It is recognized in Canada that, to promote a fresh financial start, the bankrupt has to maintain a degree of dignity and be allowed to keep some equity in key assets so he and his family have a starting point from which to rebuild their financial lives.
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.
Current Procedures for Creditors Taking Security Interests in Exempt Personal Property:
The law passed on November 25, 2005, does not address the problem of some creditors taking security in exempt personal property already owned by debtors. Currently, finance companies and other creditors sometimes ask people to assign furniture, vehicles and other exempt personal property they own, to the creditor in return for them lending money to the debtor.
Recommendation:
We feel that creditors, of course, should be allowed to take back security on exempt personal property if the money was specifically loaned to purchase those assets. We do not think creditors should be allowed to take back security on pre-owned personal property that otherwise would be exempt.
Reason for our Recommendation:
We feel this should be prevented because it defeats the purpose of why the government established exempt assets in a bankruptcy. Bankruptcy exemptions were established as part of the philosophy that an honest but unfortunate debtor deserves a fresh financial start. It is recognized that in order to promote a fresh financial start the bankrupt has to maintain a degree of dignity and be allowed to keep some equity in key assets so he and his family will have a starting point from which to rebuild their financial lives.
The Canadian Association of Insolvency and Restructuring Professionals; CAIRP, has recommended that creditors be prohibited from taking non-purchase money security interests in property that would otherwise be exempt from seizure in bankruptcy.
The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended that creditors be prohibited from taking non-purchase money security interests in property that would otherwise be exempt from seizure in bankruptcy. The Report further recommended that property should be defined to include exempted property intended for use or consumption by the debtor or the debtor’s family, and should encompass apparel, household furnishings and motor vehicles owned by the debtor.
