Will you be better or worse off under the New Bankruptcy Laws?

NEWS FLASH, DECEMBER 14, 2007- It was announced today that Bill C-12 - an Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and Chapter 47 of the Statutes of Canada, 2005 has received Royal Assent.

Our best estimate is that the changes will come into force in about 12 months from December 14, 2007.

Some people intending to file bankruptcy will be better off under the new laws and others will fare worse. The following chart compares the changes:

Item	Current Laws	New Laws
When discharged	- 9 month automatic discharge for 1st. time bankrupts who fullfill all their duties. 2nd time bankrupts. This is largely at the discretion of the trustee and in most case is tied to the elapsed time from the previous bankruptcy and the causes of the two bankruptcies. A typical "penalty" for a 2nd time bankrupt, who was previously bankrupt 7 or more years ago, is to remain in bankruptcy a further 3-6 months over and above the 9 month period.	- 9 month automatic discharge for 1st. time bankrupts who fullfill all their duties and who do not have excess income. e.g. less than $2,700.00 a month take home pay for a family of 3. - 21 months (or more at the court's discretion) for 1st. time bankrupts who fullfill all their duties. and who have excess income. e.g. more than $2,700.00 a month take home pay for a family of 3. 24 months for 2nd time bankrupts who do not have excess income. e.g. less than $2,700.00 a month take home pay for a family of 3. 36 months for 2nd time bankrupts who have excess income. e.g. more than $2,700.00 a month take home pay for a family of 3.
RRSP and RRIFs exempt from seizure.	RRSPs and RRIFs are exempt from seizure only for those provinces that have enacted exemption laws; Saskatchewan, Manitoba, Quebec, Prince Edward Island and Newfoundland and Labrador.	RRSPs and RRIFs are exempt from seizure for all provinces and territories. A one year claw back will be in effect for RRSPs in provinces without RRSP exemption laws; There will be no upper cap on the amount of RRSPs that can be protected; There will be no need to set up the RRSPs in a locked in plan to make them eligible for exemption; The court will have no jurisdiction to extend the one year claw back period period in an appropriate case.
High Income Tax Debt	Special collection privileges are not given to CRA. They are treated the same as all creditors.	Bankrupt individuals with more than $200,000 in personal income tax debts representing 75 percent or more of their total unsecured liabilities will not be eligible for an automatic discharge. These individuals will have to seek a Court order to be discharged of their debts.
Dollar Threshold for a Consumer Proposal	Consumer debts, excluding debts secured by the individual's principal residence, are not more that $75,000. For debt greater than this amount a Division I Proposal can be filed.	Consumer debts, excluding debts secured by the individual's principal residence, are not more than $250,000. For debt greater than this amount a Division I Proposal can be filed.
Student Loans	Student loan debt will be eligible for discharge in bankruptcy if ten years have passed since the former student ceased to be a full- or part-time student. The court may, on application, order that the debt is erased if the court is satisfied that the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the loan; and the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the liabilities under the loan	Student loan debt will be eligible for discharge in bankruptcy if seven years have passed since the former student has terminated his/her studies. In addition, in cases of undue hardship, a bankrupt may apply to the Court to obtain the discharge of the student loans after five years. For the Court to discharge on hardship grounds, it must be satisfied that the debtor has acted in good faith and is expected to continue to experience financial difficulties. Note: The "hardship provision" will be available to those people whose date of bankruptcy was prior to the coming into force of this provision.
Cancelling contracts if a person files bankruptcy. (Ipso Facto Clauses)	Cancellation of contracts is not allowed in the case of consumer proposals but is silent in the case of a bankruptcy. It is the writer's experience in the case of a bankruptcy that contracts such as telephone, gas, and electricity were never cancelled. In some cases vehicle leases were cancelled.	Cancellation of contracts is not allowed in the case of consumer proposals and bankruptcy. For consumers, the primary concern over ipso facto clauses relates to basic services, such as telephone, gas, electricity and leases.

Will you be better or worse off under the New Bankruptcy Laws?

Overview:

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