This is a very common question we get as LITs (licensed insolvency trustees).
Sometimes the question is “if I don’t get to keep my car (or house) this meeting is over” or a variation of this. So what’s the answer?
The LIT’s responsibility, as the trustee of a bankruptcy, is to make sure you understand all of the common options, not just bankruptcy, and how they will affect you. This includes whether the trustee has to deal with the debtor’s car or residence BEFORE you decide whether bankruptcy is the best option.
Once you are bankrupt, the trustee has an obligation to collect surplus equity in assets to put in the bankruptcy trust account for distribution to your creditors.
So the LIT will need basic information to determine whether you keep your car or house.
The fact situation determines whether you can keep the car/house (residence).
Every province or territory in Canada sets a limit by law of how much equity, an Exemption Allowance, you are allowed to keep free from the claims of creditors. The LIT has to allow you to keep this allowance. In Alberta, the limit for a vehicle is a maximum of $5,000 equity. Equity is the value of the vehicle or, if the vehicle is financed, the value of the vehicle less the amount owed to the creditor who holds a security claim against the vehicle. The Alberta residence limit is $40,000. So that means the equity in your residence (value -secured claims) has to be more than $40,000 before the trustee has to deal with it.
Even if there is too much equity in an asset, you do not necessarily lose it. For example, if there is $6,500 equity in your car, the trustee has to obtain $1,500. If you can arrange to pay the $1,500 over a reasonable period, you can keep the car. The same would apply to your residence if there was too much equity.
In most situations, there is little or no equity in a car or residence above Exemption Allowance limits that would make the trustee interested in these assets.
At Goth & Company, one of our LITs analyzes every situation (for free) before a file starts so you know if your car or residence is a concern before you commit to an option.