Lobbying to Clarify and Retain Exemption Protection For Debtors

In the realm of bankruptcy, it’s vital to ensure a fair playing ground for all involved parties. However, the legislation changes in Ontario that took effect on December 1, 2015, have raised some concerns. The law amendments aimed to provide better safeguards for individuals filing for bankruptcy. Despite these seemingly beneficial alterations, there have been unintended consequences, leading to a decrease in protection for some assets.

Ontario’s New Bankruptcy Laws: A Mixed Bag

Let’s first examine the advantages of the new guidelines. The amendments to Ontario’s Execution Act have increased the exemption limits on certain assets. For instance, the previous law exempted a motor vehicle from seizure up to a value of $5,650. The new legislation has increased the exemption limit to $6,600. This change allows a debtor to declare bankruptcy in Ontario and retain a car worth up to $6,600, provided it’s free of loans. This development is certainly beneficial for debtors as it reduces the likelihood of losing their car during bankruptcy proceedings.

Unintended Consequences

However, changes to the Execution Act’s terminology have resulted in decreased protection for some assets. The rewording of certain clauses has unwittingly reduced the scope of protection previously available to bankrupts.

From ‘Necessary and Ordinary Apparel’ to ‘Necessary Clothing’

The old laws exempted “necessary and ordinary apparel” from seizure. However, the new regulations have narrowed this definition to “necessary clothing”. This change has significant implications. For instance, under the previous rules, a wedding ring, worn daily, was considered part of “ordinary apparel” and was thus exempt from seizure. The new terminology, however, does not consider a wedding ring (or any other jewelry) as “necessary clothing,” making it susceptible to seizure by the trustee.

Household Items: Shrinking Protection

Another example can be found in the protection offered to household items. Previously, “household furniture, utensils, equipment, food, and fuel” were exempt from seizure. The new legislation narrows this definition to “household furnishings and appliances”. This change leaves items such as “equipment” and “food” vulnerable to seizure during bankruptcy proceedings.

The ramifications of these changes are potentially severe. Could trustees be required to seize children’s toys or sports equipment, as these items no longer fall under protection? Would food supplies be at risk? While these outcomes may seem extreme, they are a literal interpretation of the new regulations.

Fighting for Fairer Exemption Laws

In response to these unsettling changes, I have reached out to Ontario’s Attorney General, The Honourable Madeleine Meilleur, urging her to consider amending the legislation to restore the previously available protection. The letter proposed the inclusion of an exemption specifically covering small personal belongings, with a prescribed amount of $6,600, similar to the exemption for motor vehicles. This amendment would safeguard the personal property of the majority of debtors.

The Attorney General responded, stating that the government had no plans to change the legislation at this time. She suggested that the amendments provided a mechanism for debtors to claim exemptions and, in case of disputes, the courts could make a determination.

While the courts might indeed interpret the new regulations, it would be more beneficial for the government to draft clearer regulations to minimize the need for court interventions.

Strategies for Navigating the New Rules

Despite the new rules, not all hope is lost. At our firm, we have developed two strategies to help debtors navigate these changes.

  1. Consider a Consumer Proposal: A consumer proposal can protect assets, and we recommend this route where it makes sense for the debtor.
  2. Valuation of Personal Belongings: We ensure our clients provide us with a list of their household items, including jewelry, so we can devise a strategy to protect their assets. In most cases, jewelry items, like wedding rings, hold more sentimental value than monetary value. The cost of a wedding ring usually equates to the melted-down value of the gold, which is not a significant amount. As such, the cost of bankruptcy for most people will not increase under these new rules.

While these strategies can help, the need for clearer exemption rules remains. I will continue to monitor the situation and lobby the government for more specific legislation. Stay tuned for further developments in our quest to Clarify and Retain Exemption Protection For Debtors.

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