Bankruptcy exemptions allow individuals to retain specific personal assets despite filing for bankruptcy. These exemptions vary by province and are designed to protect essential items needed for day-to-day living. Understanding these exemptions can help alleviate fears and provide clarity during a difficult time.Ready to learn how bankruptcy exemptions apply to you? Book a free consultation today with our Licensed Insolvency Trustees.

Key Exempt Assets in British Columbia

Bankruptcy exemptions in BC include:

• Clothing: All personal clothing items.
• Household Furniture: Essential furniture and appliances up to $4,000.
• Tools of the Trade: Equipment necessary for your profession, up to $10,000.
• Vehicles: One motor vehicle up to $5,000 (or $2,000 if behind on child support payments).
• Principal Residence: Home equity up to $12,000 in Greater Vancouver and Victoria or $9,000 elsewhere in BC.
• RRSPs & RDSPs: Contributions made more than 12 months before filing – this is per the Bankruptcy and Insolvency Act, section 67(1)(b.3).
• Medical Aids: Unlimited value for you or your dependents.

For a complete list, refer to the Court Order Enforcement Act.

Filing a Consumer Proposal as an Alternative

If bankruptcy exemptions do not cover your needs, filing a consumer proposal can provide asset protection. This legal option allows you to negotiate repayment terms with creditors, helping avoid asset liquidation.

Each province sets its own exemption limits, and BC offers substantial protections to individuals undergoing bankruptcy. These exemptions are designed to ensure you can maintain a basic standard of living while addressing your debts.How Exemptions Protect You
Exemptions allow you to retain assets critical for daily life and work. This ensures you can rebuild financially after bankruptcy.

When filing for bankruptcy, a Licensed Insolvency Trustee (LIT) assesses your assets. Exempt assets remain with you, while non-exempt assets may be sold to repay creditors.You can also make a plan to ‘repurchase’ non-exempt assets from the trustee – that is, pay their value into the bankruptcy estate – and keep the asset.

Your LIT will guide you through this process and help maximize the exemptions available to you.

Common Non-Exempt Assets in BC

• Secondary properties.
• Luxury items like jewelry or art.
• High-value vehicles exceeding exemption limits which you own free and clear (vehicles over the $5,000.00 limit which have a loan against them are treated differently).
• Tax refunds from the year of filing, and any prior unfiled years.

Understanding which assets are exempt versus non-exempt ensures you can plan effectively.

Tax Refunds and Bankruptcy
When you file a bankruptcy, the LIT is required to file your tax returns for the year of bankruptcy, and the immediate year prior, if unfiled. The LIT will usually also file other prior years if outstanding.

The return for the year of bankruptcy is split into two – the pre-bankruptcy tax return and the post-bankruptcy tax return. If you filed a bankruptcy on July 17th, 2025, the pre-bankruptcy return would cover January 1 to July 16, 2025, and the post-bankruptcy tax return would cover July 17 to December 31, 2025.

Any amounts that you owe for the pre-bankruptcy tax return, or for prior years, will be included in the bankruptcy. Any amount owing on the post-bankruptcy tax return will be your responsibility to pay.

If you receive a refund for the pre-bankruptcy, post-bankruptcy, or prior returns filed while in bankruptcy, your refunds will be sent to the LIT for the funds to be distributed to your creditors.

It’s good to note that if those tax years are reassessed—even years after your discharge—and a larger refund is issued, that refund will still go to the Licensed Insolvency Trustee (LIT). This can happen even if your file has long since been closed. One situation where this commonly arises is when someone is approved for the Disability Tax Credit (DTC), which can result in up to ten years of back taxes being reassessed and substantial refunds issued.

Interestingly, recent case law has confirmed that trustees are still entitled to these refunds—even when the DTC is transferred from a disabled dependent to the former bankrupt. While the legal details are complex, the key takeaway is that any retroactive tax benefits that apply to the pre-bankruptcy period may still be captured by the bankruptcy estate.

Even if you remain in bankruptcy when it comes to the following tax season, you are responsible for filing the following year’s tax return. Any refund will be yours to keep, and any amount owing will be your responsibility to pay.

If bankruptcy exemptions aren’t sufficient to protect your assets, consider alternatives like a consumer proposal.Consumer Proposals vs. Bankruptcy
A consumer proposal allows you to negotiate repayment terms with creditors while keeping all your assets. They often form a core part of an effective asset protection strategy, ensuring that individuals can retain their valuable assets while addressing their debts. This option can be ideal for individuals with significant equity in their homes or valuable assets they wish to protect – however, the value of the non-exempt assets must be taken into consideration when making an offer to the creditors.

Learn more about consumer proposals to see if this option fits your needs.

When Does a Consumer Proposal Make Sense Based on Debt Amount?
Someone can file a consumer proposal for as little as $1,000 in debt—but that doesn’t mean it’s always the right financial move.

With mandatory fees and the minimum return required for creditors, a proposal on $1,000 of unsecured debt would result in total payments of around $2,150. At that point, it often makes more sense to explore budgeting strategies rather than a formal insolvency process.

At around $5,000 in debt, the numbers start to make slightly more sense—a proposal might cost about $3,200 to meet the required 20% return to creditors. It could be a helpful option for someone truly struggling and unable to manage payments, but for many, it’s still likely a cash flow issue that might be better addressed through budgeting.

For $10,000 in debt, a consumer proposal might require around $4,800 in total payments to meet the threshold. This is where proposals become more viable, especially when comparing alternatives like bankruptcy. For example, someone earning $4,000 per month in net income might pay $14,595 in surplus income over time in bankruptcy. In contrast, a proposal might cost $11,220—and since trustee fees are different under each option, the proposal could still provide better value to creditors.

It’s not always about the math. Sometimes a person may be facing wage garnishment or ongoing collection calls and wants the legal protection that comes with a proposal. Each situation is different, and a Licensed Insolvency Trustee can walk through the numbers to help determine whether a consumer proposal is the right option based on debt level and financial circumstances.

Book a free consultation to talk to a Licensed Insolvency Trustee about your unique needs.

Keeping Your Home
In BC, homeowners can protect up to $12,000 of equity in Greater Vancouver and Victoria or $9,000 elsewhere. For those with more equity, alternatives like a consumer proposal may be better suited to safeguard your residence – or a payment plan can be made to pay the non-exempt equity amount to the LIT to distribute to your creditors.Vehicles and Equity
Vehicles are often essential for daily life. In BC, you can retain one vehicle valued up to $5,000. If its value exceeds this limit, options include paying the difference or surrendering the vehicle.

If you have a loan against your vehicle, you would continue to make the loan payments as normal if you wish to keep it.

Tools for Work
Professional tools, such as equipment or specialized vehicles critical to earning a living, are protected up to $10,000. This exemption ensures that your ability to generate income remains intact.

Protecting Retirement Savings
Registered retirement accounts like RRSPs (as well as RDSPs) are largely protected, except for contributions made in the year leading up to bankruptcy. These exemptions help secure your long-term financial health.

Medical Aids
Unlimited exemptions exist for medical and dental aids, ensuring essential health needs are not compromised during bankruptcy.

While this article focuses on personal bankruptcy exemptions, business owners and entrepreneurs may wonder how bankruptcy affects their business assets. Here’s a quick overview:

• Sole Proprietors: If you operate as a sole proprietor, your business assets are not separate from your personal assets. This means tools, equipment, or property used for your business may fall under personal bankruptcy exemptions, such as the $10,000 limit for tools of the trade.
• Incorporated Businesses: For incorporated businesses, the company is considered a separate legal entity. Business assets are typically not affected by your personal bankruptcy. However, if you’ve personally guaranteed loans or credit for your business, creditors may pursue your personal assets within the limits of exemptions.
• Partnerships: Partners in a business may face complex scenarios where both personal and partnership liabilities are considered. Consultation with a Licensed Insolvency Trustee is essential to determine how exemptions apply.

If you’re a business owner exploring bankruptcy, consider how your personal and business finances intersect. Licensed Insolvency Trustees can guide you through this process and recommend the best course of action.