What You Need to Know about Bankrupty Reform Bill C-55

The Rules for Bankruptcy in Manitoba are Changing

On June 3rd, 2005 the Government of Canada introduced Bill C-55. The new bankruptcy reform bill was proposed with intent to establish the Wage Earner Protection Program Act, to improve the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act, and to make substantial alterations to other Acts. It is unknown whether the Bill will be passed; however, it is important to recognize the potential changes to Canadian personal bankruptcy legislation. These changes will have a significant impact on bankruptcy in Manitoba.

A key feature of Bill C-55 is the new Wage Earner Protection Program. In the past, employees have often been left in a lurch when their employers go bankrupt. Now, the new bill will guarantee wage payments of up to $3,000 per employee if such a case occurs. Also, modifications to the Bankruptcy and Insolvency Act will give employers’ wages top priority over bank loans. This modification will help employees get the wages they deserve; however, banks may reduce the amount they are willing to lend to small and medium sized businesses, since they know they will not be the first to be paid back. In the long run, this could harm employees.

Employees are not the only group that should be concerned with the new Bill. There are several additional changes that may affect others as well.

First, much to students’ disappointment, the anticipated reduction in the student loan discharge period has not been drastically reduced. Currently, a student loan in only dischargeable if the student has been out of school for ten years. If the new bill passes, the discharge period will be reduced to seven years. After five years, if certain conditions are met, the student may apply to have loans discharged.

Second, the Act has changed the length of time that many people will be bankrupt for. According to current laws, a first time bankrupt individual is eligible for discharge after nine months. In the new laws, if you have income over the government allowed threshold, ($ 1,713 per month for a single person) it is likely that your bankruptcy will be extended for an additional 12 months.

Third, the new rules make if difficult for those who owe a substantial amount to Revenue Canada to go bankrupt and discharge their debts in the normal bankruptcy period of nine months. If you owe more than $200,000 in tax debt, and that debt makes up more than 75% of your total debt, you will not be eligible for discharge after nine months. In this case, you will be required to attend a court hearing, and will need to convince the court that you should be discharged. The decision will be based on your efforts to repay the debts, your financial situation when the debt was established, and your future financial prospects.

Fourth, RRSPs will now be exempt from seizure in a bankruptcy under certain circumstances. Contributions made in the 12 months prior to the bankruptcy are not exempt. The RRSP will only be exempt if the debtor “locks in” the funds, subject to a maximum cap.
Finally, under current laws, the person in debt automatically loses their tax refund for the years prior to the bankruptcy, and the period up to the date of the bankruptcy. Now, under proposed changes, in the year that the person goes bankrupt, they will lose their tax refund for the entire year.

As stated before, this legislation has only recently been presented to Parliament, and a decision to pass or oppose it has yet to be made.

For advice on your situation or more information on Bill C-55 bankruptcy reform, contact a bankruptcy trustee in Manitoba licensed by the federal government.