This is a question raised in our consultations with potential bankrupts. Individuals express concern that they will be left with nothing with which to live. The Bankruptcy and Insolvency Act (“BIA”) requires a Licensed Insolvency Trustee (“LIT”) to realize on the assets of a bankrupt, subject to the rights of secured creditors, for the benefit of the creditors.
Here is the legal part, this blog is not designed, nor in the space available, can we set out all conditions, exceptions or possibilities. Once you read this blog, you should contact one of our offices near you or contact a local trustee near you for greater analysis and review of your particular circumstances. For ease of reading, we will try to create a series of short blogs written for ease of reading and avoiding lots of legal jargon.
So what does all that mean? Assets subject to the rights of secured creditors are best explained by an example. If you were to buy a car and financed it by a bank, typically the bank would register their interest against you and the vehicle by registering the interest, in the Province of Ontario, in the Personal Property Security Act (“PPSA”) registration system. The excess amount over what a secured creditor is owed is called the “equity”. It is that equity that a LIT is interested in for the creditors.
To complicate the calculation further various provinces in Canada provide certain exemptions from seizure by a LIT. This is designed to provide a person a reasonable amount of possessions with which to live. These exemptions vary by province but in Ontario, the following is what is allowed:
- All necessary clothing
- One motor vehicle having equity up to $6,600
- Household furnishings with a realizable value of up to $13,500
- Tools of trade with which you earn a living up to a realizable value of up to $11,300
- Equity in a principal residence up to $10,000
- Tools for farming $29,100
- Certain types of life insurance
- RRSPs, RRIFs and Deferred Profit Sharing Plans except amounts contributed in the last 12 months.
To illustrate this using the previous automobile example, assume the vehicle is worth $40,000 and Canada Bank lent you $33,400 to buy the vehicle and registered the loan against the vehicle. In this case you would have $6,600 of equity but the equity is exempt in the Province of Ontario due to the exemption provided by the Executions Act of $6,600. (December 2019) Therefore the trustee would not have an interest in the vehicle. If the vehicle was worth say $50,000 and the same amount was outstanding on the loan then $9,000 would be the estate’s interest in the vehicle. ($50,000-$33,400-$6,600=$10,000). The equity of $10,000 would have to be settled with the trustee either by paying the trustee the equity over some period as can be arranged or having the vehicle sold and the net equity paid to the estate.
The rules concerning the realization of assets continually change with new legislation and cases being decided by the court. Accordingly the area is at times confusing. Speak to one of our staff about your concerns during our free no-obligation consultation. If you have questions prior to considering bankruptcy and would like a second opinion, our staff would be happy to discuss this with you.