This change to the bankruptcy laws unfairly treats all people the same regardless of extenuating circumstances.

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.

Second-time bankrupts:
The law passed on November 25, 2005, states that second-time bankrupts will be eligible for an automatic discharge after 24 months from the date of bankruptcy. In accordance with directives issued by the Superintendent of Bankruptcy, second-time bankrupts with surplus income will be required to make payments for 24 months. If the surplus income remains after 24 months, the bankrupt will be required to make surplus income payments for a further 12 months and for such further time as the Court may order.

Current Procedures for Second-time bankrupts.
The current procedures (in BC) for second time bankruptcies are set by the court and are in the following range:
• If the previous bankruptcy or proposal was within the previous 10 years the discharge takes an additional 6 months.
• If the previous bankruptcy or proposal was more than 10 years ago the discharge takes an additional 3 months.

I dislike this change in the bankruptcy laws for the following reasons:

1. It delays the fresh start which has always been a major tenet of Canadian bankruptcy. A second-time bankrupt’s fresh start is now extended from approximately 12 – 15 months to 36 months where the bankrupt has surplus income. Where there is no surplus income, the second-time bankrupt’s discharge is now extended from approximately 12 – 15 months to 24 months.

2. It does not give consideration to the time between bankruptcies.
A person who had a first bankruptcy 20 years ago and the person who had a first bankruptcy 3 years ago are treated the same.

3. It does not give consideration to the reason for the bankruptcies:
• A person who had a second bankruptcy for credit card debt and the person who had a second bankruptcy because his incorporated business failed leaving him responsible for debt personally guaranteed would be treated the same;
• A person who had a second bankruptcy when he lost his job, and the person who had a second bankruptcy because of substance abuse would be treated the same; and
• A person who had a second bankruptcy because of credit card debt, and the person who had a second bankruptcy because he owned a leaky condo would be treated the same.

4. This change carries the same flaws as all formula based procedures:
• It substitutes inflexibility in place of the human factor;
• It treats all people the same regardless of extenuating circumstances;
• It makes no use of the training, experience and high ethical standards of professional trustees in bankruptcy.

First Choice Recommendation:
That this change be removed and the Act be left as it is.

Second Choice Recommendation:
• That this change be amended to take into consideration the time expired between the two bankruptcies. Bankrupts, where the previous bankruptcy was 5 or more years ago, be eligible for a discharge after 15 months. Bankrupts, where the previous bankruptcy was within the previous 5 years, be eligible for a discharge after 21 months. In each case surplus income payments should be paid to the estate until the discharge.
• Trustees should have the discretion to permit a shorter contribution period in cases of undue hardship.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended this change be adopted with the following differences:
• Trustees should have the discretion to permit a shorter contribution period in cases of undue hardship.
• The Bankruptcy and Insolvency Act be amended to require bankrupts with surplus income to contribute to their estate for a total of 21 months (not 36 months, in the case of second-time bankrupts, as the new law states).
• The Bankruptcy and Insolvency Act be amended to provide automatic discharge from bankruptcy after 21 months for second-time bankrupts who have completed mandatory counselling (not 24 months, for bankrupts without surplus income, as the new law states).

This entry was posted on Sunday, February 26th, 2006 at 3:50 pm and is filed under Bankruptcy Reform. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.