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I'm reading a page which lists limits on equity that can be kept when filing for bankruptcy. In particular, this page says the following:

You have a motor vehicle that is valued at $15,000 and there is a $6,000 secured debt that you owe against the vehicle, resulting in equity of $9,000 in the vehicle.

The insolvency exemptions in Saskatchewan allows an insolvent individual to keep a car with equity of $10,000.

Since the equity in the vehicle ($9,000) is less than the SK bankruptcy exemption for a motor vehicle ($10,000) you would be able to keep this vehicle.

How does this make sense? What if I have a $1000 equity in my vehicle (and the rest is being financed and thus belongs to the creditor), do I still get to keep it? So the less I have paid the more chance I keep something? This is clearly absurd.

I would appreciate a clarification how these limits work. In my understanding, one can keep up to a certain amount of equity in his/her vehicle or house if/when it is sold. Is this correct?

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    Are you actually in SK, or is that site picked at random? Jurisdiction matters. Sep 22, 2020 at 14:18
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    sequence, this entirely and totally depends on the state/country of residence.
    – Fattie
    Sep 22, 2020 at 15:33
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    This site cannot answer "How does this make sense?" questions. I would urge you to migrate the question to Politics, History or Law.
    – Fattie
    Sep 22, 2020 at 15:34
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    I’m voting to close this question because "Why?" questions perhaps best asked on Politics or Law or History. Why/philosophy questions don't have a connection to "personal finance"
    – Fattie
    Sep 22, 2020 at 15:35
  • @Fattie Actually my question is not about philosophy, it is about practical reasons.
    – sequence
    Sep 25, 2020 at 3:38

1 Answer 1

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Keeping 'up to' a certain amount of equity means that if your net assets are equal to or less than a certain amount, you won't need to sell them during bankruptcy proceedings.

So if you had a car worth 1k that you owned, and had no debt on it, you would have 1k of equity, so would not need to give it up.

You seem to be focusing on the 'fairness' of bankruptcy protection laws, and on that I will make two points:

(1) This site can't answer for any perceived unfairness in a particular jurisdictions laws. It might help to understand whether some people find a law fair or not, but that doesn't mean an answer explaining the law finds it fair.

(2) Bankruptcy protection laws exist to protect a human being at great risk of being destitute. There are many times when a just society will step in and provide benefits to someone who cannot support themselves, and that does not mean it is 'unfair'. It also doesn't mean that a law that attempts to protect someone will always work as originally intended.

You are implying that someone with more net assets benefits by being able to hold on to more assets - in the wording of what you have provided in the question, that is true to a point - someone with a $9k car can keep $9k in net assets after bankruptcy, but someone with a $1k car can keep 1k in net assets after bankruptcy.

You could say the second person should get an extra $8k 'bonus' somewhere for 'fairness', but that might be difficult to administrate, when the goal of the above would presumably be to allow someone with a car worth less than 10k net, to keep that car and continue to operate in society, such as continuing to go to work, go to school, go on errands, etc., and that general intended benefit may be seen as outweighing a perfect dollar for dollar 'fairness' outcome. [Someone with a car worth more, net, could more easily sell the car and use the proceeds to get something driveable, but someone with a car worth 1k might find it difficult to do likewise].

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  • No, my question didn't have anything to do with fairness. To put it otherwise: if you have a $15k car (as in the example on the website) where you still owe $6k, how come you can keep it just because you have an equity there less than $10k? What if the car was a $500k and you have $9k in equity there? Do you still get to keep it? What if you only have $1k in equity there? Do you get to keep it just because you have less than $10k in equity there? I don't think the information on that website is correct. So my question is how exactly does this work?
    – sequence
    Sep 22, 2020 at 14:37
  • @sequence I am not familiar with SK bankruptcy law, but I presume that if the value of the car minus your debt [aka, your equity] was worth more than 9k, you would be asked to sell the car and net proceeds would be included in whatever other calculations are used to determine what you are allowed to keep under bankruptcy. The specific protection here is that you don't need to sell your car if it's worth < 10k, probably because it would be difficult after that point to buy a new car, and then you would be carless, which could be a punitive affect the law wants to avoid. Sep 22, 2020 at 14:47
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    @sequence Laws aren't written for edge cases, particularly in British Common Law, as is used in Canada. In Common Law, actual legislation is very short, and includes broad statements. Then some government agency applies the law according to its interpretation, and over time different people sue eachother and the government and vice versa, and judges make decisions that become 'precedent' that guides future judges and by extension, how the general public applies the law in practice. That means you could concoct some sort of weird scenario that the law seems to treat 'unfairly', but: Sep 22, 2020 at 15:02
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    You are wildly over-reading the web site. (1) Who cares what it says on the web site? Even if the person who wrote it is Canada's most experienced tax expert, if we asked them about it in person they may well say "it's only a web page, I didn't cover that in detail there" (2) the outcome of the 500k example is very obvious / a matter of law; again it's completely pointless hyper-parsing some random (half-assed!) web page. Your point can only be "I found a web page with a shoddy explanation" - it's a case of "so what"! :)
    – Fattie
    Sep 22, 2020 at 15:39
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    @sequence it's one motor vehicle upto 10K. Presumably to protect low income earners, if they go bankrupt, at least they have means to drive. The example of buying Ferrari worth 500k with 9k in equity is hypothetical, no dealer or bank would give you. But yes some one purchased a brand new car for 35k with down payment of 5I and went bankrupt and that is the only car, he can keep it... but realize chances are someone who buys 35k car, earns good and less likely of going bankrupt... plus likely to have quite a few assets that would be liquidated...
    – Dheer
    Sep 22, 2020 at 16:25

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