Section 67(1) of the Bankruptcy and Insolvency Act (the “BIA”) describes the property of the bankrupt that will, and will not, be divisible among the bankrupt’s creditors. Exceptions include under section 67(1)(b) “any property that … is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides.” These exemptions, often subject to monetary limits, may include the equity in a vehicle or real property occupied by the bankrupt.
RRSPs and RRIFs
In British Columbia, and other jurisdictions, the provincial exemptions include monies in registered retirement savings plan (RRSPs) or a registered retirement income fund (RRIFs). To create uniformity across Canada, section 67(1)(b.3) of the BIA specifically exempts:
- … property in a registered retirement savings plan or a registered retirement income fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy.
In British Columbia, this means that the exemption in a bankruptcy for an RRSP or RRIF may be for a greater amount than would otherwise have been available under the Court Order Enforcement Act as that Act excludes “property contributed to a registered plan after or within 12 months before the date on which the debt being enforced came due.” In Prima Technology, Inc. v. Yang, 2018 BCSC 669, the creditor was allowed to execute against an RRSP that had been created eight years prior to the judgment being enforced since the debt on which the judgment was based had become due at the time the RRSP was created and continued to be due while further contributions were made to the RRSP.
RRSPs on the application for discharge
On the bankrupt’s application for discharge from bankruptcy, a creditor may raise the fact that the bankrupt has significant exempt assets, and argue that a significant financial condition to discharge should be imposed. In Re Fredette, 2003 MBQB 167, the court took into consideration the fact that a bankrupt couple had between them $485,000 in exempt RRSPs in concluding that they should each pay $75,000 over three years as a condition of their discharge from bankruptcy. The court said:
- Notwithstanding that these bankrupts fit the general characterization of “honest but unfortunate” debtors, to allow them to emerge from bankruptcy with exempt liquid cash assets of almost $250,000.00 [each] would challenge the integrity of the bankruptcy process.
The decision, however, predated the enactment of section 67(1)(b.3) of the BIA.
A similar issue arose in Re Contessa, 2018 ABQB 608. The bankrupt in this case had an RRSP with a value of over $500,000. He was 59 years old. There was an expectation (but no specific evidence) that he would be looking to the RRSP to sustain him once he was discharged from bankruptcy.
Registrar Schlosser was asked by the largest creditor, whose claim arose through the bankrupt’s guarantee of his construction company, to apply Re Fredette and make a conditional order with a “monetary condition roughly matching the value of the RRSPs.” Notwithstanding that several section 173(1) factors had been established, Registrar Schlosser concluded in the circumstances that a one month suspension was more appropriate than a financial condition.
After consideration of various cases and commentaries on dealing with exempt assets at the discharge of a bankrupt, Registrar Schlosser stated:
- In my view, if there is no evidence of financial means to satisfy a monetary condition other than the involuntary liquidation of an exempt asset, it should not be ordered. In this type of fact scenario, no really does mean no.
- I do not think, it is open to me as a Registrar to find, for example, that a debtor should be able to get by with $35,000 rather than $40,000 worth of exempt equity in a principal residence, to lower the threshold of exempt income set by the Superintendent, or to erode the exemption of an RRSP; contrary to both Provincial and Federal legislation, by pointing to what I think public perception might be. If a fictional right-thinking person on the John Deere (or Case) Combine thinks otherwise, they will have to speak to their MP.
Registrar Schlosser did not entirely close the door to the consideration of the value of exempt assets in determining whether to order a financial condition on discharge from bankruptcy; but he has set up obstacles to fully opening that door. How this decision will be considered in other jurisdictions is yet to be seen; but creditors should not assume that decisions such as Re Fredette, which predate section 67(1)(b.3) of the BIA, will necessarily carry weight. As in Re Contessa, no may mean no with respect to the consideration of the value of exempt assets when setting a financial condition for discharge from bankruptcy.