56 – BC Bankruptcy Exemptions: What Assets You Can Keep

Wayne Kay  0:03  

Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay. And in today’s show, we’re going to talk about BC Bankruptcy exemptions, and what assets you get to keep. So we’re going to talk about exemptions, what they are, why they exist? And are there specific ones just for BC? 

Also, are there ways to arrange your affairs so that you just have exempt assets? Is there anything that you could do to override any of these exemptions? So it’s going to be a very interesting show.

My guest today, Derek Chase from Derek L. Chase and Associates, Licensed Insolvency Trustee serving Vancouver Island, the Sunshine Coast of BC in the BC north coast as well. Thanks very much for coming back.

Derek Chase  1:01  

Oh, my pleasure. 

Wayne Kay  1:02  

We always have great discussions. And today, we’re going to try and help out people regarding BC Bankruptcy exemptions, and what assets they can keep. So when somebody goes into Bankruptcy, I know you hear it all the time, because when they say the word, they automatically think that they’re pretty much going to lose everything. But that is not the case.

Derek Chase  1:23  

No, definitely not the case. And I agree with you that it still is a daunting word, the word Bankruptcy, but it’s federal law. It’s really meant to help and the federal government wants the honest but unfortunate person to be able to have a fresh start with their finances. 

And when you think about that, how could you possibly have a fresh start, if you had nothing to work with, it would just be impossible. So there are a few basic things that you are allowed to keep or shield from creditors. And those things are referred to as exemptions.

Wayne Kay  1:58  

And you see this all the time. You see people turn around their lives after they go through Bankruptcy. So oftentimes, we just need a little extra help at some point in life. And so let’s talk about some of those exemptions. what those are.

Derek Chase  2:13  

I think it’s important to recognize the process. And the process for exemptions, in the world of insolvency, is that the federal government puts it in law, to allow each province to determine their own exemptions. That’s relevant, because if you’re on a farm in Saskatchewan, it’s a lot different than somewhere else that doesn’t have a lot of farming. 

So British Columbia is the exemptions that I can speak to, and there’s a variety of them. If you had the maximum amount of exemptions, the maximum amount of the dollar limit, you could have $30,000 of things and still get relief from your creditors. 

So that’s pretty shocking. For the first one that’s most common – is for household furniture, appliances, or household goods. That’s a $4,000 exemption. And that really stretches, that goes a long way. Because if you’ve ever tried to sell something from your household, I think you can agree that the amount that you get for that is very low. People just do not want your couch. It’s an amount, $4,000 that you can have a lot of stuff.

Wayne Kay  3:27  

So when you go into Bankruptcy, and we’re gonna rewind just a little bit here. That’s what we’re really touching on is what you’re allowed to keep. But for the most part, if you have a nice house, and you have a lot of furniture, and you have a lot of things. So the government then says, Okay, we have to take some of that to help but you are allowed certain things.

Derek Chase  3:56  

Correct, you’re allowed to keep things that will allow you to continue on with basic living and continue on to earn a living. That’s what it is. If you have a big house, maybe that exemption doesn’t cover it, but it’s also an exemption per person. 

So if you’re in a relationship, then that’s $8,000 of household furniture and appliances. But again, I think the value that people put on them is where there can be some confusion because you could say, well, I paid $1,500 for this thing. I would say well, how much could you sell it for? And it’s not going to be anywhere near $1,500

Wayne Kay  4:35  

Okay, so that was one of them, $4,000 for your household furniture. What would be some of the other exemptions?

Derek Chase  4:42  

Another really important one is for a vehicle or a motor vehicle. It is $5,000 that can be reduced if you owe family maintenance money, but the common exemption is $5,000. So in this situation where a person has a $4,000 vehicle, and they choose to go through Bankruptcy filing or even make the calculation as to what they might have to pay in a Consumer Proposal. That vehicle is fully exempt. And it’s just it’s theirs. It’s not brought into the calculation at all. 

If a person did a Bankruptcy filing and their vehicle was worth $7,000, the $5,000 exemption is applied to that. The $2,000 overage has to be made available to the creditors. And most of the time for a small amount of overage like that a person would just pay in $2,000 into their Bankruptcy over time, in order to keep the vehicle. 

Another important exemption that people need to know about is for tools of trade. And that’s a bigger one. That’s $10,000. And, again, that’s designed to allow the trades person to continue to earn a living with their trade. If you were a carpenter, and you had to give up all of your tools, it’s pretty hard to keep building. We also see the similar setting as with household goods there, the value that you put on those tools of trade, that’s super valuable to the trades person. If you were to sell it, how much could you get for it? It tends to fall on the open market. 

Fourth exemption, Wayne is for equity in your principal residence. And there’s a differentiation here in the geographic location in BC. So basically, for the Lower Mainland, you’re looking at a $12,000 exemption. Whereas when you’re outside of that, it’s a $9,000 exemption. Things change over time. There has been a tremendous run up in home value. But if you had a mortgage that was pretty darn close to the market value of your home, then this home equity exemption allows you to continue on if you choose to – just paying the mortgage and keeping the home. So it’s just another factor that allows people to keep a little bit of equity or value to have that fresh start into the future. 

All clothing and medical aids are exempt both for yourself and for your dependents. So you don’t end up losing any of that. And certain life insurance policies carry an exemption. And that gets a little bit more nitpicky as to who the beneficiary is. So if it’s your if it’s your children, for example, that’s the beneficiary of a life insurance policy, and it happens to be a whole life policy then that is an exempt asset. 

Most recently, the government on a federal level made RRSPs exempt. And so that’s another common thing that we see. I was really happy when they did that, because I always thought it was unfair that a person that had a company pension plan, or a government pension plan, got to exempt that from their creditors, and a self employed person who had RRSP savings. back a number of years ago, that was not exempt. I thought that was an unfair playing field, and was really happy when the government made that change. 

So your RSP is now exempt in insolvency proceedings, with the exception of contributions that you made in the prior 12 months. I also thought that was a really wise thing to do, because that’s certainly a situation that’s ripe for manipulation. If a person knew they were going to be needing to get protection from their creditors, and then just pushed a whole bunch of money into a RSP, one month and the next month, decided to go forward with a Bankruptcy. That wouldn’t be fair. So any contributions to an RSP in the prior 12 months before a Bankruptcy is filed is not exempt.

Wayne Kay  9:02  

And that’s a very important one because a lot of people who do get into financial problems and debt, while they’re looking everywhere, they have to pull out some cash to be able to make the payments. And I know that people have cashed in RSPs trying to make the payments. And this is probably one of the first places where you say hold off. Don’t do that.

Derek Chase  9:27  

Yes, unfortunately, there’s been some cringe worthy moments when a person has told us that they’ve cashed out $30,000 of RSP to try and make the debt payments and they’re still in trouble. Because, if they had talked to us before that transaction, we would have advised them of the law that says they don’t have to do that. They can keep that RSP for their retirement. And it’s a very natural thing to think about, to access those funds. But unfortunately, it’s not a requirement to do so. And yes, keep a hold of those funds as best you can for your retirement.

Wayne Kay  10:05  

Yes well, I think the government probably realizes that you’ve already set that aside for your retirement. That makes it a little easier on them. You know that I think that’s very, very important. So I’m glad you actually mentioned that one. Any other exemptions we need to know about?

Derek Chase  10:23  

I think those are it in British Columbia. Those are the core exemptions there. I touched on company pension plan as an exempt asset. If you’re getting any sort of pension set aside by your company or workplace, then that’s an exempt asset. But I’d say the most common ones we see are household furniture and appliances, motor vehicles, and tools of the trade. Those are the most common ones that tend to come up.

Wayne Kay  10:52  

And so how does this work? Do they have to make up their own list and say, well, here’s what I have. These are the assets I have. I’ve got some guitars. Do I have to put those in?

Derek Chase  11:03  

Yes, I think that’s one of the overriding themes of the insolvency process in Canada. You’re required to disclose what you have. You have to be transparent about it and say to the creditors, this is what I have. These assets are exempt, these assets might not be exempt, or they might be more valuable than the exempt limits. And this is how we’re going to deal with it. 

I think people get in trouble when they start to manipulate the truth, and it’s just not worth it. So my advice would be if you’re talking to a Licensed Insolvency Trustee, you just tell them what you have. And it saves a lot of hassle down the road.

Wayne Kay  11:41  

Yes, I would imagine so. Can you arrange your affairs so that you just have exempt assets?

Derek Chase  11:48  

You know, part of the process to get relief from your creditors is when you’re providing the information to get the documents together. The federal government has some laws that look back in time at your transactions. 

So for instance, you need to disclose what you might have sold or transferred or disposed of within the prior 12 months. So there’s a variety of questions that go along with that. Have you gifted anything? Have you sold any real estate over certain timelines? So the answer is no, you can’t really do that shuffling to just move things to an exempt category without having to answer those questions. 

Then it opens up, the possibility of the insolvency process not being very smooth for you. Your discharge, or the ending of a Bankruptcy could be objected to. And it just really can muddy the waters. I suppose the person can do whatever they want with their assets. But if they’re really trying to hide them in a way, then it’s not going to work out well.

Wayne Kay  12:53  

Can you explain the discharge? You have to do the work and you have to do certain things to be discharged. What does that look like?

Derek Chase  13:02  

Well, a discharge in a Bankruptcy setting is scheduled to happen automatically at the end of a certain timeline, depending upon your income level mainly. If it’s a first time Bankruptcy setting, a person is scheduled to be automatically discharged at either nine months, or 21 months, depending on their income level. 

So in between day one and the discharge date, there’s a variety of duties or things that a person has to do, which I think are pretty straightforward. Things like keeping us advised of your address, there’s two financial counseling sessions to attend. Every month, the person has to disclose what their income and expenses are. And just really cooperate with the things that we would ask them to do. 

And if that’s the case, which it is for, like 95-98% of the people, then once you get to that date of discharge, we issue a certificate of discharge. And that’s the finish line. That’s the day that the debts are legally gone. We always encourage people to focus on that, and put their energy towards getting that certificate, because that’s really the end goal.

Wayne Kay  14:14  

But you mentioned before that they can delay the discharge. Who does that?

Derek Chase  14:21  

Well, in the discharge, there’s a couple of different ways that could go. The person started a Bankruptcy filing and based upon their income level, they were supposed to pay in a certain amount of dollars, and they weren’t able to do that. 

The government brought in a process called mediation. So at the end of the 21st month, if a person still needed to pay in $3,000, then the Trustee would talk with the federal government and the individual and go through a mediation process to say, Okay, you’re going to pay in $300 a month for another 10 months and then you’re going to get your discharge. So that’s one example of delayed discharge.

Another possible road is if a person either didn’t do their duties that I mentioned earlier, even as simple as not filing their monthly reports. Then as a Trustee, we have to object to that discharge. Then we have a date with the Bankruptcy court where a person would get a different type of discharge potentially. I’d say, it’s fairly rare, but it’s just part of the process that if you don’t do your duties, you don’t get that automatic discharge.

Wayne Kay  15:33  

That makes perfect sense. Now, when it comes to maybe an override of the exemptions, because we’ve had a kind of a perfect storm of weird things happen over the last few years. And one of them is the chip shortage when it comes to vehicles. So we’ve seen used vehicle prices skyrocket. Something that used to be $4,000 is now $7,000 or $8,000. Are there any overrides to these exemptions? Or you have expensive tools for your trade? So just wondering if there’s anything that can override these exemptions?

Derek Chase  16:14  

Well, the ebbs and flows of the market don’t override them. No, it’s more a question of, if you’ve offered up that – the example that I can think of is that if you’ve offered up that asset as collateral to somebody, for instance, if you had a vehicle loan on the vehicle. I recall talking to you on another podcast about the concept of a creditor being secured. 

So if you had a loan against the vehicle, or a loan against a piece of your big tool of the trade, or let’s say your house was actually negative – your mortgage was greater than the market value of your home. If things went sideways, and there was a Bankruptcy and you had to sell your home, well, you don’t get $9,000, because there’s an exemption, because the market value or the equity just doesn’t exist there. So you can’t force the equity if the equity doesn’t exist. 

I don’t know if I’m explaining that very well. But yeah, no one that makes payments on a $15,000 car and the car loan is $15,000. Well, really, there’s zero equity there. And if the vehicle was sold, the individual is not going to get $5,000, because that’s the exemption that that $5,000 really doesn’t exist.

Wayne Kay  17:35  

Okay. So they can have, they would still have that vehicle. Then the $15,000 vehicle that is still financed for $15,000,

Derek Chase  17:44  

They would have the choice of either continuing to pay on the $15,000 secured loan to keep the vehicle, which we see regularly. Or secondly, they could just stop paying on that $15,000 loan and the lender would more than likely come and repossess the vehicle.

Wayne Kay  18:00  

Okay. But then they’d have that monthly income for other use. Very interesting. I like how we’re learning all these different key points of the importance of making that phone call, reaching out to your team to find out what they can do, because there are a bunch of options, even before they get to this point.

Derek Chase  18:26  

There are a variety of options you can think about with your finances. But I think when it comes to the exemptions, every person’s situation is different. And to know how the exemptions tie into your own situation, I think you can research it. But I think it’s still very important to talk to somebody about it. 

We’re more than happy to spend some time talking to people to say, this exemption will work but this one won’t, or the asset has too much value. It’s a good conversation to have before you launch into getting protection from your creditors.

Wayne Kay  19:03  

Yes, Derek, thank you very much. Always a pleasure to have you here on the show.

Derek Chase  19:08  

Thanks very much, Wayne, you have a great day.

Wayne Kay  19:10  

My guest today Derek Chase. You can learn more or schedule a free consultation with Derek Chase and Associates Licensed Insolvency Trustee. You can head to bankruptcytrusteebc.ca for more information or to get that free consultation as mentioned. 

And that is it for another Debt Matters podcast. Now make sure you subscribe wherever you get your favorite podcast from and of course, for more information, you can always check out debtmatters.ca. Thanks very much for listening.