits both you and your creditors. The goal is to find a monthly payment that you can afford, but that will also be fair to your creditors and provide them with adequate funds compared to what they could receive if you filed for bankruptcy instead.

A consumer proposal may last up to five years. When you enter into one, interest charges no longer accumulate on the debts that you owe. Any debts not covered by the amount you agree to repay are discharged.

In many ways, a consumer proposal is simpler than bankruptcy. You agree to everything beforehand, and there are no surprises. Your monthly payments do not change even if your income increases or if you receive a windfall such as an inheritance.

If you are interested in filing a consumer proposal in Toronto, book a consultation with David Sklar & Associates. A consumer proposal allows you to hold onto your non-exempt assets while still getting out of debt. They can benefit anyone facing high debt who earns an income and has assets they want to protect, such as home equity.

A Licensed Insolvency Trustee will work with you to find out whether bankruptcy or a consumer proposal would be better in your circumstances. Bankruptcy is meant to be a fair process that can relieve you of your debt burden while also providing some compensation to your creditors. Explore your options now.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

Share This!

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on pinterest

Ready to live debt free?

The best decision I've made was to contact David Sklar & Associates, they are experts in this matters and also have dedicated Licensed Counsellors that provide the best customer support, like Rhoda Lewis, who I highly recommend. She worked tirelessly on my case, explaining ever detail to me willingly. She demonstrates a true interest in her clients. I appreciate how she patiently walked me through what to do, step by step. I now have control over my finances, as a result my life is much more peaceful and I can focus on what matters. Thank you!
Nilda H.
20:18 16 Jun 22
Very helpful and friendly! I am more than satisfied with my experience here. And more than happy with the outcome! Would definitely recommend .
Peggy Bulger
15:10 14 Jun 22
Jerry at David SKLAR helped me thoroughly understand my options and made me feel at ease. If you are looking at this type of service/help, I 100% recommend you give them a call.
Colleen H
12:50 14 Jun 22
Rhoda is a wonderful person, She help me and guided me throughout the process. I couldn’t do it without her support and expertise. Now I can start fresh and full of hope of a better life ahead of me.
ariezel erandio
21:33 06 Jun 22
The service I recieved from David Sklar and Associates was great. I was able to meet with Christin Sylver. She is kind, understanding and, professional. She was able to answer all the quesions that I had regarding my debt. At the end of our meetings, I felt that there is a heavy burden lifted from my shoulders. I recommend Chistine to anyone who is looking into debt relief.
Aliya H
12:11 04 Jun 22
Jerry is a very patient person, he answered all my questions and made this experience so smooth and easy for me. I was not sure what to expect but dealing with him made me feel so much better. He sure knows what he is doing and how to put people at ease for sure (should have done this long ago). I recommend him to anyone I am so glad I had him on my side and now to do my part. Thanks Jerry ur greatPattie
Patty Murphy
21:34 18 May 22
Rhoda Lewis helped me achieve a fresh start two and half years ago! She was very professional with a very warm, caring personality! I emailed her today with a question and she responded quickly. She's great at her chosen profession!!
Debbie Livingston
01:24 11 May 22
Nothing but good things to say about Jackie. She was so nice and so understand and everything was so quick and easy. In a matter of a week, there was the solution that I never thought was possible. Thank you so very much for everything that you have done. ❤️❤️❤️
Cassandra Keenan
21:05 10 May 22
I was in a lot of debt and stress, Jackie Stanley with David Sklar & Associates was very professional, and extremely helpful with getting out of debt. I should of did this sooner, they take the all the weight and stress of a persons shoulders, amazing team at David Sklar & Associates!!
Hubert Z
03:08 10 May 22
Jackie helped me out during a really tough time and she made the entire process very easy and painless. I highly recommend reaching out to her if you find yourself in any financial trouble. You won’t be disappointed!
prettylush 13
02:42 10 May 22