You may have filed an assignment in bankruptcy and as part of the process claimed certain assets as exempt pursuant to the Bankruptcy and Insolvency Act and the applicable provincial statute.
The most common assets that are eligible for an exemption from seizure are registered retirement savings plans; a vehicle up to $3,000 provided that the vehicle is used to earn income; tools of your trade or occupation up to $7,500 and household furniture up to $4,500. The date for determining an entitlement to an exemption is the date of bankruptcy.
The BIA defines property of a bankrupt that is divisible among his or her creditors as all property wherever situated at the date of bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge.
In the context of exempt property, a key part of this definition of property relates to property that may be acquired by or devolve on the bankrupt prior to their discharge.
Notwithstanding that you have claimed an exemption for an asset you will need to be careful how you deal with the exempt asset while you are an undischarged bankrupt. Otherwise, you may have an unexpected surprise during the bankruptcy.
For example, if you have funds in a RRSP which is an exempt asset, and you cash in the RRSP to purchase a recreational vehicle while you are still in bankruptcy, the recreational vehicle is not an exempt asset and thus may become part of the assets available to your creditors.
Similarly, if you are the recipient of funds as a result of a personal injury claim in an automobile accident (which is exempt from seizure), and you purchase a non-exempt asset such as a rental property, the asset may become available to your creditors.
Certain conversions of exempt property may not result in you losing the benefit of the asset.
For example, if you have a tool of the trade that is sold and the proceeds used to acquire a newer tool, chances are that the new tool would also be exempt. Similarly, with the funds from a personal injury claim, if the funds are invested into a RRSP, the contribution would likely be exempt from seizure.
Prior to the bankruptcy, you may have sold an exempt asset and are in possession of the proceeds from the sale when you file the assignment in bankruptcy.
The proceeds would not be exempt and would become property available to your creditors.
The above are only a few examples of how actions you take regarding exempt property may be viewed upon conversion. It is not a complete treatment of the subject. Each transaction involving exempt property would be assessed based on the form and circumstances surrounding the transaction.
For this reason, it is best if you can avoid converting exempt property while you remain an undischarged bankrupt.
» Wayne K. Palmer is a senior manager in BDO’s Brandon office. He is responsible for both the consumer and commercial practices in Brandon and surrounding areas, including Boissevain, Minnedosa, Neepawa and Dauphin. Wayne has more than 25 years experience in the financial recovery services field.