Changes are required in the bankruptcy exemptions, to correct the unequal treatment of Canadians based on their province or territory of residence.

The new bankruptcy laws, which were rushed into law on November 25, 2005, just before the defeat of the Liberal government on November 28, 2005, will not come into force until June 30, 2006 at the earliest. The Senate was promised the opportunity to review the legislation and hear the scores of experts and special interest groups who were scheduled to make submissions. There is the hope that this flawed legislation will not be enacted without significant changes.

Bankruptcy exemptions or the assets a bankrupt is allowed to keep in a bankruptcy were established as part of the philosophy that an honest but unfortunate debtor deserves a fresh financial start. It was recognized that in order to promote a fresh financial start the bankrupt had to maintain a degree of dignity and be allowed to keep some equity in key assets so he and his family would have a starting point from which to rebuild their financial lives. In Canada it is the provinces and territories that set the exemptions. Over time and because there was no great incentive for the provincial and territorial politicians to address this issue the exemptions have, for most jurisdictions, become out of date, inadequate and unfair.

The current law and the laws passed on November 25, 2005 but not enacted do not address this unfairness. This results in unequal treatment of Canadians based on their province or territory of residence.

An example of the wide range of exemptions in the provinces and territories can be illustrated by the exemptions in effect for equity in a home and a vehicle:

• Yukon; NWT and Nunavut: Home = $3,000; Vehicle = NIL;

• BC: Home = $12,000 in Vancouver and Victoria and $9,000 in the rest of the province; Vehicle = $5,000;

• Alberta: Home = $40,000; Vehicle = $5,000;

• Saskatchewan: Home = $32,000; Vehicle = If required for work;

• Manitoba: Home = $1,500; Vehicle = $3,000, if required to get to and from work;

• Ontario: Home = NIL; Vehicle = $5,650;

• Quebec: Home = NIL; Vehicle = NIL;

• New Brunswick: Home = NIL; Vehicle = $6,500;

• Prince Edward Island: Home = NIL; Vehicle = $3,000;

• Nova Scotia: Home = NIL; Vehicle = $ 3,000;

• Newfoundland and Labrador: Home = $10,000; Vehicle = $2,000.

If we look to our US neighbours the Canadian exemptions are even more out of line. The following list is in order of real estate exemption amount from lowest to highest. Even the states with the lowest real estate exemptions ($5,000.00) rank ahead of every Canadian province and territory except for BC, Alberta and Saskatchewan.

State / Exemption for a home:
AL / $5,000
KY / $5,000
MD / $5,000
OH / $5,000
SC / $5,000
VA / $5,000
GA / $10,000
WY / $10,000
NE / $12,500
IN / $15,000
MO / $15,000
AR / $18,450
DC / $18,450
FED / $18,450
MI / $18,450
NJ / $18,450
PA / $18,450
NC / $18,500
UT / $20,000
LA / $25,000
OR / $25,000
WV / $25,000
HI / $30,000
MN / $30,000
SD / $30,000
IL / $30,000
WA / $40,000
WI / $40,000
CO / $45,000
CA / $50,000
DE / $50,000
ID / $50,000
NY / $50,000
AK / $67,500
ME / $70,000
CT / $75,000
MS / $75,000
VT / $75,000
ND / $80,000
NH / $100,000
AZ / $150,000
MN / $200,000
RI / $200,000
NV / $350,000
MA / $500,000
FL / $UNLIMITED
IA / $UNLIMITED
KS / $UNLIMITED
MT / $UNLIMITED
OK / $UNLIMITED
TN / $UNLIMITED
TX / $UNLIMITED

The above exemptions were provided by BankruptcyAction.com. There are federal and state exemptions in the United States. Some of the states allow their residents to choose between the federal and state exemptions. Our list uses the higher real estate exemption where the state allows a choice.

Recommendations:
The Bankruptcy and Insolvency Regulations be amended to provide a list of federal exempt property. The debtor should be required to choose, at the time of filing for bankruptcy and in its entirety, either the list of federal exempt property or the list of provincial/territorial exempt property available in his or her locality. The value of the property in the list of federal exempt property should be increased annually in accordance with increases in the cost of living as measured by the Consumer Price Index.

The Canadian Association of Insolvency and Restructuring Professionals; CAIRP, has recommended a national set of exemptions.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended that a national set of exemptions be established.

This entry was posted on Friday, February 10th, 2006 at 12:31 am and is filed under Bankruptcy Reform. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.