Changes in the Execution Act of Ontario: What they may mean to Trustees and Debtors in Ontario?

Well, the long-awaited changes to the Execution Act, R.S.O. 1990, c. E.24 are upon us, and will go into effect on December 1st, 2015. These changes have long been forthcoming, as the exemption values have not changed since 2005 and do not reflect the changes in both our current economy and inflation since that time. The Act sets out the prescribed exemption values of any writ or order of seizure of specific assets by any court in the Province of Ontario. In our Industry, this applies to the Courts addressing the Bankruptcy and Insolvency Act (BIA). As Trustee’s from around the Province scramble to interpret the changes, the table below provides the “Old” exemption values to the “New” values (the *’s will be discussed in more detail):

TABLE (from O. Reg. 657/05: Exemptions)

For the purposes of subsections 2 (1) and (1.1) of the Act, the following amounts are prescribed:

1. For the chattels described in paragraph 2 of subsection 2 (1) of the Act (household furnishings and appliances), $13,150.

2. For the chattels described in paragraph 3 of subsection 2 (1) of the Act (tools and other personal property used to earn income),

i. in the case of a debtor engaged solely in the tillage of the soil or farming, $29,100 for livestock, fowl, bees, books, tools and implements and other chattels ordinarily used by the debtor in the debtor’s occupation, or

ii. in any other case, $11,300.

3. For the chattels described in paragraph 4 of subsection 2 (1) of the Act (motor vehicle), $6,600. O. Reg. 289/15, s. 1.

(2) For the purposes of subsections 2 (2) and (3) of the Act (principal residence), the prescribed amount is $10,000. O. Reg. 289/15, s. 1.

*First, the clothing allowance exemption has no limit, which before the changes, had an exemption limit of $5,650. Although this is a substantial change in the assessment of personal property of a debtor, I believe that this will have little impact if any, in the overall asset value of a debtor when entering into an assignment of Bankruptcy or when determining a debtor’s asset value in comparing them to a Consumer Proposal under the BIA. It has long been my experience whether working at New Beginnings Debt Consulting or with the largest Debt Consulting Firm in Canada, that personal clothing has not been looked at, with a great deal of scrutiny by Trustees in their assessment of a debtors overall value in a Bankruptcy. However, the change in the wording from “Personal” Clothing to “Necessary” clothing may have some trustees looking at other assets that would have normally been viewed as “Personal Clothing”, such as jewelry and personal accessories as a way to raise a debtor’s value in a Bankruptcy and available for seizure by the Trustee. Only time will tell.

**Second, the exemption of a vehicle has changed as well from $5,650 to $6,600, with additional changes in the wording of a vehicle. In the previous version of the Execution Act, some Trustees looked at this exemption as a catch-all for all the vehicles a debtor may own. For instance, let’s say that a debtor owned two vehicles with a total value of $7,000 for both. In some cases, Trustees would take the exemption of $5,650, subtract it from $7,000 and disclose in the Estate, a vehicle value of $1,350. It looks as though this will no longer be allowed under the new changes in the Act. Whereas before the changes, the Act read as “Motor Vehicle”, now reads as “One Motor Vehicle”. This change should invariably change the way a debtors vehicles are looked at in the Trustee’s assessment, which may increase the debtor’s value in a Bankruptcy should a debtor own 2 or more vehicles.

***Finally, the most significant change in the Act deals with a new “Residence” exemption and will most likely be the biggest point of contention among Trustees, Creditors and Debtors in Ontario. Under the old version of the Act, there was no exemption when it came to determining equity in a residential home. Therefore, under the old exemption rules, when a debtor went into an assignment of Bankruptcy, any equity in the debtor’s home would be seizable by the Trustee and thusly, the debtor would have to pay off the equity in the home in order to be eligible for a discharge, should the debtor decide to keep their home. The new rules, however, allow for a $10,000 exemption, which on the surface allows the debtor to exempt up to $10,000 of their residential homes equity. Therefore, a Trustee should only be able to seize the equity in excess of $10,000. This change was most likely influenced by how the United States realizes equity in a residential home in a Chapter 7 Bankruptcy by providing a $10,000 exemption on an individual’s primary residence. However, according to Daniel Weisz, in the November 2015, #36 issue of the OAIRP Newsletter, suggests that this exemption is only available if the equity of the residential home is less than $10,000, and therefore, should the equity of the residential home exceed $10,000 then the exemption is not applicable and is seizable by the Trustee. Again only time will tell how this change will impact a debtor in the Bankruptcy process and how Trustees will interpret this exemption in the Act.

As with any changes in legislation, statutes and the like, there is always a transition period where adjustments and interpretations are made. The changes in the Execution Act, R.S.O. 1990, c. E.24 are no different. It is anyone’s guess as to how these changes will affect a debtor’s position in the Bankruptcy process. These changes will however, spark an ongoing debate between Trustees’s throughout the Province and will invariably have broader implications in the Insolvency Industry.

Please note that this publication is being provided as an informational piece only. This article is in no way providing legal advice and thus, readers are encouraged to discuss and share among themselves and interpret the new exemptions in the Execution Act with the foregoing in mind.