An Important New Exemption & Increased Limits for Ontario Individuals – Your Home May be Exempt from Seizure
At D. & A. MacLeod, we have been helping people and companies since 1952 overcome their financial difficulties. Our commitment to those we serve will now include timely blogs as we understand the importance of having information to be able to assist you in resolving your financial situation.
This is the first of important ongoing blogs we will be posting for debtor and creditor information.
As of December 1, 2015, the Ontario government has included a new exemption for Ontario residents for the principal residence and made changes to existing exemptions in the Execution Act R.S.O. 1990 (“the Act”). This Act sets out thresholds for items that are protected from actions taken by a person’s creditors, including protection of certain assets or property in a bankruptcy; consumer proposal; or a Division 1 proposal. It outlines the value of exemptions that a debtor (who is not a corporation) can keep as exempt property within a fixed dollar limit.
Summary of New Exemption Rules
The highlights of the changes in the Act are as follows:
New Ontario exemption:
- $10,000 principal residence
Revised exempt property:
- “No fixed limit” for necessary clothing of the debtor and the debtor’s dependants.
- $13,150 for house furnishings and appliances
- $6,600 for one motor vehicle
- $11,300 for tools of the trade used to earn an income.
- $29,100 for farmers engaged solely in farming including equipment, livestock etc. and
- No limit for medical devices etc. owned by a debtor or dependant to assist with a disability or a medical or dental condition.
The most important of these changes is the addition of a new exemption for a principal residence for equity of $10,000 or less. Claiming any equity you may have in an investment property or a second home, such as a cottage or chalet, would not qualify.
Other revisions that came into effect include a change to “no limit” for necessary clothing for a debtor and dependants, was previously capped at $5,650 for necessary and ordinary apparel.A $13,500 limit for house furnishings and appliances replaces the previous exemption of $11,300 for household furnishings, utensils, equipment, food and fuel.
The exemption for a motor vehicle exemption has increased to $6,600 from $5,650. This will allow more individuals not to have to worry about losing their vehicle or having to pay for additional equity where the vehicle value exceeds the increased exemption.
The amounts for tools of the trade (except farmers) have remained the same at $11,300. It has been our experience that this exemption limit, despite no change, will generally cover most individuals who have tools of trade to earn a living. The exemption is not calculated on the amounts originally paid for the tools but the current realizable value.
For farmers who earn a living farming, tools of the trade which includes equipment, livestock, seed etc. is now $29,100 from $28,300. These exemption amounts previously had not been updated to reflect inflation since 2005.
Impact of the New Rules on Debtors in Ottawa to Kingston & Surrounding Areas
The new $10,000 exemption for equity in a principal residence is a positive change for Ontario residents. It means that individuals and families can keep this equity instead of paying it out to the bankruptcy estate for creditors or being included in determining, in part, what periodic payments would be required in a consumer proposal which will now be decreased.
In our opinion, with the new exemptions, the Ontario government has that recognized individuals and families should not be forced out of their home in cases where there is equity of $10,000 or less and follow other provinces that provide a similar exemption for the principal residence.
This is both an important and significant change which will allow financially stress individuals to restructure their financial affairs and reduce the stress of attempting to fund any equity in their principal residence as this residence “is exempt from forced seizure or sale by any process at law or in equity of the value of the debtor’s equity in the principal residence does not exceed the prescribed amount” which has been set at $10,000.
So, What Does this Mean for You?
Up until December 1st, 2015, the assessment of an individual’s financial situation and debtor assistance in the Ottawa area included reviewing the value of a debtor’s non-exempt assets, including the principal residence. Prior to the changes to the Execution Act, the Act provided no exemption or relief if there was equity in this residence. One of the challenges before the enactment of this new exemption was crafting potential debt repayment options when assisting consumer debtors in the case of attempting to save the matrimonial home when this was one of the principal objects of a debtor and his or her family. In some cases where there was sufficient family income for a consumer proposal to be offered, the equity in the home was incorporated into periodic payments. In some cases, making payments to incorporate the notional equity could not be funded on the monthly family income. The new exemption may reduce amounts to be paid in a bankruptcy or proposal.
With the passing of the new exemption, any notional equity over $10,000 must be accounted for in a consumer proposal or realized if one’s financial stress is so extreme that bankruptcy is required to resolve one’s debt.
Contact us at D. & A. MacLeod Company Ltd.
At D. & A. MacLeod, we are available to arrange for a free confidential assessment of your financial situation. We can discuss how the recent changes to the Execution Act of Ontario may affect you.
We are licenced trustees in bankruptcy and Administrator professionals providing a full range of financial services including consumer proposals, bankruptcy, credit counselling, and debt restructuring for consumers in Eastern Ontario.
Contact us for more information today at 613-236-9111.