Bankruptcy Cautions: What They Mean For Your Home In Saskatchewan

An exempt asset is  defined under the laws of each province. Exempt assets are retained by the owner in the event of a bankruptcy and not accessible by that individual’s creditors. In Saskatchewan, $50,000 of equity (formerly $32,000 prior to May 28, 2012) in your home is exempt. That exemption applies to each person who owns the home. For the exemption to apply, the home has to be an “active residence.”

For example, if a husband and wife jointly own a home worth $250,000 with a mortgage of $100,000, there is a total of $150,000 of equity in the home. Both the husband and the wife would be entitled to $75,000, or half, of that equity. Of that $75,000, $50,000 is exempt, while the remaining $25,000 is not exempt. 

Generally speaking, neither creditors nor a Trustee in Bankruptcy can force a sale of a home, but the claims of creditors or a Trustee in Bankruptcy can attach to non-exempt equity if the home is sold.

What happens when there is a bankruptcy?

To continue with the example above, let’s assume the wife filed bankruptcy but the husband does not and the couple continues to live in the home. At the date of the wife’s bankruptcy there is $25,000 of non-exempt equity that becomes the property of the Trustee in the Bankruptcy. Because the Trustee cannot force a sale of the home, the Trustee will register what is called a “Bankruptcy Caution” against the title of the home to register its interest in the property.

This means that if the home is ever sold, the Trustee will be entitled to the $25,000 of non-exempt equity that was available at the date of the bankruptcy.

What should I do if I have non-exempt equity in my home and I file bankruptcy?

You should expect that the Trustee will register a bankruptcy caution on your home for the non-exempt amount – the $25,000 in the above example. This bankruptcy caution will remain on the title until the Trustee is discharged (released) from its appointment – it is not affected by your discharge (release) from bankruptcy.

You should consider obtaining legal advice as appropriate prior to your discharge from bankruptcy in respect to the Trustee’s rights to any non-exempt equity.

Basically, once a bankruptcy caution is registered, you have two choices: either you make an arrangement to pay some amount of money to the Trustee to remove the caution or you can expect that the non-exempt equity will be paid to the Trustee when the home is eventually sold. A Trustee will usually settle for less than the full amount of the non-exempt equity ($25,000 in the above example) because they do not wish to leave the file open for years.