Canadian Bankruptcy Reform - Changes to the Bankruptcy Laws.
A Review of Canada's Insolvency Laws - was tabled in the House of Commons Tuesday, October 21, 2014. This is the start of proposed changes to the Bankruptcy and Insolvency Act.
The Bankruptcy and Insolvency Act is to be reviewed every 5 years and necessary changes made to ensure relevancy.
CAIRP, the Canadian Association of Insolvency and Restructuring Professions, has submitted recommendations to Industry Canada, which were released to members on October 22, 2014.
The major recommendations affecting consumers are:
• Disallowing the denial of professional or other licences to practice, solely for the reason the person received a discharge for debts involving BIA (Bankruptcy and Insolvency Act) proceedings.
• Disallowing reaffirmation agreements for unsecured debt
Other Proposed Changes to the BIA:
Consumer Deposits - Proposed Changes to the BIA.
If a retailer goes into bankruptcy, consumers who placed deposits on a purchase will rank as unsecured creditors thus losing their deposits. A consumer lien on the assets of the retailer may protect the consumers' deposits.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy has recommended that legislation outside of the BIA would be better protection for deposits, in both insolvency and non insolvency situations.
Discharge of Student Loans - Proposed Changes to the BIA.
Federal and provincial governments have implemented student loan programs to assist student in paying for higher education and training.
In most cases students benefit from the higher learning and training. Students are also eligible for interest relief, debt forgiveness and other relief. Because of this, many stakeholders recognize that the release of student loans in a bankruptcy should be subject to special rules, including a waiting period.
Currently student loans are not eligible for a discharge in a bankruptcy unless the student has been out of school for 7 or more years.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, recommends that the student loan be eligible for a discharge in bankruptcy, if the student has been out of school for 5 or more years.
Equalization Claims - Proposed Changes to the BIA.
Marriage breakdown often triggers a bankruptcy.
Aimony and maintenance payments are not released in a bankruptcy. However, equalization debt due to a spouse, is erased upon the discharge of the bankrupt. This has met with criticism because of its apparent injustice, with many calling for protection of equalization payments in a bankruptcy by not having this debt discharged.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, recommends that equalization debt not be erased in a bankruptcy. It further recommends that the stay of proceedings, which prevents collection action, remain unchanged and continue to apply to matrimonial matters, including claims for equalization or division of property against exempt assets.
Federal Exemption Lists - Proposed Changes to the BIA.
Each of the provinces and territories has its own list of exemptions. Assets on the exemption lists cannot be seized by the trustee or creditors. They are retained by the debtor to help maintain dignity and to aid in their fresh financial start.
The assets listed on the (exemption lists) vary widely. For example, in Alberta the exemption for a home is $40,000.00; in Ontario it is NIL
One suggestion is that there should be a federal exemption list so that a minimum standard is available. The debtor would chose which exemption list he would use. This is the way the US handles exemptions, with the states having to pass laws to give their citizens the choice of which exemptions to use. Most states provide this choice.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, does not recommend the introduction of a list of federal exempt property at this time, as they believe the case in Canada to be substantially different than of other jurisdictions where insolvency legislation contains a federal list of exempt property. The writer of this blog feels that there should be a federal list of exempt property in order to promote consistency and fairness.
Licence Denial Regimes - Proposed Changes to the BIA.
One of the major tenets of Canadian Bankruptcy law is the principle that the honest but unfortunate debtor deserves a fresh financial start. Licence denials put the concept of a fresh financial start in jeopardy.
Licence denial regimes are most commonly used to deny automotive services by insurance companies, provincial insurance regimes, electronic toll-highway operators and rental car companies.
The US Bankruptcy Code forbids licence denials to collect released bankruptcy debts. In Canada this matter has been left to the courts.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, has recommended that licence denial be forbidden under the BIA based solely on the grounds that the debtor has not paid a debt that is discharged.
Reaffirmation Agreements - Proposed Changes to the BIA.
A reaffirmation Agreement is an agreement between a bankrupt and a creditor, where the bankrupt agrees to pay a debt that is eligible to be erased upon the bankrupt's discharge. The reaffirmation can be by conduct, when the bankrupt continues to make payments on the debt or by express written agreement.
Reaffirmation by conduct is problematic because the bankrupt may not know he is doing so.
Reaffirmations offend the fresh start principle and effectively prefers one creditor over another.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, has made the following recommendations:
- The BIA be amended to provide that reaffirmation of unsecured debt, that is erased upon the bankrupt's discharge, be prohibited and unenforceable.
- The BIA be amended to provide that reaffirmation of secured debt, by conduct be prohibited and unenforceable.
- The BIA be amended to provide that reaffirmation of secured debt, be allowed by express agreement, within a nine month period beginning with the start of the insolvency proceedings, and in the event that the debtor does not elect to reaffirm that the secured creditor be allowed to deal with its security.
The writer of this blog feels that the nine month period, in number 3 above, is too long and may jeopardize the value of the creditor's security. It should be shortened to the greater of 4 weeks from the beginning of the insolvency process or the time when the proposal is approved by the court.
Responsible Lending - Proposed Changes to the BIA.
Credit grantor behaviour may also contribute to finanial difficulty for some creditors. For example, credit granting practices such as extending credit on onerous terms to individuals who are unable to meet their existing financial obligations can lead to higher rates of insolvency.
Possible responses could include empowering the trustee or court to disallow the claim of a creditor where credit was extended improvidently or on unconscionable terms. Additionally, the lender could be required to repay payments made on such loans in the period leading up to a bankruptcy or proposal.
CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy has recommended that legislation outside of the BIA would ensure that responsible lending is applicable in all lending situations and not just situations involving insolvency.