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When making an assignment into bankruptcy you are required by law to surrender all your assets to your trustee who will distribute proceeds from the sale of the assets to your creditors. There are some assets that are exempt from seizure. Each province has different exemptions.
In Ontario, the exemptions are governed by the Ontario Execution Act (the "Act"). The Act has changed over the years regarding how a motor vehicle will be treated in a bankruptcy situation and also the amount of the exemption.
Presently, a motor vehicle worth up to $5,650 is exempt from seizure in a bankruptcy. This change in the exemption amount occurred on December 14, 2005.
Up until June 22, 2006, the problem that arose was if the motor vehicle was worth more then the exemption amount, by even one dollar, it was no longer exempt property. Thus, you were required to turn the asset over to the trustee for the benefit of your creditors or you had to pay the full value of the vehicle to the trustee to keep it. For most individuals thinking of filing for bankruptcy, this seemed very unfair.
On June 22, 2006, the Ontario government saw the error of this law and revised the Act. The Act now allows a car to be exempt from seizure provided it is worth less than $5,650. This has not changed. However, if the car is appraised or valued at an amount higher then the exemption amount, it no longer losses its exemption status completely. Now the trustee can sell its "interest" in the car which is the amount over the exemption less any selling costs or the bankrupt can buy back the trustee's interest so that he or she can keep the car. For example, if the car is appraised or valued at $6,650 at the time of bankruptcy, the trustee's interest for the creditors is the difference between the appraised value of $6,650 and the exemption amount of $5,650, which is $1,000. The bankrupt can repurchase the trustee's interest of $1,000 in order to retain the car. Or the trustee can sell the car and will only keep the amount over the exemption amount. The bankrupt will get up to the exemption amount $5,650.
posted by Sandra Sykora, Trustee @ 12:29 PM
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