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.

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 change to the bankruptcy laws carries the same flaws as all formula based procedures; it substitutes inflexibility in place of the human factor.

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.

First-time bankrupts who have surplus income:
The law passed on November 25, 2005, states that in accordance with directives issued by the Superintendent of Bankruptcy, first-time bankrupts with surplus income will be required to make payments for nine months. If, at the end of the nine-month period, the surplus remains, the bankrupt will be required to make additional payments for a further 12 months and for a further time as the Court may order.

I dislike this change for two reasons:

1. The change is not required because there is already a system in place to require debtors with excess income to file a proposal, if it is the trustee’s opinion that the person could have made a viable proposal. (Sections: 170.1(2) (c) and 173 (n). Directives: No. 6R, Section 16 and No. 12, Sections: 4 and 5).

2. 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.

Recommendation:
That this change be removed.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended this change be adopted with the priviso that trustees should have the discretion to permit a shorter contribution period in cases of undue hardship.

Changes are required in the bankruptcy exemptions, to correct the unequal treatment of Canadians based on their province or territory of residence.

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.

Bankruptcy exemptions or the assets a bankrupt is allowed to keep in a bankruptcy were established as part of the philosophy that an honest but unfortunate debtor deserves a fresh financial start. It was recognized that in order to promote a fresh financial start the bankrupt had to maintain a degree of dignity and be allowed to keep some equity in key assets so he and his family would have a starting point from which to rebuild their financial lives. In Canada it is the provinces and territories that set the exemptions. Over time and because there was no great incentive for the provincial and territorial politicians to address this issue the exemptions have, for most jurisdictions, become out of date, inadequate and unfair.

The current law and the laws passed on November 25, 2005 but not enacted do not address this unfairness. This results in unequal treatment of Canadians based on their province or territory of residence.

An example of the wide range of exemptions in the provinces and territories can be illustrated by the exemptions in effect for equity in a home and a vehicle:

• Yukon; NWT and Nunavut: Home = $3,000; Vehicle = NIL;

• BC: Home = $12,000 in Vancouver and Victoria and $9,000 in the rest of the province; Vehicle = $5,000;

• Alberta: Home = $40,000; Vehicle = $5,000;

• Saskatchewan: Home = $32,000; Vehicle = If required for work;

• Manitoba: Home = $1,500; Vehicle = $3,000, if required to get to and from work;

• Ontario: Home = NIL; Vehicle = $5,650;

• Quebec: Home = NIL; Vehicle = NIL;

• New Brunswick: Home = NIL; Vehicle = $6,500;

• Prince Edward Island: Home = NIL; Vehicle = $3,000;

• Nova Scotia: Home = NIL; Vehicle = $ 3,000;

• Newfoundland and Labrador: Home = $10,000; Vehicle = $2,000.

If we look to our US neighbours the Canadian exemptions are even more out of line. The following list is in order of real estate exemption amount from lowest to highest. Even the states with the lowest real estate exemptions ($5,000.00) rank ahead of every Canadian province and territory except for BC, Alberta and Saskatchewan.

State / Exemption for a home:
AL / $5,000
KY / $5,000
MD / $5,000
OH / $5,000
SC / $5,000
VA / $5,000
GA / $10,000
WY / $10,000
NE / $12,500
IN / $15,000
MO / $15,000
AR / $18,450
DC / $18,450
FED / $18,450
MI / $18,450
NJ / $18,450
PA / $18,450
NC / $18,500
UT / $20,000
LA / $25,000
OR / $25,000
WV / $25,000
HI / $30,000
MN / $30,000
SD / $30,000
IL / $30,000
WA / $40,000
WI / $40,000
CO / $45,000
CA / $50,000
DE / $50,000
ID / $50,000
NY / $50,000
AK / $67,500
ME / $70,000
CT / $75,000
MS / $75,000
VT / $75,000
ND / $80,000
NH / $100,000
AZ / $150,000
MN / $200,000
RI / $200,000
NV / $350,000
MA / $500,000
FL / $UNLIMITED
IA / $UNLIMITED
KS / $UNLIMITED
MT / $UNLIMITED
OK / $UNLIMITED
TN / $UNLIMITED
TX / $UNLIMITED

The above exemptions were provided by BankruptcyAction.com. There are federal and state exemptions in the United States. Some of the states allow their residents to choose between the federal and state exemptions. Our list uses the higher real estate exemption where the state allows a choice.

Recommendations:
The Bankruptcy and Insolvency Regulations be amended to provide a list of federal exempt property. The debtor should be required to choose, at the time of filing for bankruptcy and in its entirety, either the list of federal exempt property or the list of provincial/territorial exempt property available in his or her locality. The value of the property in the list of federal exempt property should be increased annually in accordance with increases in the cost of living as measured by the Consumer Price Index.

The Canadian Association of Insolvency and Restructuring Professionals; CAIRP, has recommended a national set of exemptions.

The Report of the Senate Committee on Banking, Trade and Commerce November, 2003, recommended that a national set of exemptions be established.

Canadian Bankruptcy Reform is rushed into law to beat the non confidence vote held on November 28, 2005.

News Flash! November 25, 2005 - Bankruptcy Reform is rushed into law to beat the non confidence vote held on November 28, 2005. Bankruptcy reform legislation has been passed into law with Senate approval and Royal assent on November 25, 2005.

New Law will not come into force until June 30, 2006 at the earliest.
The Senate committee expressed its disappointment in the “fast tracking” of the legislation that did not allow it to hear the many groups that were scheduled to make representations. As a result the Senate Committee received assurances that there would be the opportunity for the Senate Committee to review the legislation in early 2006 and that the legislation would not come into force until June 30, 2006 at the earliest. The Minister of Industry, David L. Emerson, confirmed this in a letter dated November 24, 2005.

Summary of the Major Changes.

Analysis of the Major Changes.