Canadian Bankruptcy Reform - Changes to the Bankruptcy Laws.

The last round of bankruptcy reforms went into effect on September 18, 2009, With following major changes:

Bankruptcy Discharge Rules. In force on September 18, 2009.

  • This calculator will calculate how long you will be in bankruptcy and what it will cost. Pointer Click here.
  • Debtors filing bankruptcy for the first time will be eligible for an automatic discharge from bankruptcy after 9 months if they a) fulfill all duties as set out by the bankruptcy and b) do not have excess income.
  • First time bankrupts with excess income (can make payments of over $100 to the bankruptcy trustee) will be in bankruptcy for 21 months. The court may also order that the debtor be bankrupt longer than 21 months.
  • Debtors filing bankruptcy for a second time will be required to be in bankruptcy for 24 months (if they do not have excess income, which is monthly payments of less than $100)
  • Bankrupts who are filing bankruptcy for the second time will be required to be in bankruptcy for 36 months when they have excess income ($100 or greater monthly payments.)
  • A bankrupt will not be eligible for an automatic discharge if they have income tax debts greater than $200,000 that represents 75 Percent or more of their unsecured claims.

High Income Tax Debt: In force on September 18, 2009.

  • Bankrupt individuals with more than $200,000 in personal income tax debts that represent 75 percent or greater of their total unsecured liabilities will not be able to get an automatic discharge. These individuals will have to seek a Court order to be discharged of their debts.

Dollar Threshold for a Consumer Proposal Is Raised: In force on September 18, 2009.

  • Consumer and commercial debts of an individual, 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.

Preventing Lenders from Cancelling Certain Contracts when a Person Files Bankruptcy or a Proposal. In force on September 18, 2009.

  • This change places limits on the exercise of ipso facto contract clauses” in bankruptcy. This will prevent the punitive and spiteful actions of some lenders who, as a matter of course, cancel all contacts of a person who enters into bankruptcy even if the contract is current.

The Wage Earner Protection Program Act (“WEPPA”) and Regulations. Into effect on January 27, 2009.

The WEPP will compensate individuals for amounts earned, but not paid, during the six months preceding the bankruptcy or receivership of their employers under the BIA. The WEPP will help protect workers by providing a guaranteed payment of a maximum of $2,000 in respect of wages, salaries, commissions, vacation pay, severance pay, termination pay or compensation for services rendered, and up to $1,000 in respect of disbursements owing to travelling salespeople incurred should their employer declare bankruptcy. More information can be found at the government website.

Reduction of the student loan discharge period from 10 to seven years. In effect on July 7, 2008.

The student loan amendment is for debtors who stopped being a student for the required 7 years, who obtain their discharge on July 7, 2008 or any date after.

Another amendment that is also in force now relates to the The amendment that will reduce to five years the period a bankrupt will have to wait to make a “hardship” application to have student loan debt or obligation discharged (BIA , s. 178(1.1) is also now in force.  This amendment applies to all debtors notwithstanding when the bankruptcy or the process that results in the bankruptcy is initiated.

Provision of protection of all registered retirement savings plans (RRSP's, RRIF's and DPSP's (Deferred Profit Sharing Plans). In force on July 7, 2008.

  • Contributions made in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate for RRSPs in provinces without RRSP exemption laws (BC, Alberta, Ontario, NB, and NS);
  • 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.