Struggling with debt and choosing to file for Bankruptcy can feel overwhelming. A big misconception is that by choosing to declare Bankruptcy in Alberta, your possessions will become seized assets and you will lose everything you own. The reality is there are Alberta Bankruptcy exemptions that list the assets you are able to keep when you declare Bankruptcy. Usually, these assets are everyday necessities to ensure you have the means to start afresh after your Bankruptcy.
Bankruptcy in Alberta and throughout Canada is a legal process governed by the Bankruptcy and Insolvency Act (BIA). One of the main reasons to file for Bankruptcy is to give those struggling with debt a way to clear them and begin their journey to financial peace of mind. Each province in Canada has a set of Bankruptcy exemptions that explains which of your assets, or the value of your assets, are protected if you choose to file for Bankruptcy.
By working with a Licensed Insolvency Trustee (LIT), you can be supported throughout the Bankruptcy process. LITs can deal with your creditors on your behalf, and determine the value of your assets. Here, we cover Alberta Bankruptcy exemptions and how working with an LIT can help you work towards a brighter future.
What are Bankruptcy exemptions?
It is a common misconception that if you choose to file for Bankruptcy, you will lose all of your belongings. This isn’t the case. You will be able to keep some of your possessions when you file for Bankruptcy. These assets are called Bankruptcy exemptions, because they are exempt from seizure.
When you file for Bankruptcy, you will give up some of your assets to your LIT, who will essentially turn these assets into money (known as liquidation) and distribute the money to your creditors to help pay your debts. Bankruptcy exemptions are defined by the law and what you’re entitled to keep will depend on the province you live in.
How can a Licensed Insolvency Trustee help me?
You can only file for Bankruptcy in Canada through an LIT. They are trained and licensed by the federal government to offer Bankruptcy services and it’s their role to make sure both the debtor and creditor are treated fairly. The Bankruptcy and Insolvency Act (BIA) is an essential piece of federal legislation that dictates how that cash is distributed amongst your creditors.
An LIT can help you to find a debt solution that suits your situation best by:
- Determining the value of your assets
- Applying Bankruptcy exemptions to your situation, depending on the province you live in
Alberta provincial asset exemptions
The following is a list of Bankruptcy exemptions for those living in Alberta:
- Furniture, household furnishings and appliances, utensils, and equipment that form part of the permanent home of the debtor not exceeding the realizable value of $4,000.
- Principal Residence – $40,000 in equity (how much of your property you own outright) is exempt in the principal residence split between owners. (IE: If one owner $40,000, if 4 owners of the home, then $10,000 exempt each)
- up to $4,000 in clothes for you and your family
- One motor vehicle having a realizable value of not more than $5,000;
- Enough food and fuel for you and your family for the next 12 months.
- Tools of Trade – $10,000 in equity in tools and equipment needed for employment or to earn income.
- Necessary medical and health aids;
- RRSPs, RDSPs, Pension plans, Registered Retirement Income funds (RRIFs);
- Life Insurance is exempt if the beneficiary of the policy is a spouse, child, grandchild, or parent of the policy holder.
If you are a farmer:
- Land: Up to 160 acres of land is exempt if your principal residence is located on the land, and part of your farm.
- Farming equipment necessary for your farming operation to be used over the next 12 months
Exceptions to the exemption(s)
- The exempt status does not apply to assets or chattel subject to a purchase money security interest (PMSI). A PMSI is when a loan is given to make the purchase of a specific asset, exempt or not. The lien would be valid against that asset until the loan is paid, if the lien is properly registered.
Will I lose my car when filing for Bankruptcy?
Losing your car isn’t common when you declare Bankruptcy in Alberta. You are entitled to keep one motor vehicle up to the value of $5,000. But if your vehicle is worth more than this amount, you may have to surrender it to help you clear your debts.
You will need to have the vehicle valued for your LIT to assess whether you can keep your car during the Bankruptcy process. Most Trustees will accept the opinion of someone qualified to sell or value cars, as long as they aren’t related to you or a friend. From there, you will need a letter that details what they believe the fair market value of your vehicle is (how much someone, who isn’t related to you, would pay for your vehicle). Whether the car is financed or leased, or whether you own it outright, will affect what happens to your vehicle during Bankruptcy.
For more information, take a look at our guide to vehicle repossession.
Can I keep my house when filing for Bankruptcy?
Understandably, the thought of losing your home is a major worry when facing Bankruptcy. But filing for Bankruptcy, does not always mean this will happen.
Alberta’s Civil Enforcement Act, as well as the equity in your home, decides whether you can keep your home. If the equity in your property is $40,000 or less, it is exempt from collection during Bankruptcy. You won’t be able to increase the amount of equity in your home to be higher than $40,000 during the Bankruptcy process. If your home equity is more than $40,000 you have two options:
Surrender your home
You can choose to surrender your property to your LIT, who will use the funds to pay off the debts you owe. If you would prefer to give up your home and clear your debts, this option may suit you best.
Pay the difference
Some people choose to pay the difference and keep their home. For example, if your home equity is $60,000 and the exemption policy is $40,000, you would need to pay $20,000 to keep the property.
Your LIT can support you through the Bankruptcy process to help you come to a decision that best suits you and your financial situation.
Ready to say goodbye to your debts?
Allan Marshall & Associates care about helping people just like you, become debt free. It’s never too late to seek help with your debts and better your financial situation. We provide solutions to your financial problems. Contact us today for a free consultation to discuss your options.