Inequity in Canada’s Bankruptcy Exemptions.

Inequity in Canada's Bankruptcy Exemptions.

Canada and all western countries have bankruptcy exemptions, which are assets that the debtor can retain in a bankruptcy. Bankruptcy exemptions have been established to maintain dignity and to assist the bankrupt in re-establishing his financial life, after bankruptcy.

Inequity in Canada’s Bankruptcy Exemptions when comparing provinces and territories: 

In Canada, bankruptcy exemptions are set by the provinces and territories. This has resulted in a wide disparity in the kinds of assets and the value of assets one can keep in different jurisdictions. For example, in Alberta up to $40,000 in equity in a home can be retained and in Saskatchewan the exemption is up to $50,000. In Ontario the exemption for a home is $10,000.

Here is a partial list of the exemptions of the provinces and territories:

 Province / Territory Vehicle Exemption Home Exemption
BC $5,000 Greater Vancouver/ Victoria =$12,000. Rest of province=$9,000
Alberta $5,000 Up to $40,000
Saskatchewan $10,000 Up to $50,000
Manitoba NIL Up to $3,000
Ontario $6,600 $10,000
Quebec NIL Up to $3,000
PEI $3,000 NIL
Nova Scotia $3,000 NIL
Newfoundland and Labrador $2,000 NIL
Yukon NIL $3,000
NWT $6,000 $50,000
Nunavut Unlimited $35,000

What amount should the exemptions be?

Inequity in Canada’s Bankruptcy Exemptions, when comparing four of our provinces with their US neighbours.

Province / Neighbouring State Home Exemption Difference.  US is Greater of (Less)
Ontario $10,000
New York $75,000, which is doubled if both spouses are in bankruptcy. $65-$130,000
Michigan $37,775.  (If over 65 or disabled up to $51,650) $27-$41,650
New Brunswick NIL
Maine $47,500. (Up to $95,000 if over 60 or disabled.) $$47-$95,000
BC $12,000 in greater Vancouver and Victoria. $9,000 in the rest of the province.
Washington $125,000 $113-$116,000
Alberta Up to $40,000
Montana $250,000 $210,000

As can be seen, the exemptions for homes, is dramatically higher in the US than Canada. These numbers are not an aberration but are typical. Here are some other home exemptions for US states:

California – $75,000, ($175,000 if over 64) ; Colorado – $60,000, ($90,000 if over 60); New Jersey – $22,975, (federal exemption); Texas – Unlimited; Florida – Unlimited, and Arizona – $150,000.

A review of Canada’s insolvency laws was tabled in the House of Commons on October 21, 2014. This is the start of proposed changes to the Bankruptcy and Insolvency Act.

CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, does not recommend the introduction of a list of federal exempt property at this time, as they believe the case in Canada to be substantially different than of other jurisdictions where insolvency legislation contains a federal list of exempt property.

CAIRP does not elaborate on why they feel the case in Canada is substantially different than other jurisdictions.

It is obvious that Canada’s bankruptcy exemptions are unfair and in general are too low. There is no justification, for example, allowing Ontario residents a $10,000 exemption for a home, while residents in Alberta have an exemption of up to $40,000 and Saskatchewan residents have an exemption of up $50,000! The disparity is even greater when we compare Ontario’s neighbours in New York ($75,000 – $150,000) and Michigan ($37,775).

The solution to righting this inequity is simple. The federal government, as part of the review of the Bankruptcy and Insolvency Act, should establish federal exemptions that bankrupt’s have the option of using in place of their provincial or territorial exemptions.