Canadian Bankruptcy Reform Legislation Introduced

On June 3rd, 2005 the Government of Canada introduced bankruptcy reform legislation bill C-55. Bill C-55 introduces the Wage Earner Protection Program Act, and changes the Bankruptcy & Insolvency Act. It is unknown whether the bill will even be passed; however, in the case that it does, there are several changes Canadians should take note of.

First, the Wage Earner Protection Program will protect employees who would normally be left in a lurch when their employers go bankrupt. If the bill is passed, employees will now be guaranteed wage payments of up to $3,000 if such a case occurs. In addition, employees will be given top priority over bank loans for payback. Although this may seem like a benefit, employees should consider the fact that banks may be hesitant to give large loans to companies, a change that could in turn hurt employees as well.

Second, much to the disappointment of students, the student loan discharge period has only been minimally reduced. Currently, students are eligible for discharge after 10 years. With the new bill, students could be discharged after seven. Further details are available at http://www.student-loan-bankruptcy.ca

Third, the period of time that debtors will be bankrupt for will be extended. Right now, a debtor is eligible for discharge after nine months. With the new rules, if a debtor has an income over the Government allowed threshold, ($1,713 per month in the case of a single individual) it is likely that their bankruptcy will be extended for an additional 12 months.

Fourth, discharging debt with Revenue Canada will be more difficult if the debt is quite substantial. If a debtor owes more than $200,000 in tax debt, or if the tax debt makes up 75% of their total debt, they will be ineligible for discharge after nine months. In this case, debtors will be required to attend a court hearing. In the court hearing, they will need to convince the court that they are capable of paying off debts, that they have a promising future, and that they deserve a discharge.

Fifth, RRSPs will be exempt from seizure under certain circumstances. However, contributions made in the 12 months prior to the bankruptcy cannot be exempt. The RRSP will only be exempt if the debtor “locks in” the funds, subject to a maximum cap.

Finally, in the past, debtors have lost their tax refunds for the years prior to the bankruptcy, and the period up to the date of the bankruptcy. If the bill is passed, in the year the debtor goes bankrupt, they will lose their tax refund for the entire year.

These changes have not yet been passed into law. For some bankrupts these changes will help; for others the bankruptcy may be more costly and complicated.

Regardless of you situation, we recommend you contact a local trustee to discuss your situation, and determine if bankruptcy is the correct strategy for you.