One of the foremost questions asked by any person who is considering filing for bankruptcy is – “What can I keep? What is exempted?”
While bankruptcy does give you a fresh start and wipes your debt slate clean, it is not without collateral damage. You will lose some of your assets. These assets will be sold off to help your lender agency recover some of the debt. However, there is strong protection in place by the government; you won’t lose all your assets. The general rule is that any assets you don’t need are taken by the lender agency. Let’s get more specific.
General National Exemptions
The Federal Government lists these exemptions:
– Food and heating fuel needed by you and any dependents.
– Clothing needed by you and your dependents.
– Household furnishing and appliances.
– One motor vehicle. The motor vehicle exemption largely depends on how dependent you are on it to earn your living.
– Health aid (medical, dental and others) needed by you and your dependents.
– Tools of your trade: Any equipment, gadgets and books you need to earn money from your non-farming profession.
– Your principal residence: This refers to your main home. You can only have one principal residence.
– Some land
– Sentimental items like family objects.
– Pensions or retirement savings.
Each province in Canada has their set of additional exemptions. These add to the national exemptions.
– Food supply for at least 12 months.
– Necessary clothing up to the value of $4000.
– Household furniture and appliances up to the value of $4000.
– One motor vehicle that does not have over $5000 worth of equity.
– Personal tools of trade not exceeding $10,000.
– Pensions: Registered Retirement Savings Plans RRSPs, Registered Retirement Income Funds (RRIFs), Registered Disability Savings Plans (RDSP) and Deferred Profit Sharing Plans (DPSP) and Registered Education Savings Plan(RESP).
– Equity of the principal residence up to a value of $40,000.
Who are dependents?
Dependents are any persons who are financially dependent on your income.
What about your spouse’s assets?
Property that only has your spouse’s name is not touched. However, property that is shared by your spouse and you can be sold off. In such a case, your spouse will get a fair share from the sale.
Is my Bank Account Exempted?
Your bank account is not exempted during bankruptcy, however you can rearrange your bank account to stop your creditors from getting payments directly from your savings. It is advisable that you open a new account with a bank where you do not have any debts. You should do this before you file for bankruptcy.
The aim of these exemptions is so that you can keep whatever is essential to live and get back on your feet, while the lender recovers some part of his debt.