Bankruptcy is a legally-binding debt relief solution that can obtain debt forgiveness for unsecured debts.
However, the process of bankruptcy needs to be fair for both debtors and creditors.
It is the responsibility of a licensed insolvency trustee to ensure that filing for bankruptcy respects the rights of all parties.
That’s precisely why the Bankruptcy & Insolvency Act in Canada establishes strict eligibility criteria to ensure that debtors don’t ‘abuse’ the bankruptcy process to cancel debts they could, otherwise, pay off.
As a result, not everyone qualifies for filing for bankruptcy, and the process doesn’t forgive all debts.
Most unsecured debts can be cancelled for debtors who are insolvent, which means they are unable to make payments on time, and they can’t sell their assets to pay off the debt.
If you have assets that can be sold or what the government describes as a surplus income, your trustee will ensure that the bankruptcy filing reflects on your repayment abilities.
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The duration of the bankruptcy process and its cost are increased accordingly in an effort to keep the debt relief plan fair for all.
However, the Ontario Bankruptcy Exemption law changes of December 2015 put debtors at risk of losing some assets that used to be protected from seizure.
Here is why we, at BankruptcyCanada.com, are lobbying to clarify and retain exemption protection for Ontario’s debtors.
What’s the problem with the Ontario Execution Act?
Bankruptcy is governed by federal law.
If you go bankrupt in Ontario, the Ontario Execution Act dictates which items you are allowed to keep in bankruptcy.
As of December 1, 2015, the reworded bankruptcy exemption includes the following elements:
- All necessary clothing;
- One motor vehicle worth up to $6,600;
- Tools of the trade worth up to $11,300;
- Household furnishing and appliances worth up to $13,150;
- All RRSP, RRIF and SPSP savings with the exception of all contributions made in the 12 months prior to the bankruptcy;
- Certain types of life insurance.
In some places, the Execution Act has been updated for the direct benefit of the debtor.
In previous regulations, only vehicles of a value of up to $5,650 were exempt from seizure.
The new rule set the limit at $6,600, making debtors less likely to lose their car in bankruptcy.
Unfortunately, the rewording of the Execution Act means that some assets are now less protected than they used to be under the previous exemption rules.
As a result, the cost of bankruptcy could increase, which makes it more difficult for debtors to recover.
It is in the interest of the trustee to protect both creditors and debtors’ rights.
Exposing debtors to risks of losing essential assets can threaten their financial stability in the future and affect their ability to become debt-free in the long term.
Household Furnishings and Appliances
In the old exemption rules, the exempt assets were described as “household furniture, utensils, equipment, food and fuel”.
However, the reworded Execution Act only states household furnishings and appliances.
As a result, some assets may not be protected any longer.
Without clarification, a trustee would have to seize unprotected assets in the event of bankruptcy.
These could include the food in your fridge, or the rehabilitation equipment you use to rebuild your muscle strength after an accident, or your child’s toys
While your licensed insolvency trustee tries to administer the bankruptcy to help you gain a fresh financial slate, the law fails to protect some essential assets.
In short, your household may lose more assets through bankruptcy, making it hard to regain financial stability.
The old rules referred to “necessary and ordinary apparel”.
However, the Execution Act now only exempt ordinary clothing from seizure.
Items such as your wedding ring could be seized as they don’t fall under the description of clothing.
Ordinary apparel, however, was used to refer to items of jewelry that you wear every day, such as a wedding band.
Your trustee will be forced to seize your wedding ring and other items that have sentimental value, such as a family heirloom, under the new rules.
We understand that bankruptcy is a stressful process.
Therefore, it is essential for our trustees to make sure that you don’t lose items that you wouldn’t be able to replace.
What can be done for lobbying?
The Attorney General of Ontario, Minister Meilleur, has already provided her views on clarification of the Execution Act in a letter to debt relief experts.
Minister Meilleur agrees that the new execution provides ‘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.”
It is the responsibility of the courts to interpret the new rules accordingly.
However, the Attorney General notes she isn’t habilitated to clarify or interpret the federal law.
Trustees can raise issues as they occur to the attention of the General Attorney to provide insights in the monitoring of the new Execution Act.
Should the process prove problematic as a result of the amendments made, lobbying could help address the rewording effectively.
How we protect our clients
Licensed insolvency trustees assess your situation during a free, confidential and objective consultation.
They will use their knowledge and your information to define whether bankruptcy is the right debt relief solution for you.
Additionally, they will also evaluate your list of assets accordingly and fairly, ensuring that items of sentimental value, for instance, are appropriately assessed.
Wedding rings, for example, are meaningful, but they don’t always hold a high value when the gold is melted, which could help retain sentimental items.
Trustees also offer alternative debt relief services.
Your trustee can recommend a customer proposal, which can protect your assets while obtaining debt forgiveness.
Depending on your situation and your financial objectives, trustees will also suggest credit counselling programs or a debt settlement plan to help recover your debts.
Are you worried about losing your wedding ring in bankruptcy?
Call a trustee in Ontario today to find out how we can protect your assets through lobbying to clarify and retain exemption protection for debtors.
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