For many years I have watched with interest proposed changes to the Bankruptcy & Insolvency Act. It now appears that, finally, the new rules will become law.

Bill C-55, now known as Chapter 47 of the Statutues of Canada, was passed on November 25, 2005, just prior to the election call that ended Parliament. Because the Senate had not had a chance to review the Bill, the government agreed not to implement the new rules. After the election in early 2006 bankruptcy reform was not a priority, but Bill C-62, which contained updates to Chapter 47, was passed at Third Reading by the House of Commons on June 14, 2007, and received First Reading in the Senate on the same day.

However, the Bill died when Parliament was prorogued on September 17, 2007.

Then, on October 29, 2007 the government introduced Bill C-12, an exact copy of the previous Parliamentary session’s Bill C-62, and the Bill had three readings and was passed on October 29 and referred to the Senate. The Senate Standing Committee on Banking, Trade and Commerce intended to hold hearings on the new rules lasting into March, 2008, but then, very unexpectedly, on December 13, 2007 the Senate decided to skip a detailed review of the Bill and passed it without further amendment. Bill C-12 has passed and received Royal Assent, but it has not yet been proclaimed. At this point we do not know when the new rules will come into effect; our best guess is that it will be sometime in early to mid 2008.

What does this mean to you? It means the personal bankruptcy and consumer proposal process will be changing, and it is essential that you understand the new rules before you decide how to deal with your debts. Fortunately, the team at Hoyes Michalos has been studying this legislation as it has evolved over the years, and we are ready to advise you on your options. In brief, here are some of the changes:

First, under Bill C-12, Section 168.1 of the Act is amended to lengthen the bankruptcy period in Canada. Under current rules, a first time bankrupt is eligible to be discharged after ninemonths. The new rules affect the length of bankruptcy as follows:

• a first time bankrupt with no surplus will be bankrupt for 9 months (unless opposed)
• a first time bankrupt with surplus will be bankrupt for 21 months (unless opposed)
• a second time bankrupt with no surplus will get an automatic bankruptcy discharge after 24 months (unless opposed)
• a second time bankrupt with surplus will get an automatic discharge after 36 months (unless opposed)

What does this mean? If you have income over the government allowed threshold (which for a single person is $1,797 in take-home pay per month in 2007), it is likely that length of your bankruptcy process will be extended for a further 12 months, and you will be required to continue to pay that surplus income into your bankruptcy estate for your creditors.

Second, most RRSPs will now be exempt from seizure in a bankruptcy. The only exception will be you will lose any contributions you have made in the last year, to prevent people from contributing funds to their RRSP and then immediately going bankrupt.

Third, student loans will now be automatically discharged in a bankruptcy if you have ceased to be a student for seven years (the old limit was ten years), and it is possible to apply to Bankruptcy Court to have a student loan eliminated after five years in hardship situations. This is great news if you are going bankrupt, may it may make it more difficult to deal with student loans in consumer proposals (you can read more about this in our article on student loans and consumer proposals).

Finally, under current law, a person automatically loses their tax refund in bankruptcy for the prior year(s), and the period up to the date of bankruptcy in the year of bankruptcy. Under proposed changes to section 67(1)(c) of the Act, a person would lose tax refund in bankruptcy for the entire year of bankruptcy. Thus if you go bankrupt on June 6, 2008, instead of just losing your tax refund for the period from January 1 to June 5, 2008, you will now lose your tax refund for all of 2008.

As you can see, some of the rules may help you, and others may make bankruptcy more difficult.

Again, let me stress that as I write this on December 15, 2007 Bill C-12 is not yet in effect. Stay tuned to this space for more details as they become available.

Finally, at Hoyes Michalos & Associates we believe that people who can pay a portion of their debts feel better about themselves if they can make payment arrangements with their creditors. The proposed increase in the length of some bankruptcies will no doubt cause more people to avoid bankruptcy by filing a consumer proposal, which for many people is the best solution.

I recommend that you contact our bankruptcy trustee offices for more information on the new bankruptcy rules, and to arrange for your free initial consultation with one of our professionals.