We like the changes to the bankruptcy laws which: 1) Cancels the stay of proceeding when the trustee is discharged; 2) Prevents lenders from cancelling certain contracts when a person files bankruptcy or a proposal; 3) Requires debtors to attend counselling before a consumer proposal is completed and the remaining debt erased and 4) Raises the threshold for consumer proposals from $75,000 to $250,000.

The new bankruptcy laws, which were rushed into law on November 25, 2005, just before the defeat of the Liberal government on November 28, 2005, will not come into force until June 30, 2006 at the earliest. The Senate was promised the opportunity to review the legislation and hear the scores of experts and special interest groups who were scheduled to make submissions. There is the hope that this flawed legislation will not be enacted without significant changes.

Cancellation of the Stay of Proceeding When the Trustee is Discharged: (Subsections 69.3 (1.1)) This change makes it clear that once a trustee is discharged the stay of proceedings is terminated. One of the effects of this is that if a bankrupt is not discharged from bankruptcy and the stay of proceeding is cancelled upon the discharge of the trustee then there is no protection provided that person and the creditors can pursue him or her for the outstanding debt. This change reinforces the integrity of the Canadian bankruptcy system.

Preventing Lenders from Cancelling Certain Contracts when a Person Files Bankruptcy or a Proposal: (Subsections 66.34 and 84.2) 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.

Requiring the debtor to Attend Counselling before a Consumer Proposal is Completed: (Subsection 66.38) This was always the intention but was overturned by the courts because the wording was not specific. This now makes it clear that a person who has refused or neglected to receive counselling will not receive a Certificate of full performance.

Raising the Threshold for Consumer Proposals from $75,000 to $250,000: This opens up consumer proposals to more debtors.

The Canadian Association of Insolvency and Restructuring Professionals; CAIRP, supports these changes.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended these changes.

We like most of the new law on RRSPs because it rights an unfairness that exists in the different treatment of people who save for their retirement via RRSPs (often self-employed individuals) and those employees who save for their retirement via employer-sponsored plans.

The new bankruptcy laws, which were rushed into law on November 25, 2005, just before the defeat of the Liberal government on November 28, 2005, will not come into force until June 30, 2006 at the earliest. The Senate was promised the opportunity to review the legislation and hear the scores of experts and special interest groups who were scheduled to make submissions. There is the hope that this flawed legislation will not be enacted without significant changes.

We like most of the new law on RRSPs because it rights an unfairness in the existing laws.
Our Blogs on Bankruptcy Reform up to now have been critical of the legislation that was rushed into law on November 25, 2005. We like most of the new law on RRSPs because it rights an unfairness that exists in the different treatment of people who save for their retirement via RRSPs and those who save for their retirement via employer-sponsored plans.

What we do not like about the new law is that it imposes a cap (yet to be determined) on the RRSPs. We don’t think this is fair as there is no cap put on employer-sponsored plans. We do recognize the potential for abuse and support giving authority to the courts to order the recovery of any funds that they conclude meet this criterion.

Current Procedures Regarding RRSPs:
Under the current rules, registered pension plans (i.e. employer-sponsored plans) are exempt from seizure in a bankruptcy as are many RRSPs offered through insurance companies. Except in the provinces of Saskatchewan and Manitoba most other RRSPs are subject to seizure by the bankruptcy estate. This has long been viewed by trustees and others as unfair because it treated people such as self employed people who saved for their retirement by contributions to RRSPs in a harsher way (by seizing the RRSPs) than employees who had contributions in an employer-sponsored plan (These are exempt from seizure in a bankruptcy).

The New Bankruptcy Laws on RRSPs:
All registered retirement savings plans and registered retirement income funds, as defined in the Income Tax Act, will be exempt from seizure subject to conditions to be prescribed by regulations.

These conditions are necessary to ensure fairness and to curb potential for abuse so that bankrupts cannot hide assets from creditors (e.g. RRSP contributions made in the last 12 months prior to bankruptcy will not be exempt from seizure; the seizure exemption only applies if the individual locks in their RRSPs and the total amount exempt will be subject to a maximum cap.

The Canadian Association of Insolvency and Restructuring Professionals; CAIRP, supports making RRSPs exempt from seizure but would like to see contributions made in the three years prior to the bankruptcy subject to a claw back for the benefit of the bankruptcy estate, as a safe guard against abuse.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended the changes in the new law on RRSPs.

It is recognized in Canada that, to promote a fresh financial start, the bankrupt has to maintain a degree of dignity and be allowed to keep some equity in key assets so he and his family have a starting point from which to rebuild their financial lives.

The new bankruptcy laws, which were rushed into law on November 25, 2005, just before the defeat of the Liberal government on November 28, 2005, will not come into force until June 30, 2006 at the earliest. The Senate was promised the opportunity to review the legislation and hear the scores of experts and special interest groups who were scheduled to make submissions. There is the hope that this flawed legislation will not be enacted without significant changes.

Current Procedures for Creditors Taking Security Interests in Exempt Personal Property:
The law passed on November 25, 2005, does not address the problem of some creditors taking security in exempt personal property already owned by debtors. Currently, finance companies and other creditors sometimes ask people to assign furniture, vehicles and other exempt personal property they own, to the creditor in return for them lending money to the debtor.

Recommendation:
We feel that creditors, of course, should be allowed to take back security on exempt personal property if the money was specifically loaned to purchase those assets. We do not think creditors should be allowed to take back security on pre-owned personal property that otherwise would be exempt.

Reason for our Recommendation:
We feel this should be prevented because it defeats the purpose of why the government established exempt assets in a bankruptcy. Bankruptcy exemptions were established as part of the philosophy that an honest but unfortunate debtor deserves a fresh financial start. It is recognized that in order to promote a fresh financial start the bankrupt has to maintain a degree of dignity and be allowed to keep some equity in key assets so he and his family will have a starting point from which to rebuild their financial lives.

The Canadian Association of Insolvency and Restructuring Professionals; CAIRP, has recommended that creditors be prohibited from taking non-purchase money security interests in property that would otherwise be exempt from seizure in bankruptcy.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended that creditors be prohibited from taking non-purchase money security interests in property that would otherwise be exempt from seizure in bankruptcy. The Report further recommended that property should be defined to include exempted property intended for use or consumption by the debtor or the debtor’s family, and should encompass apparel, household furnishings and motor vehicles owned by the debtor.