The final step in Canadian bankruptcy reform goes into effect on September 18, 2009 when the last of the new laws go into force. It is this trustee’s opinion that the new bankruptcy laws coming into force on September the 18th. are a mishmash of the good and the ugly.
The Good:
• Dollar Threshold for a Consumer Proposal Is Raised:
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 or as an alternative a Division I Proposal can be filed.
• Preventing Lenders from Cancelling Certain Contracts when a Person Files Bankruptcy or a Proposal:
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.
We like these changes because the raising of the Consumer Proposal threshold to $250,000 makes Consumer Proposals available to more people.
We like the new law protecting lenders from cancelling certain contracts because it is fair and helps debtors get a fresh financial start.
The Ugly:
When Discharged:
- 9 month automatic discharge for 1st. time bankrupts who fulfill all their duties and who do not have excess income. e.g. less than $3,062.00 a month take home pay for a family of 3.
- 21 months (or more at the court’s discretion) for 1st. time bankrupts who fulfill all their duties. And who have excess income. e.g. more than $3,062.00 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 $3,062.00 a month take home pay for a family of 3.
-36 months for 2nd time bankrupts who have excess income. e.g. more than $3,062.00 a month take home pay for a family of 3.
We do not like these changes because they make it more difficult for a person to get a fresh financial start. The ability for a person to get a fresh financial start has always been a tenet of Canadian bankruptcy law. That tenet is now in jeopardy or perhaps non existent now.
Let’s compare Canada with the US. In Canada a bankrupt where the three person family’s take-home pay is more than $36,744.00 p.a. will have to wait at least 21 months before he is eligible to be discharged. A person in Washington State is discharged in 4 months so long as his family of three has gross annual income of less than $US 69,577.00.
The effect of these changes is that many more consumer proposals will be filed.
