New Canadian Bankruptcy Rules: The Highlights

After years of waiting, the federal government has implemented changes to the Bankruptcy & Insolvency Act. The changes occurred on two different dates.

On July 7, 2008, the following changes were implemented:

• Student loans are now automatically discharged in a bankruptcy if you have been out of school for more than 7 years (the old limit was 10 years);
• RRSPs will not be seized in a bankruptcy, except for the contributions you have made in the past year; (under the old rules all RRSPs that were not locked in were seized)
• You lose your tax refund for the entire year of bankruptcy.

On September 18, 2009 the following additional rules were implemented:

• Consumer proposals may be filed for debtors owing up to $250,000 (excluding the mortgage on your principal residence); the old limit was $75,000, so more people will now be able to take advantage of this great alternative to personal bankruptcy.
• Secured lendors and lessors (like car loans) cannot be terminated simply because you filed for personal bankruptcy; you have the option to continue to pay the secured loan and keep the asset.
• If you have surplus income of over $200 per month, your bankruptcy will be automatically extended for an additional year, and you must make surplus income payments for that additional year. Under the old rules most bankruptcies ended in nine months. Under the new rules, in a first bankruptcy if you have excess surplus income your bankruptcy will last for 21 months; a second bankruptcy with surplus income will last for 36 months.
• If you owe significant tax debt to Canada Revenue Agency, your bankruptcy will last longer than nine months.

Please contact a local bankruptcy trustee to obtain more information.  The new rules are complicated, so professional advice regarding your specific situation is essential.  Do not rely on anything you read on this site until you have consulted a bankruptcy trustee. 

If you are currently in the process of getting the protection of a consumer proposal or personal bankruptcy call your trustee to find out how the new rules effect you.

If you are thinking about getting protection from your creditors and need more information about your options call or email a local trustee for a free consultation.