I strongly believe that the bankruptcy process should be fair for all parties. So, when I observe what I believe to be unfair treatment, I speak up. On December 1, 2015, new laws came into effect in Ontario that increased the protection for debtors filing bankruptcy. You can read my full report in my post on Ontario Bankruptcy Exemption Law Changes Will Protect Home Equity. In summary, the Ontario government made changes to the Execution Act which increased the exemption limits on certain assets.
For example, under the old rules a motor vehicle was exempt from seizure up to a value of $5,650, while the new limit is $6,600. That means you can now go bankrupt in Ontario and keep a car with no loans up to a value of $6,600. That’s good news for debtors because they are now less likely to lose their car in a bankruptcy.
So, what’s the problem?
The problem is that the new rules change the wording of some sections of the Execution Act, and as a result, some assets are less protected than they were under the old exemption rules.
Necessary and Ordinary Apparel now Necessary Clothing
For example, under the old rules “necessary and ordinary apparel” were exempt from seizure. The new regulations narrow this definition to “necessary clothing”. Why does this matter? Under the old rules, if you owned jewelry, like a wedding ring, your trustee would consider your wedding ring to be part of your “ordinary apparel” because you wear it every day. So, provided that it was a standard wedding ring, we would consider it to be exempt property, meaning you could keep it if you went bankrupt.
However, under the new rules, only clothing is exempt, not apparel. Since a wedding ring (or necklace, or earrings) are not clothing, they are not considered to be exempt from seizure by the trustee.
Household Furniture, Utensils, Equipment, Food and Fuel now Household Furnishings and Appliances
Here’s another example: under the old rules, “household furniture, utensils, equipment, food and fuel” were exempt. The new rules narrow this definition to “household furnishings and appliances”. “Equipment” and “food” are no longer on the exempt list.
Does this mean that your trustee must seize your children’s toys or your sports equipment because it is no longer protected in a bankruptcy? What about your food? That seems crazy, but that’s what the rules say.
My point is that the new rules, perhaps unintentionally, have removed previously available protection from bankrupts.
So who is going to fight for the rights of bankrupts?
Asking for Clearer Exemption Rules
On November 19, 2015 I sent a letter to The Honourable Madeleine Meilleur, the Attorney General for Ontario, who is responsible for all legislation in Ontario, including the Execution Act. I asked her to consider amending the legislation to restore the protection previously available to debtors. Specifically we asked that an exemption specifically covering small personal belongings be added to the legislation:
"we request that the Execution Act, Ontario Regulation 675/05, Exemptions be amended to include an exemption for personal property... We further submit that a prescribed amount of $6,600, comparable to the prescribed amount for a motor vehicle, would be sufficient to protect personal property of the vast majority of debtors."
You can read my full letter to her here.
I am pleased to report that I did receive a response from Ms. Meilleur.
Unfortunately, her response is that the government is not considering any changes at this time. She advises that she cannot provide any specific advice, but does advise that “the amendments provide a mechanism by which a debtor can claim an exemption under the act and, in the event of a dispute, the matter can be referred to the courts for a determination”.
So where does that leave us?
I agree with Minister Meilleur’s comment that ultimately it will be up to the courts to interpret these new regulations. Personally, I would prefer that the government be more specific in drafting their regulations to minimize the need to ask the court for directions.
I will continue to personally monitor this situation and lobby the government as appropriate, and perhaps even make an application to court to obtain the necessary protection for debtors.
Will every bankrupt person now lose their wedding ring?
No. At Hoyes Michalos we have two strategies for dealing with these new rules.
First, where possible, we suggest filing a consumer proposal as an alternative to bankruptcy, which protects your assets. However, we will only recommend this approach where is makes sense for the debtor as a whole.
Second, it is our standard practice to have all debtors provide us with a list of their household items, including jewelry, so that we can determine a strategy to allow you to keep your wedding ring. In most cases, rings do not have significant value. They have great sentimental value, but if you try to re-sell a wedding ring, you will discover that it’s generally not worth more than the melted-down value of the gold, which is not a significant amount. Since in most cases a bankrupt is required to make a contribution towards the cost of their bankruptcy, it is usually possible to include the value of the jewelry in this base contribution. So, for most bankrupts, the cost of bankruptcy will not increase under these new regulations.
Confused? Don’t be. We offer no-charge initial consultations so we can review your situation and give you specific advice before you decide to file a consumer proposal or bankruptcy. Contact us and we will walk you through the process.
And as mentioned, I will continue to monitor this situation, so stay tuned for further developments.