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.

The federal government announced today. August 6, 2009, that the remaining new bankruptcy laws would go into force on September 18, 2009:

*When Discharged:

This Law goes into force on September 18, 2009.

- 9 month automatic discharge for 1st. time bankrupts who fullfill all their duties and who do not have excess income. e.g. less than $2,862.00 a month take home pay for a family of 3 for 2009.

- 21 months (or more at the court’s discretion) for 1st. time bankrupts who fullfill all their duties. and who have excess income. e.g. more than $2,862.00 a month take home pay for a family of 3 for 2009.

-24 months for 2nd time bankrupts who do not have excess income.. e.g. less than $2,862.00 a month take home pay for a family of 3 for 2009.

-36 months for 2nd time bankrupts who have excess income. e.g. more than $2,862.00 a month take home pay for a family of 3 for 2009.

*High Income Tax Debt:

This Law goes into force on September 18, 2009.

Bankrupt individuals with more than $200,000 in personal income tax debts representing 75 percent or more of their total unsecured liabilities will not be eligible for an automatic discharge. These individuals will have to seek a Court order to be discharged of their debts.

*Dollar Threshold for a Consumer Proposal Is Raised:

This Law goes into force on September 18, 2009.

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 a Division I Proposal can be filed.

NEWS FLASH - July 7, 2008 - The following bankruptcy law changes have gone into force today, Monday, July 7, 2008:

*The Wage Earner Protection Program Act (“WEPPA”) and Regulations. The WEPP will compensate individuals for amounts earned, but not paid, during the six months preceding the bankruptcy or receivership of their employers under the BIA. The WEPP will help protect workers by providing a guaranteed payment of a maximum of $2,000 in respect of wages, salaries, commissions, vacation pay,
severance pay, termination pay or compensation for services rendered, and up to $1,000 in respect of disbursements owing to travelling salespeople incurred should their employer declare bankruptcy. More information can be found at the government website.

NOTE: The requirement to pay severance pay and termination pay went into effect on January 27, 2009.

*Reduction of the student loan discharge period from 10 to seven years. This amendment will apply where the debtor obtains his or her discharge on or after July 7, 2008 (PROVIDED that at the time they filed they had ceased to be student for the required seven years) or the debtor had or becomes bankrupt on or after July 7, 2008.

The amendment that will reduce to five years the period a bankrupt will have to wait to make a “hardship” application to have student loan debt or obligation discharged (BIA , s. 178(1.1) is also now in force. This amendment applies to all debtors notwithstanding when the bankruptcy or the process that results in the bankruptcy is initiated.

*Provision of protection of all registered retirement savings plans (RRSP’s, RRIF’s and DPSP’s (Deferred Profit Sharing Plans).
o Contributions made in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate for RRSPs in provinces without RRSP exemption laws (BC, Alberta, Ontario, NB, and NS);
o There will be no upper cap on the amount of RRSPs that can be protected;
o There will be no need to set up the RRSPs in a locked in plan to make them eligible for exemption;
o The court will have no jurisdiction to extend the one year claw back period period in an appropriate case.