First, the good news. The total number of insolvency filings are down.

In the first six months of 2010 in Ontario there were 28,944 personal bankruptcies and consumer proposals filed. In the first six months of 2011 that number dropped to 26,473, a drop of 9%.

In all of Canada the overall decrease was 8%, so Ontario is representative of the national average. However, here’s where it gets interesting:

In Ontario personal bankruptcies in the first six months of this year decreased by 23% (from 17,314 to 13,406). That sounds like great news for the economy, but that was counter balanced by the increase in the number of consumer proposals filed, from 11,630 last year to 13,067 this year, and increase of 12%.

In the first six months of 2010, 60% of filings were bankruptcies, and 40% were proposals. In the first six months of this year it was much closer to a 50/50 split. What’s going on here?

Two things have changed:

First, back in 2009 the bankruptcy laws in Canada changed, making bankruptcy in Canada more expensive for some people due to the new surplus income rules, while at the same time encouraging the filing of more consumer proposals.

Since Ted Michalos and I founded Hoyes Michalos back in 1999 we have always encouraged consumer proposals as an alternative to bankruptcy; the rest of Canada is starting to catch up, and is start to realize that in many cases a consumer proposal is a better alternative. Here’s why:

If you file bankruptcy, you are required to provide copies of your paystubs each month, and if you have surplus income as defined by the government, you pay more, and your bankruptcy lasts longer. That’s not a problem in a consumer proposal; once we negotiate a deal with your creditors, that’s it. No wonder people like consumer proposals.

Second, as the economy improves and incomes increase, consumer proposals (for the reasons noted above) become better alternatives to deal with your debts. If the economy continues to improve, it’s likely that the percentage of consumer proposals filed will continue to increase.

However, a word of caution: the percentage of consumer proposals filed has dropped as the year has progressed. In the first three months of this year there were actually more consumer proposals filed in Ontario than bankruptcies (6,586 to 6,567). In the second quarter bankruptcies were higher (6,839 to 6,481). Does that mean the economy is fading?

Perhaps, but we will have to wait a few more months to know for sure. In a bankruptcy you lose your tax refund, so if you are expecting a tax refund you may choose to wait until you get it for last year before filing (so you only lose one year and not two). That tends to cause an increase in bankruptcy filings in April, May and June.

How many proposals and bankruptcies were filed in your city? I’ve compiled a list of all of each commentary from all Hoyes Michalos team members, so click on your city to find out more:

• Barrie – Consumer proposals are on the rise in Barrie
• Barrie – Good news – bankruptcy rate drops in Barrie
• Brampton – Consumer proposals and bankruptcy filings decline in Brampton
• Brantford – Bankruptcy rate drops, consumer proposals way up
• Brantford – Consumer proposals in Brantford up
• Cambridge – Bankruptcies drop, consumer proposals increase in Cambridge
• Cambridge – Why people in Cambridge care about how many people file Bankruptcies and Consumer Proposals?
• Cambridge – Consumer proposals on the rise for 2011 in Cambridge
• Chatham – Consumer proposal filings up
• Hamilton – Bankruptcy rate in Hamilton declines
• Hamilton – Bankruptcy rate declines in Hamilton
• Kitchener – Waterloo – Consumer proposals on the rise
• Kitchener/Waterloo – Consumer proposals increase
• Kitchener – Waterloo – Bankruptcies down, consumer proposals up
• London – The changing tide: More consumer proposals, fewer bankruptcies
• London – Are the number of people filing for bankruptcy in London finally coming down?
• Mississauga – Bankruptcy and Proposal Statistics in Mississauga
• North York – Bankruptcy and Consumer Proposal Statistics in North York, Ontario
• Sarnia – Bankruptcies down, but more Consumer Proposals in Sarnia
• St. Catharines – Niagara Newsflash – More people filing consumer proposals than bankruptcy
• Toronto, North York and Scarborough – Bankruptcy Statistics Released
• Toronto – Feeling Alone?
• Toronto – Am I alone? The stats clearly show that you are not alone
• Windsor and Leamington – Bankruptcies Drop
• Vaughan – Bankruptcies are down and Consumer Proposals are up in Vaughan
• Vaughan and Woodbridge – Bankruptcy rate down, consumer proposals up
• Windsor – Bankruptcy filings down in Windsor
• Windsor – Consumer proposal filings up

Here are some articles on statistics in Canada:

• Consumer Proposals Increase Again in 2011
• Ontario Bankruptcy Statistics
• Bankruptcy Canada Statistics

And finally, for more on consumer proposals, this consumer proposals site is a feed of articles from around the web. We will continue to monitor events, and post new updates as further information becomes available.

I wrote a post back in September, 2009 on a Small Victory in the Fight for Fairness in Bankruptcy Rules, where I described a “dirty little trick” the government had pulled, forcing people who declare bankruptcy to disclose their educational background. I found it offensive that the government was forcing people to admit that they dropped out of high school, or admit that they had a university education but still experienced financial problems. I didn’t see the need to disclose any more information than necessary, and after writing letters and making phone calls, the government changed the rules.

I’m not saying my letters changed the rules. There were certainly lots of others who also made their opinions known, and together we changed the rules.

Another example of our efforts to bring fairness to the bankruptcy system occurred on February 7, 2008, when Ted Michalos and I became the only independent trustees to testify for a full hour before the Senate Standing Committee on Banking, Trade and Commerce in Ottawa. You can watch our entire testimony on our Hoyes Michalos Senate Video page; here’s a brief clip of my comments on student loans and bankruptcy in Canada.

In February 2008 I traveled to Ottawa to make the argument that forcing former students to wait ten years before being able to discharge their student loans in a bankruptcy was too long. I argued for a two year rule, and later that year the rule was changed to a seven year student loan rule, with a five year limit in cases of hardship.

Again, the rule wasn’t changed just because Ted Michalos and Doug Hoyes traveled to Ottawa, but I like to think that our voice was one of the many voices that helped change the rules.

So here we are again, faced with another bankruptcy rule that requires changing.

On July 14, 2011 the Supreme Court of Canada, released its decision in the case of Schreyer v. Schreyer, and they confirmed the principle that equalization payments after separation or divorce disappear in bankruptcy in Canada. Here are the facts: Mr. and Mrs. Schreyer divorced in 1999, and as is standard procedure, their assets were to be divided amongst them. Mr. Schreyer was to make an equalization payment to Mrs. Schreyer of about $41,000, for her share of the value of the family farm.

Before he made the payment, due to his other debts, he filed bankruptcy. As a result Mrs. Schreyer became a creditor in Mr. Schreyer’s bankruptcy, and as is the case with most debts, the amount he owed her was discharged in the bankruptcy.

Because the Schreyer’s live in Manitoba where family farms are exempt from seizure, Mr. Schreyer got to keep the family farm, even though he was bankrupt.

(Please note that if you declare bankruptcy in Ontario real estate is not exempt, so in Ontario if the bankrupt owned a farm worth $80,000, the trustee may sell the farm and distribute the proceeds to the creditors. If this had happened in Ontario, Mr. Schreyer would have lost the farm when he went bankrupt, or he would have been required to pay into his estate the value of the farm).

In summary, Mr. Schreyer went bankrupt and got to keep the family farm, and his wife, who would have received $40,000 if he hadn’t declared bankruptcy got nothing.

Are the Bankruptcy Rules Fair?

You could argue that the purpose of bankruptcy is to eliminate your debts, which is exactly what happened in this case, so on that basis yes, this rule is fair.

However, you could also argue that in a separation if the spouses should divide their assets equally, that’s exactly what should happen. Obviously that didn’t happen in this case.

As I stated earlier this case couldn’t happen here in Ontario, because the husband would lose the farm. However, it could happen with other exempt assets, such as an RRSP. Consider this scenario:

Mrs. Smith has a good job, and she contributes to her RRSP every month. Mr. Smith stays home with the children. They separate, and the only asset they have is Mrs. Smith’s RRSP. Under normal family law rules, Mr. Smith should receive half of the value of the RRSP.

If Mrs. Smith’s RRSP was worth $100,000, Mr. Smith would normally be entitled to an equalization payment of $50,000. However, if Mrs. Smith declared bankruptcy in Ontario before making the equalization payment, Mr. Smith would get nothing. Under bankruptcy law Mrs. Smith gets to keep her RRSP if she goes bankrupt, except for any contributions she made in the last year. That potentially means that Mrs. Smith gets to keep most or all of her $100,000 RRSP, and Mr. Smith gets nothing.

Most would argue that that’s not fair.

In fact, the Bankruptcy & Insolvency Act does give special treatment for child support, in section 178 (1) (c), which states that the following debt or obligation is not discharged in a bankruptcy:

any debt or liability arising under a judicial decision establishing affiliation or respecting support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, former common-law partner or child living apart from the bankrupt;

In other words, if you go bankrupt, you are still required to pay child and spousal support.

Clearly Canadian bankruptcy law is not fair. Spousal support and child support doesn’t go away if you go bankrupt, but equalization payments do.

So what should be done? Parliament should close the loophole. It would be a relatively simple change. In fact, all they would need to do is add a few words to the end of section 178 (1) (c) to make court ordered equalization payments non-dischargeable.

Will that happen? Probably, since that’s exactly what the Supreme Court said should happen. We will see.

And yes, I’ll probably write a letter or two……..

Douglas Hoyes, CA, Bankruptcy Trustee

It’s true that the number of personal bankruptcy filings in Ontario dropped from 66,935 in 2009 to 56,619 in 2010. That’s over 10,000 fewer bankruptcies, so yes, that’s definitely good news. However, before we start rejoicing at how great everything is, let’s consider three facts:

First, the level of debt we carry continues to increase. As I reported earlier this month, credit cards continue to create a financial abyss for “Joe Debtor”, the average person who files bankruptcy. As long as our debt levels remain at record levels, it’s inevitable that the number of bankruptcies will increase. They may drop for a year or two, but long term they can only increase.

Second, one of the reasons bankruptcies decreased was because the federal government changed the bankruptcy rules in September 2009 to make it more expensive to file bankruptcy if you have surplus income. The new rules also extended the length of bankruptcy, meaning you could now be bankrupt longer. As a result there was a surge in bankruptcies in the month leading up to the new rules, and then a corresponding drop off in the months after. If you compare 2010 to the record year of 2009, it’s not surprising that the numbers in 2010 dropped. However, the number of bankruptcies filed in 2010 is still higher than 2008′s numbers, so the trend remains up.

Third, while bankruptcies fell, the number of consumer proposals filed in 2010 increased substantially. In 2009 20,414 consumer proposals were filed in Ontario; that number increased by almost 16% to 23,619 in 2010.

Again, that’s not surprising. If bankruptcy is now more expensive and lasts longer, it’s natural for more people to file consumer proposals as a way to avoid bankruptcy.

Here’s my take on these results:

I’m pleased that the economy showed a slight improvement in 2010, and I’m pleased that the unemployment rate in Ontario remains lower than it is in the United States, and I’m glad our interest rates remain low. However, we can’t rely on low interest rates forever.

Our world is in turmoil, with protests against government happening in Africa and the Middle East, nuclear power problems in Japan, and of course a federal election in Canada in May. With this uncertainty we don’t know what tomorrow will bring. If this volatility causes upward pressure on interest rates, our debt service costs go up, and the economy slows down, and that’s not good for the average person.

That being said, I am pleased that consumer proposal filings are increasing. I meet with and talk to dozens of people each week, and almost every one of them is happy to avoid bankruptcy if possible, while still dealing with their debts. That’s a positive trend for the future.

To find out how a consumer proposal can help you avoid bankruptcy, read our comparison between consumer proposals and bankruptcy article, and please use our free on-line debt options calculator to evaluate your options, and then contact us to arrange a no charge initial consultation, and let’s get started.

Bankruptcy and Proposal Filings

In 2009 the number of consumer bankruptcies and consumer proposals increased by 31% in Canada in 2009, after growing by over 14% in 2008. In total, 151,712 Canadians filed a bankruptcy or proposal in 2009, the largest number on record by a wide margin. In Ontario, 66,935 people filed a bankruptcy or proposal, an increase of 32.7% over 2008.

An interesting trend emerged in the last three months of 2009: more residents of Ontario have chosen to file a consumer proposal, instead of going bankrupt, primarily due to new bankruptcy rules.

On September 18, 2009 new bankruptcy rules came into force, increasing the cost and length of a bankruptcy for bankrupts with surplus income. The debt limit for eligibility to file a consumer proposal was increased, increasing the attractiveness of a consumer proposal as a debt management option. As a result, there was a spike in bankruptcy filings in the two weeks prior to September 18, as debtors rushed to file bankruptcy to take advantage of the old rules. After September 18 the number of bankruptcy filings dropped, while consumer proposal filings continued to increase.

In Ontario in 2009 there were 46,521 consumer bankruptcies, and 20,414 consumer proposals. Bankruptcies increased by 28.5%, but consumer proposals increased by 43.3%.

Why did bankruptcy and proposal filings increase by record amounts in 2009?

Obviously the recession has caused great financial hardship. As the unemployment rate increases, so too does the growth in personal insolvency filings. The unemployment rate in Ontario rose through the first half of 2009, peaking at 9.5% in May, so the growth in consumer filings is not surprising. (In Canada, the unemployment rate rose from 6.1% to 8.3% during 2009). However, high unemployment is only one reason for the high bankruptcy rates in 2009.

Residents of Ontario continue to borrow at record rates, and in 2009 household credit per person in Canada reached a record level of $40,207. After five consecutive years of double digit growth, the rate of growth for household debt finally slowed to a comparatively low growth rate of 7.8%. However, given the tightening of credit markets and the continuing recession, growth in debt of 7.8% is still a worry for the Canadian consumer, and no doubt contributed to the growth in insolvencies.

While household credit per person grew by 6.4% in 2009, personal disposable income grew by only 0.6% in the first nine months of 2009. This means that, by the end of the third quarter of 2009, Canadians were carrying household debt of 140.8% of their personal disposable income, the highest level in history. This means that for every dollar a Canadian earns, they have $1.41 in debt. Two years ago Canadians carried $1.28 in debt for each dollar earned.

This is a worrisome development for all Canadians carrying debt, because it’s not only the level of debt that is a problem, but the cost of carrying the debt. While consumer debt has continued to increase, consumers have benefited from historically low interest rates. Unfortunately, low interest rates mean Canadians have continued to borrow, leading to record levels of debt. As long as interest rates remain low this may not be a problem, but if interest rates increase, Canadians will be unable to service their debt. This week the government announced that the economy is improving, so it is likely that the Bank of Canada will start to raise interest rates later this year. If that happens, the cost of carrying debt goes up, and more Canadian will experience financial problems.

The message is clear: excessive personal debt is a ticking time bomb, and unless Canadians take steps to deal with their debt, an increase in interest rates or a further reduction in employment will lead to a continued trend of higher personal insolvencies.

For many debtors this is the first time in their lives they have experienced debt problems, and they don’t know where to turn for advice. They are embarrassed to talk to family or friends. Unfortunately many debtors are now turning to unscrupulous debt consultants, who charge a fee and then simply refer the debtor to a bankruptcy trustee. We strongly urge debtors to investigate their advisors before paying anything. Confirm that they are licensed by the federal government, or a provincial agency. At Hoyes, Michalos & Associates we do NOT charge any up-front fees; no reputable trustee charges an up front fee. More information is available in this article on Debt Consultant Scams.

For more information on personal bankruptcy statistics for 2009 see our article bankruptcy statistics for 2009 and 2008, with detailed personal bankruptcy statistics for major cities in Ontario. Our Bankruptcy Trend Report: 2009 contains our detailed analysis.

If you are treading water, trying to service your debts, please call our 310-PLAN help line (no area code required anywhere in Ontario), or contact us by e-mail, or complete our free on-line evaluation, and we will review your situation and help you make a plan to deal with your debts; we will do our best to help you avoid becoming a bankruptcy statistic.

Douglas Hoyes, Bankruptcy Trustee

As predicted in previous posts, there was a massive increase in the level of personal bankruptcy filings in Ontario and Canada in September, 2009. Here are the numbers:

In September, 2009 in Canada there were 12,305 personal bankruptcies filed, a 47% increase over the same month in 2008. In addition, there were 3,160 consumer proposals filed, for an increase of 39%. Not surprisingly, the personal bankruptcy rate in Canada increased by more than the consumer proposal rate due to the new bankruptcy rules that came into force on September 18, 2009. There was obviously a rush by Canadians to file before the new rules were implemented.

Here’s the scary part: for the twelve months ended September 30, 2009 the bankruptcy rate in Canada increased by 36%, and for the three months ended September 30 the personal bankruptcy rate increased by 41%. So the rate increase for twelve months is 36%, for three months it’s 41%, and for one month it’s 46%. That shows that the bankruptcy rate is increasing at an ever faster pace. That’s bad news for the Canadian economy.

In the last twelve months in Canada 148,378 Canadians have filed an insolvency proceeding (116,295 personal bankruptcies and 32,083 consumer proposals). That’s record, by a wide margin. That compares to 100,552 in the same period in 2007, and 108,807 in 2008.

In Ontario, the statistics are equally grim: In September there were 5,007 personal bankruptcies filed (the first month ever over 5,000), an increase of 49% from last September. Proposal filings were up 36%.

The government doesn’t publish statistics by city each month, but we know that in the last three months personal bankruptcies were up by 41% in Toronto, 39% in Hamilton, 55% in Kitchener, 39% in London, and 44% in Windsor.

We will continue to analyze the numbers, but the message is clear: the recession is not over, so now is the time to consider your options and reduce your debt, so that you can survive the continued recession.

So what do I do if I don’t believe the rules are fair? I follow the rules, but I also do everything in my power to change the rules that don’t make sense. Ted Michalos and I were the only independent trustees asked to testify before the Senate Banking Committee as they contemplated changes to the bankruptcy rules. We argued in favour of rules that would be more fair to the average Canadian in financial difficulty.

When reviewing the new bankruptcy rules that were set to come into force on September 18, 2009, we noticed a big problem: Without warning, the government decided to require all bankrupts to disclose their highest level of education. It became a requirement that you were forced to disclose to your creditors if you were a high school dropout, or if you didn’t finish university. Governments often make stupid decisions, but this decision was about as bad as it gets.

I understand that if you are going bankrupt, you must disclose your debts, and your assets, and your income. Without that information your creditors cannot evaluate your case. But do your creditors need to know whether or not you graduated from high school? Probably not.

Although no-one from the government will explain it to me, I assume that some bureaucrat somewhere decided it would be interesting to do a study of education levels, so they quietly slipped it onto the paperwork bankrupts must fill out.

I found that to be offensive, and most people we dealt with found it very embarrassing having to declare their educational status.

As soon as we discovered this dirty little trick, we took action.

On September 10, 2009, I sent an e-mail to the Superintendent of Bankruptcy (the government official responsible for administering all bankruptcy rules) asking why this requirement was implemented, and stating my objection to it. (About a week later one of his staff replied to me that they were “working on it”).

On September 14, 2009 we issued a press release in an attempt to bring attention to this new rule.

Over the next few days we spoke to the media, and continued to make calls to the government in an attempt to get them to change this rule.

Then, finally, on Saturday morning, September 26, 2009 we received word that the government had quietly changed the rule. Debtors were no longer required to disclose their educational status on their bankruptcy paperwork. Interestingly, the government did not admit to the mistake; they have to this day not issued any official communication on the matter. I was informed by the company that makes the computer software we use; the government told them the form was changing, and they told us.

It would be nice if the government would issue an apology for the mistake, but I’m satisfied that the rule was changed.

[UPDATE: Posted September 30: the government didn't apologize, but they did publish their justification for their actions; you can read it on the OSB web site]

I don’t take credit for the rule change. I made my views known, and fortunately many others did as well, which forced the government to change.

Our commitment will continue to be very simple and straightforward: we will explain all of the rules, and follow them, and continue to fight for changes when we believe the rules are unfair.

Want proof? If you are having financial problems, call our office today at 310-PLAN, or try our free on-line evaluation (we will respond to your request in a few hours during the day), or e-mail us for more information or to set up a free initial consultation. We will explain your options, and we will explain the rules, and then you can decide what option will work best for you. And I’ll keep fighting for fairness for all Canadians in financial trouble.

Not surprisingly, the government’s electronic filing system felt the strain, and it was down from late Thursday night until 8:30 am today, September 21. In other words no-one was able to go bankrupt on Friday September 18, the day the new rules came into force. By my estimate Thursday was also the busiest bankruptcy day in Canadian history, with over 1,700 individual Canadians filing bankruptcy, which again is more than three times a normal day’s volume. The irony of course is that Friday was the slowest day in Canadian bankruptcy history: with the government’s system down, no-one filed bankruptcy.

What does the future hold? I have three predictions:

First, I believe that personal bankruptcy filings in Ontario, and consumer proposal filings, will remain at record level for many more months. For the twelve months ended July 31, 2009, the most recent period for which statistics are available, there were over 140,000 Canadians that filed a consumer proposal or bankruptcy. That’s a 32% increase over the prior twelve months, so there is no doubt that the economy is still in very bad shapes, and insolvencies will continue at a high level. If I had to make a prediction I would predict that filing will be in the range of 150,000 per year for at least 2009 and 2010. After that, they may decline slightly if the economy improves, but significant declines won’t happen until our debt levels decrease.

Second, I predict that the percentage of consumer proposals filed will increase. Under the new rules, in a first bankruptcy if you have more than $200 in surplus income, the length of a bankruptcy is increased to 21 months (from nine months). That means the cost of bankruptcy is higher, so many people will choose to file a consumer proposal as an alternative to bankruptcy. I have always supported consumer proposals as an alternative to bankruptcy, so that will be good news for many people.

My third prediction is that I will be spending more time looking at calendars and doing math. As noted above if you have $200 per month of surplus income, on average, during the first six months of your bankruptcy, the bankruptcy is automatically extended. The surplus income calculation is relatively easy if you are paid a fixed salary, or get a pension, since your income doesn’t change each month. But, if you are paid weekly or bi-weekly, your income changes when you have a five or three paycheque month. As a trustee I now must look at the calendar to see when you will have those extra paycheque months. If you have one of them during the bankruptcy period it may not increase your average surplus income, but if you have two or three of them during the first six months of your bankruptcy, your surplus income may be pushed over the $200 per month limit, causing an increase in the length of your bankruptcy. The entire Hoyes Michalos team of trustees will be working extra hard over the next few weeks to become familiar with the math necessary to help you estimate your future income, including your extra paycheque months.

We are in for challenging times ahead, but our commitment remains the same. We will review your options for dealing with debt in detail, and help you understand the implications of your decision. The math may be slightly more complicated, but our goal is to help you find the solution that works for you, so contact us today, and one of our professionals will be pleased to meet with you to help you get a fresh start.

My biggest complaint with the speed the government has implemented these rules is that they have taken a long time, which has created uncertainty for everyone. We thought the rules would come into force in 2006. Then 2007. Then 2008. By 2009 we had almost given up (which is why I wrote to the Prime Minister). You can read our full history on bankruptcy reform in Canada over the last few years. For four years I have had to tell everyone I met with that “the rules might change, so maybe you should wait, or maybe you should file now.” Bankruptcy is stressful enough without the added confusion of not knowing what the rules will be tomorrow.

Finally, in the middle of the summer, on August 19, 2009 all trustees in Canada received an e-mail from the Office of the Superintendent of Bankruptcy saying that the remainder of the new rules would come into force 30 days later, on September 18, 2009. I find it incredible that after waiting for four years the federal government decided, in the middle of Parliament’s summer vacation, to give us 30 days notice to get ready for the new rules.

Even worse, the timing of these new rules couldn’t be worse for many people. Here’s why: Under the old rules, most bankruptcies ended in nine months. Under the new rules, if you have never been bankrupt before and if you have surplus income, your bankruptcy will now last for 21 months. A second bankruptcy with surplus income now lasts for 3 years. The length of a bankruptcy just got longer for a lot of Canadians.

Each month a bankrupt is required to send their trustee proof of their income (copies of paystubs). If they have more than $200 in surplus income, their bankruptcy is automatically extended, and the bankrupt must continue making payments to their bankruptcy estate for the duration of the bankruptcy.

Why did the government increase the length of a bankruptcy if you have surplus income? I don’t know for sure, but I assume it’s because the government doesn’t want the bankruptcy process to appear to be “too easy”. If you have a lot of debt, and if you have the ability to pay something towards those debts, the government believes you should make payments.

I don’t disagree with that approach. Most people I meet with would be happy to repay their debts if they could. The problem, of course, is that most people who are considering personal bankruptcy can’t afford to repay their debts. They have lost their job, or gone through a divorce, or suffered a medical problem that has reduced their income, and repaying their debts in full is not possible.

The problem is this: when the government first introduced the new rules in 2005, Canada was in the midst of an economic boom. Times were good. Unemployment was low. Consumer debt was much lower than it is today. Incomes were high, so asking Canadians to pay a bit more in a bankruptcy was not a huge hardship.

Unfortunately it is now 2009, and Canada is in the midst of the worst recession since the Great Depression. Unemployment is high. Overtime is gone. We are using debt to survive more than ever before. And now, at the worst possible moment, the government has decided to make bankruptcy more costly.

If the government had asked me (which they didn’t), I would have suggested bringing into force now the rule changes that help Canadians (such as increasing the debt limit on consumer proposals), and leaving the more harsh rule changes until the economy recovers, and people are more able to afford the higher payments. If they wanted to bring all of the rule changes into force, I would have suggested at least giving us more than 30 days notice so that everyone could prepare for the new rules.

However, none of that matters now. The new rules take effect on September 18, so we are doing our part to be prepared. If you have more debt than you can handle, here’s what you need to know:

First, if you have more than $200 in surplus income, your bankruptcy will automatically extended, and you will pay more. Bankruptcy may still be your best option, but you should realize that the cost may be higher.

Second, if you owe more than $200,000 to the government in taxes, and your tax debts are more than 75% of your total debt, you are now required to appear before a bankruptcy judge before you can be discharged from bankruptcy.

That’s the bad news. The good news is that the debt limit on consumer proposals has increased from $75,000 to $250,000, so more people will now be able to file a consumer proposal as an alternative to bankruptcy.

Also, a secured lender can no longer cancel a contract simply because you filed bankruptcy. Under the old rules certain banks would automatically repossess your car if you went bankrupt. Now, if your payments are up to date, you can keep the car, provided you continue to make the payments to the bank. This will help a lot of people who need their car to get to work, but can’t purchase another car due to bad credit.

In summary, it would have been nice if the rules making bankruptcy more costly were delayed until the economy recovers, but the rules are here, so it’s important to understand them. If you are in financial difficulty, contact us and we will review your options, including consumer proposals as an alternative to bankruptcy, and we will help you decide which option is right for you.

In closing, my prediction for the next few months is that we will see an increase in the number of consumer proposals filed as Canadians attempt to avoid the harsher new bankruptcy rules. At least that will be a positive development for many people.

On May 29 I posted the response I received from the Prime Minister, and on June 18 I posted the response I received from the Minister of Industry. In both cases they said, if I may paraphrase, “we’re working on it.”

Much to my surprise, on August 6, 2009 all trustees across Canada received an e-mail from the Office of the Superintendent of Bankruptcy advising that the new bankruptcy rules will come into force on September 18, 2009. I’m not going to take credit for the new rules finally being implemented. I’m sure my e-mails had nothing to do with it. However, I am pleased that the uncertainty that has surrounded the bankruptcy process for the last few years has now been eliminated.

A full explanation of the new rules can be found on our bankruptcy reform page.

Here’s the good news:

First, it will be easier to file a consumer proposal if you have a lot of debt; that’s very good news for everyone in financial trouble.

Second, if you have a leased or financed car that you don’t want to lose when you go bankrupt, it is now more likely that you will be able to keep it, provided you continue to make payments to the secured lender. Whether or not you do keep it, and keep making payments, is up to you in most cases.

As with all new rules, there is also some bad news:

First, if you have surplus income, your bankruptcy will last longer under the new rules, so I expect there may be a rush of bankruptcy filings leading up to September 18.

Second, if you have significant tax debts (over $200,000), your bankruptcy may last longer.

How will these new rules impact on you? Should you go bankrupt immediately, or should you wait? Should you avoid bankruptcy by filing a consumer proposal? Each case is different, so I strongly recommend that you contact our office immediately and arrange a no-charge initial consultation to review your options. You need full information so you can make an informed decision, so contact Hoyes Michalos today.

So, taking matters into my own hands, I sent an e-mail to Prime Minister Stephen Harper, and to Industry Minister Tony Clement asking when the new rules would be brought in to force.

On May 29 I got a response from the Prime Minister, Sort Of, that basically said “we’re working on it.”

On June 16 I received a response from Mr. Clement’s office. Actually the response came from the Director General, Marketplace Framework Policy Branch, Strategic Policy Sector, Industry Canada. (Makes me wonder: perhaps if people in government didn’t have such long titles, perhaps they could actually get something done…..). The response I got was “the government is committed to bringing in these reforms at the earliest possible opportunity.”

You can read the entire letter here.

So here’s my question: The new rules were passed by Parliament and given Royal Assent in December, 2007. It is now June, 2009. What exactly does “earliest possible opportunity” mean? Does the government honestly expect us to believe that at no time in the last 18 months has anyone had time to simply sign a piece of paper to bring in these new rules? The new rules cost the government nothing, and improve the situation of many Canadians, and many creditors. It’s a win-win, but nothing is being done.

I strongly believe that bankruptcy law should be fair to debtors and creditors, and although my letters don’t appearing to be provoking any action, I will continue to fight for fair rules for all Canadians.