New Bankruptcy Rules: The Most Significant Changes
NOTE: Bill C-12 creating new bankruptcy rules received Royal Assent on December 14, 2007, but as of today only two sections have come into force.
On July 7, 2008, the Student loans rules and the RRSP rules were proclaimed into force. We are waiting for confirmation from the Office of the Superintendent of Bankruptcy as to when the additional rules will come into force.
Please Contact a Hoyes Michalos bankruptcy trustee in your area to determine how the new bankruptcy law will impact you.
Here is a brief summary of the new rules, when they come into force:
- A consumer proposal may be filed by a person with up to $250,000 in debts, excluding the mortgages on their principal residence; the old limit was $75,000;
- Student loans are now automatically discharged after seven years (instead of the current 10 years), and an application may be made to court in hardship cases to have a student loan discharged after five years;
- RRSPs are now exempt from seizure by the trustee in a bankruptcy, except for contributions made to the RRSP in the previous year;
- You will lose your tax refund for the entire year of the bankruptcy;
- Secured loans and leases cannot be terminated simply due to the filing of a proposal or bankruptcy; this means that certain banks that routinely repossess cars upon bankruptcy will no longer be able to do so;
- Automatic discharges are now available for all bankrupts (who have completed their counselling) 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 discharge after 24 months (unless opposed); and
- a second time bankrupt with surplus will get an automatic discharge after 36 months (unless opposed).
- Tax debts are now treated differently than all other debts. If the total personal income tax debts are more than $200,000, and if they represent more than 75% of the bankrupt's total unsecured debts, the bankrupt is not eligible for an automatic discharge. A discharge hearing must be held as follows:
- First time bankrupts with no surplus - after 9 months;
- First time bankrupts with surplus - after 21 months;
- Second time bankrupts with no surplus - after 24 months;
- Second time bankrupts with surplus - after 36 months;
- Third or more time bankrupts - after 36 months.
All of these rules are subject to change. For more detailed information on the bankruptcy reform in Canada and new bankruptcy rules, please feel free to contact us.
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