Inequity in Canada’s Bankruptcy Exemptions
Are Canada’s Bankruptcy Exemptions Fair?
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.
Canadian bankruptcy and insolvency laws are under review as part of the recommended 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 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 to $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.
