Some assets are protected as exempt from seizure by creditors, and this carries over into bankruptcy as well. These protected assets are essential for maintaining a basic standard of living and include:

• Clothing & Medical Aids of an unlimited value
• Household Items up to $4,000.00 in value
• Tools of the Trade up to $10,000.00 in value
• A vehicle up to $5,000.00 in value, though if you owe Family Maintenance, this amount is reduced to $2,000.00. A bankruptcy only deals with assets or portions of assets that you own, so if you have a loan against the vehicle, the value of the asset to be considered in the bankruptcy is only the equity (vehicle’s wholesale value minus the loan amount owing), if any.
• Registered Retirement Savings Plans (RRSP) and Registered Disability Savings Plans (RDSP) contributions, except any contributions made in the twelve months before filing for bankruptcy.
• Equity in your principal residence up to $12,000.00 in the Greater Vancouver Regional District and Greater Victoria, and up to $9,000.00 in any other area of the province.

When we look at the value of the assets, we are looking at wholesale or garage sale value, not the original cost or replacement value.

To understand how these exemptions and amounts operate, let’s look at a few examples:

Zara has a vehicle worth $6,000.00 according to Canadian Black Book. Zara wants to keep her vehicle during her bankruptcy as she needs it for work. $5,000.00 of the value is covered by the exemption, and so for Zara to keep the vehicle she needs to ‘repurchase’ the other $1,000.00 from the bankruptcy estate, and so her creditors will get the benefit of that non-exempt amount, and Zara keeps her ability to drive to work. Zara and her trustee arrange for affordable monthly payments to be made.

Benjamin has a vehicle worth $25,000.00, but he took out a loan to purchase it. The loan is secured against the vehicle, and Benjamin owes $23,000.00. There is $2,000.00 equity in the vehicle, but as that amount is less than the $5,000.00 exemption, Benjamin does not need to pay any portion to the bankruptcy estate. He does, however, need to keep making his loan payments if he wants to keep the vehicle.

Rafael started an RRSP account ten months ago, and he made some contributions to it. Rafael then lost his job and relied heavily on credit to support himself, while also being unable to keep up on his previously manageable debt repayments.

Rafael has not been able to find a new job and has decided to file for bankruptcy. His RRSP has $600.00 in it. As all the contributions were made within the last twelve months, the whole amount needs to be paid into the bankruptcy estate. Rafael does not want to keep the account, and so the trustee writes to the financial institution, who closes the account and sends the funds directly to the trustee. Rafael does not need to make any additional payments for the RRSP.

Non-exempt assets are those that may be sold to repay creditors during bankruptcy. The amount of the value, either the full value of the asset or part of the value, is referred to as the ‘realizable value’.

It's important to be aware of these assets and their potential implications:

• Real Estate: If your property has more equity than the allowable exemption amounts, either the property can be sold through the bankruptcy, or you can arrange to ‘repurchase’ the equity amount, just like in the example of Zara and her vehicle. Property equity amounts will usually be higher than Zara’s $1,000.00, and so it can be a harder decision whether to keep or sell.
• Investments: Aside from specifically protected investments (portions of RRSPs and RDSPs as mentioned above), the whole value of any other investment or savings accounts (like TFSAs or trading accounts, including cryptocurrency) will usually be realizable. If you have these assets then you will need to decide if you want to ‘repurchase’ them and keep the account, or like Rafael, have the trustee realize the asset directly from the financial institution.
• Vehicles: Only one vehicle exemption is available in a bankruptcy, so if you have more than one vehicle with equity above the $5,000.00 limit, you will have to decide whether to ‘repurchase’ or surrender the additional vehicle. Recreational vehicles are usually not considered under exemption amounts – one main exception to this is a mobile home which functions as a principal residence.
• Other assets: Valuable items such as jewelry, art, and collectibles might be considered non-exempt assets.
• Tax refunds: Any tax refunds for the year that the bankruptcy starts are realizable assets, and CRA will pay these directly to the trustee. If there were outstanding tax returns for previous years that the trustee files, any refunds for those years will also be sent to the trustee. Even if you’re still in bankruptcy during the following year, you’ll file your own taxes and any refund will be yours to keep.

Here are some examples:

Arianna has a car worth $4,475, which is under the exemption amount. She also has a motorcycle worth $2,400.00. Neither of these vehicles has a loan against them. The vehicle exemption is applied to the higher value vehicle, and so Arianna needs to decide if she wants to arrange payments to keep the motorcycle, or surrender it to be sold.