The bankruptcy laws in Canada have a positive effect on the average Canadian taxpayer. Bankruptcy law helps promote enterprise in Canada by encouraging entrepreneurship. Bankruptcy law also acts as a social safety net for individuals which provides them a fresh financial start and integrates them back into mainstream society as tax paying citizens.
Encouraging Enterprise:
A research study by Wei Fan and Michelle White published in the Journal of Law & Economics, vol. 46:2, October 2003 found that locations with more lenient bankruptcy rules have higher levels of self-employed individuals, meaning that these regimes encourage enterprise. America’s liberal business bankruptcy laws are repeatedly cited as a factor in the US’ prodigious advantage over Europe in entrepreneurship.
The Wei Fan and Michelle White study concluded that families who are homeowners are about 35 percent more likely to own businesses if they live in states with high or unlimited rather than low homestead exemptions, and the difference is statistically significant. Renters are 29 percent more likely to own businesses if they live in high-exemption states, and this difference is also statistically significant.
Another significant factor in encouraging entrepreneurship is the fact that the business person who has a business that fails knows that he is entitled to a fresh financial start.
Social Safety Net for Individuals:
During the last 30 years, consumer debt has grown tremendously thanks to the increasing availability of credit cards and opportunities for debtors to take out second mortgages on their homes. Debt is not bad in and of itself. In fact, consumer debt has been one of the great dynamic factors in our economy. A high level of domestic consumption is required for both stability and growth in Canada.
However, society has recognized that it has a responsibility to those people who are unable to find solutions for debt repayment. Imagine if there was no debt relief. What would people hopelessly burdened with debt do? They would, without doubt, become part of the “underground” economy. They would not pay taxes. They could not accumulate assets and would be outcasts from society. This would not be good for them, their families, or society.
The Canadian government has recognized this and Canada’s bankruptcy laws have the following objectives:
• In the case of an individual, to permit an honest but unfortunate debtor to obtain a discharge from his or her debts.
• To provide for the orderly and fair distribution of property among the creditors.
• To allow an investigation to be made of the affairs of the bankrupt.