Out of curiosity, I looked up the Alberta Bankruptcy Exceptions. In a nutshell, this is what you can keep even if you declare bankruptcy:
- Property you hold in trust for other people
- Food: 12 months’ supply.
- Clothing: up to $4,000.
- Household furniture and appliances: up to $4,000
- One motor vehicle; up to $5,000
- Health aids: no dollar limit.
- Tools of your trade: up to $10,000.
- Farm property: requirements for 12 months operations (if debtor’s primary income is from farming operations)
- Principal residence: up to $40,000, reduced to your share if you are a co-owner.
- Farm land: up to 160 acres (if the debtor’s principal residence is located on that 160 acres and that the 160 acres is part of the debtor’s farm)
- Social allowance, handicap benefit or a widow’s pension if the proceeds from the payment are not intermingled with your other funds.
- Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Registered Disability Savings Plans (RDSPs) and Deferred Profit Sharing Plans (DPSPs). (except for contributions made in the year preceding bankruptcy).
Student loans are now dischargeable in a bankruptcy that occurs once a student has been out of school for seven years. A bankrupt loses their tax refund for the entire year of bankruptcy.
- I suppose one case where you might get close to ‘abusing’ this is creating a contingency plan for if your business debts that go south and you become personally liable. Proper legal structuring can help, but it’s not uncommon for mortgages for revenue properties (rentals) to ask for a personal guarantee. That said, I imagine many of the people going through bankruptcy are happy to be able to keep anything at all.
- It is good to know that property held in trust is exempt. So if you’re saving money for the kids, get it out of your bank account and put it in trust to them (legally)!
- Including food on this list is interesting, only because very few (any?) other jurisdictions include it. If you ever wanted a reason for keeping food storage around, here it is! I suppose part of this too is no one wants to try to sell your “used” food at garage sale prices.
- It’s also good to know that registered retirement savings are protected too. In Canada, it’s pretty hard to access this money before you’re actually retirement age without significant tax costs, but it’s still a fairly significant protection. Note that TFSA’s (which aren’t retirement savings anyway) aren’t protected.
- I think the most interesting discussion is the house exemption. Some states have very high ‘homestead’ exceptions - Florida’s, for example, is unlimited in value, although limited in acreage. The long and short of it is I don’t think many people will keep their house with the $40,000 exception. It is a reasonable question whether the exception should be big enough to allow people to keep their homes. Not having to move could provide significant emotional stability at a time of great uncertainty. However, for many people, their home likely represents their largest asset which might to sold to make their creditors whole (or at least closer to whole), and the mortgage against their home is probably their biggest liability. So I guess the note here is you and your home are probably going to be separated as part of the bankruptcy process.
- Student loans are an interesting note. In the US, student loans are non-dischargeable in bankruptcy (meaning if you declare bankruptcy, you still have to pay your student loans). However, 7 years in a long time. In general, Canadian student loans are generally amortized over 10 years, with the option to extend that to 15 years. So by the time that you might be able to discharge your student loans, you’ve already paid 50-70+% of them off.
- I never want to deal with bankruptcy!