Often people in debt fear declaring bankruptcy because they are under the impression they will lose all of their assets. Some debtors believe they will be left with nothing, as their home, car, furniture, insurance policies, and other assets will be seized, regardless of their value.
When you file for bankruptcy a Licensed Insolvency Trustee’s first step when helping someone through the process of declaring bankruptcy is to determine what assets can legally be seized, and which ones are not seizable, or exempt. Once a list of your assets is made with the Licensed Insolvency Trustee loans are reviewed to determine whether they are secured or unsecured.
Types of Loans
A secured loan is defined as one in which there is an asset that could be seized if the loan is in default. Examples of these types of loans include mortgages and vehicle loans, where a house or vehicle is the physical asset, or collateral. Alternatively, an unsecured loan is defined as one in which there is no physical asset securing payment of the debt, like a credit card or some lines of credit. If the borrower cannot pay the loan back, there is no collateral that can be physically seized like in a mortgage or vehicle loan.
Once secured loans have been established, the Trustee then determines the asset’s value in relation to the amount left owing on the loan. If the value of the asset is less than what is currently owed on the loan, the Trustee may disclaim interest in the asset. However, this does not mean that the debtor will own 100% of the asset and no longer owe money on the loan. You must continue to make payments to the secured creditor if you want to retain the asset or the secured creditor will repossess and sell the asset. The Bankruptcy and Insolvency Act does not allow a creditor to cancel a loan contract only because the debtor files for bankruptcy or consumer proposal. The loan must be in default for other reasons such as non payment.
In some cases that the value of an asset can be more than the loan left owing against it. For some types of asset, there is also an exemption amount in which an asset value can more than the loan and not be seized.
Types of Assets
In both Nova Scotia and New Brunswick, a debtor is allowed up to $5,000 worth of household goods (kitchen appliances, furniture). This means that the value of the debtor’s household goods would need to be worth more than $5,000 before being seizable.
Another example is vehicles: A vehicle worth $3,000 or less is exempt from seizure by the Licensed Insolvency Trustee in Nova Scotia, and any vehicle necessary for work valued at no more than $6,500 over the remaining loan is exempt in both Nova Scotia and New Brunswick. This means that if a debtor has a vehicle loan for $15,000, and their vehicle is valued at $18,000, then the $3,000 excess over the loan is less than $6,500 and it is exempt in Nova Scotia.
In terms of mortgages, both Nova Scotia and New Brunswick look at them the same way: real estate is not exempt from seizure. If the value of the property is less than the remaining loan against it, the Licensed Insolvency Trustee will not sell the property but the debtor can continue making payments to the secured lender as long as the mortgage is not in default. Even if a house is valued at more than the loan, the Licensed Insolvency Trustee, in a lot of cases, will allow you pay the excess over the mortgage into the bankruptcy over a reasonable period of time. However, most homeowners in debt do not have more equity in their home than the remaining loan against it, and are therefore able to keep their home.
Debtors often wonder about their insurance policies. Most RRSP’s and Life Insurance policies provided by Life Insurance companies are also exempt from seizure and some as a term policy does not have any value. As of 2008, the Bankruptcy and Insolvency Act states that all RRSP’s are exempt from seizure except for contributions in the 12 months prior to the bankruptcy. In contrast, all New Brunswick pensions are exempt.
Type of Asset Household Goods (NS & NB) Motor Vehicle Motor Vehicle necessary for work (NS & NB) RRSP not exempt as life insurance (NS & NB) Life Insurance (NS) Tools of trade
Value for Exemption $5,000 or less $3,000 or less $6,500 or less over loan All contributions made debtor before the last 12 months Some products depending on beneficiary NB $6,500
In cases where household goods, vehicles, and houses are not exempt, there are still circumstances in which they will not be seized. Oftentimes, a debtor is given the option of paying the value of their assets into the bankruptcy estate, meaning they can slowly pay back, throughout their bankruptcy, the amount of their asset valued above the exemption threshold. This is made at the Licensed Insolvency Trustee’s discretion, and can continue past a debtor’s discharge from bankruptcy until it is fully paid off. If a debtor does not want to keep the assets, the secured creditor may sell the asset and any amount of the loan not covered by this sale is included in the bankruptcy.
In short, all secured assets valued at less than the loan against them would not be seized by the Licensed Insolvency Trustee in Nova Scotia and New Brunswick. Most debtors declaring bankruptcy do not have assets valued higher than their loans, and, even in cases where assets are worth more than the remaining loan against them, there are base values provided by the governments of Nova Scotia and New Brunswick that allow for a certain exemption. Both Nova Scotia and New Brunswick governments recognize that those filing for bankruptcy cannot be expected to develop and maintain a balanced budget and lifestyle if they have no car to get to work, or left without basic amenities to live.
WBLI Incorporated, Licensed Insolvency Trustees, first goal is to make sure debtors understand how declaring bankruptcy or a consumer proposal will affect their lives. By offering a free consultation and reviewing the Nova Scotia and New Brunswick bankruptcy and consumer proposal processes step by step, WBLI staff actively demonstrate their personal investment in assisting debtors as well as their in-depth knowledge of what they are trusted to do. Too many debtors feel overwhelmed when thinking of declaring bankruptcy, but WBLI Insolvency Consultants is here to help. For more free information on filing for bankruptcy or about personal assets, please call us at 902-482-2000 or 1-800-495-5909, or visit any one of our 16 office locations, including in Nova Scotia in Halifax, Dartmouth, Amherst, Truro, New Glasgow, Antigonish, Windsor, Kentville, Middleton, Digby, Yarmouth, Liverpool, or in New Brunswick in Saint John, Moncton and Fredericton.