On today’s podcast we talk with Ted Michalos about the Office of the Superintendent of Bankruptcy and how they regulate the bankruptcy process, and trustees, in Canada and why they changed the name from bankruptcy trustee to Licensed Insolvency Trustee (LIT).
A Short History of Bankruptcy in Canada
The first federal bankruptcy legislation was enacted in Canada in 1869 – almost 150 years ago. At the time it was called An Act Respecting Insolvency and only applied to businesses, not consumers. In 1919, the federal government passed the Bankruptcy Act for both individuals and business. Trustees at the time were appointment by the government until, in 1932, the Office of the Superintendent of Bankruptcy was created and given power to grant licenses to bankruptcy trustees.
This short history lesson about bankruptcy and bankruptcy trustees in Canada is interesting because after 84 years, the federal government is officially changing the designation of a person who administers bankruptcies in Canada from ‘bankruptcy trustee’ to ‘Licensed Insolvency Trustee‘.
Given these changes, on today’s show we talk with licensed insolvency trustee Ted Michalos about how bankruptcy law in Canada works, who the players are and why the government may have made this change.
Office of the Superintendent of Bankruptcy Canada
The Office of the Superintendent of Bankruptcy (OSB) is directly responsible for licensing, monitoring and controlling all aspects of insolvency in Canada. This means they supervise the administering of estates and license and oversee the conduct of trustees.
Their role is to ensure that the bankruptcy process is fair and equitable for all stakeholders. As Ted says:
The system is designed to be fair to the individual; it’s designed to be fair to the people that you owe money to.
To maintain this system, the OSB sets standards and policies that all trustees have to follow. This includes releasing directives such as the annual surplus income guidelines and the new directive 33 changing our name to Licensed Insolvency Trustee or LIT for short.
The Bankruptcy & Insolvency Act
The purpose behind the Bankruptcy & insolvency Act (BIA) is to:
- provide a sense of structure, framework and legal protection so creditors can’t sue you, garnishee your wages, freeze your bank account or take advantage of you;
- debtors get simplification – one monthly payment to one place;
- creditors get fairness in terms of their financial recoveries
Ted explains that debtors are:
automatically entitled to this protection as part of the law. And the reason they do that is to make sure that all of the people you owe money to are treated the same way and that you are treated fairly.
It is trustees who are regulated and licensed by the federal government to provide insolvency services through the BIA. Unlicensed debt consultants do not have these powers:
[debt consultants] don’t have the power to stop a wage garnishment [for example] but a licensed insolvency trustee does.
The Office of the Superintendent of Bankruptcy provides a regulatory framework that oversees trustees.
Everyone is subject to the same rules, responsibilities, it’s equitable and it’s supposed to be transparent
For example, an LIT can, but usually does not charge up front fees for a consultation. That is because by law any fees they would charge up front would have to be rolled into the payments you would make if you filed anyway. Not so with unlicensed debt consultants. Consultants charge fees up front then refer you to a trustee to file. You don’t get those fees back or have them applied to the cost of your bankruptcy once you do file.
By including the term licensed in our name, the government is making it clear to the public who can legitimately provide insolvency services under the Bankruptcy & Insolvency Act.
So why did the government remove the term bankruptcy and return to the use of the word insolvency when referring to trustees? As Ted explains bankruptcy often has a bad reputation:
Not everyone knows what bankruptcy is but they’re pretty sure that it’s not a good thing. I don’t believe that statement is correct but it does have the negative connotations.
Insolvency is potentially a better term to explain the fact that trustees can offer more than a bankruptcy as a form of debt relief. An individual looking to eliminate their debt can talk to a licensed insolvency trustee about two insolvency services to eliminate debt:
- personal bankruptcy and
- a consumer proposal
Ted explains that a trustee is like a referee in a hockey game.
we’re the fellows that make sure both sides, so the individual that’s in trouble, plus the creditors, play by the rules and that everyone works in a fair and equitable manner.
That’s why a Licensed Insolvency Trustee will explain how the bankruptcy process works and what the implications of each option will be for you before you sign any paperwork.
To become a Licensed Insolvency Trustee requires that an individual:
- successfully complete a series of courses about the technical aspects of bankruptcy and insolvency;
- be employed for a period of time with a practicing Licensed Insolvency Trustee in order to gain practical experience;
- pass both a written and oral examination
This process is very rigorous and in fact only one in four candidates succeed.
It may take time before the average consumer understands the term insolvency and the new designation, however regardless of the name, the bankruptcy process is well maintained and the public protected through the licensing and monitoring process of the Office of the Superintendent of Bankruptcy.
You can learn more by listening to the podcast or reading the transcript below.
Resources Mentioned in the Show
FULL TRANSCRIPT show #82 with Ted Michalos
On April 1st, 2016 the federal government is changing the rules and the term bankruptcy trustee will no longer exist. That’s right, in few short days bankruptcy trustees will no longer exist. So, is this an April Fool’s joke? No, this is the truth.
The first bankruptcy legislation in Canada came into force in 1869 it was called An Act Respecting Insolvency but it only applied to businesses. In 1880 the act was repealed and it was left for the provinces to deal with. Then in 1919 the federal government got back into the bankruptcy legislation business passing the Bankruptcy Act of 1919 and it covered both companies and individuals. The trustee was appointed by the government under that act. The act was amended again in 1932 and the Office of the Superintendent of Bankruptcy was created with the power to grant licenses to bankruptcy trustees. So, the bankruptcy act has existed in Canada for 97 years and the federal government has granted licenses to bankruptcy trustees for 84 years.
So, why now on April Fool’s day, 2016 is the federal government doing away with bankruptcy trustees? To find out please help me in welcoming back to the show my typical guest on the last show of the month Ted Michalos, my Hoyes Michalos co-founder and business partner. Ted, how are you doing today?
Ted Michalos: Not bad. My children will tell you I was around in 1869 when that first legislation was passed and was there voting for it.
Doug Hoyes: There you go, two years after federation is when it all began. Well, I think it’s kind of interesting that we went without federal bankruptcy legislation there for a couple of decades in between the different legislations.
So, let’s go through this step by step then. So, Ted you and I and every trustee in Canada are regulated and licensed by the federal government.
Ted Michalos: That’s correct.
Doug Hoyes: We’ve been known as trustees in bankruptcy or bankruptcy trustees for 85 years when the Office of the Superintendent of Bankruptcy was created. So, first question what is the Office of the Superintendent of Bankruptcy?
Ted Michalos: So, it’s a government agency that licenses, monitors and controls the insolvency community in Canada. So, it’s directly responsible for reviewing the legislation and making recommendations to Parliament for training, well not necessarily training, but definitely licensing and authorizing people to administer bankruptcies on behalf of the Canadian public. That’s a pretty important distinction. Lawyers don’t handle bankruptcy work in Canada, only licensed trustees do. Although on April 1st I guess that’s not the case anymore either.
Doug Hoyes: Well and we’ll talk about the new title. So, give me some examples of policies and procedures that are set by the Office of the Superintendent of Bankruptcy?
Ted Michalos: Well, probably the one that impacts people the most is every year the federal government establishes a threshold for how much income they think families of different sizes need to have a reasonable standard of living in Canada. It’s called the Surplus Income Guideline, it’s directive 12R if there’s anybody out there that really wants to read into this. But that’s the thing that says I think a family of two needs $2,500 a month to live on the entire cost of bankruptcy is based on these government guidelines so it’s a pretty important number.
Doug Hoyes: And that obviously gets updated and there are other directives that get changed as well. And in fact the Office of the Superintendent of Bankruptcy has issued a new directive, directive number 33 for people who are scoring at home. And that’s the one that where this new name comes into effect on April 1st, 2016. It’s changing our name from bankruptcy trustees to licensing insolvency trustees, which I guess in a way is kind of a throwback ’cause like I said in 1869 the first legislation was called an act respecting insolvency. So, we’re kind of going back to the old word as opposed to the bankruptcy word. But Ted, tell me why do think the government has made this change from bankruptcy trustee to licensed insolvency trustee?
Ted Michalos: Well, my suspicion is that the government was rather indifferent, that this is something that members of our industry, members of our profession have petitioned them to do. There’s really two branches of insolvency work in Canada. There’s those of us that deal with individuals, families, households, trying to help people get relief from their debts. And then there’s trustees or licensed insolvency trustees that deal with corporations and businesses. And they’re distinctly different entities, but from a marketing standpoint I think the corporate trustee community was looking for a different name.
Doug Hoyes: And because there is a negative connotation to the word bankruptcy?
Ted Michalos: That’s the reason they got support from some of the fellows who practice with individuals. Not everyone knows what bankruptcy is but they’re pretty sure that it’s not a good thing. I don’t believe that statement is correct but it does have the negative connotations that you were saying. And so, by changing the name to something that sounds much more technical, licensing insolvency trustee, you’ve removed that term that has those negative connotations. Whether or not that’s actually good for the public, I’m not certain.
Doug Hoyes: So, let’s break it down then and see if we can analyze and figure out whether it’s good or not. So, the word licensed is a new thing. It used to be called bankruptcy trustees now it’s licensed insolvency trustees. What does that mean? What does license mean? Who gives a license? What’s the process? Tell me about that.
Ted Michalos: Well, effectively by telling someone that you’re licensed you’re saying that someone has set up a regulatory framework. There’s someone responsible for overseeing the things that you do. And so, I guess the implication is by not telling people we were licensed, so that it was less clear that we’re reporting to a higher authority. So, a bankruptcy trustee by definition had to be licensed by the federal government but the public may not have known that. So, now we’re explicitly saying yes, we are licensed, which differentiates us from the people that are not licensed. And unfortunately there are an awful lot of people praying on the public that aren’t licensed these days.
Doug Hoyes: So, how hard it is to get licensed, what’s the process?
Ted Michalos: Well, if you ask any of our students they’ll tell you it’s near impossible. There’s a series of courses that you have to take. You have to be employed by a trustee, so think of it like articling, the same way that students that want to become lawyers or doctors that want to, what’s the term for doctors that are – residency, right? You have to be practicing with someone that oversees your work to get you to the point where you can sit in an examination and convince the licensing body that you are qualified and competent.
Doug Hoyes: And so, there are two in effect year long courses. We’re kind of over simplifying the process. It finishes with a final written exam where you have to be both examined ons corporate and personal bankruptcy and insolvency technical issues, tax issues and so on. And then the final piece of the puzzle, the final piece of the exam is called the oral exam.
It’s called the oral board and I happen to be quite familiar with it ’cause I’ve been on the board for the last three years as an examiner. It’s a hour and a half long exam where you are given half an hour to read the questions and then you sit in a room with three other people, the trustee, representative of the government and an insolvency lawyer. And you’ve got an hour to answer all the questions. That’s a pretty intimidating process for a lot of people to go through having never done an oral exam before. But that show you how hard it is to become licensed. It’s not a simple thing.
Ted Michalos: And this is not a secret. The failure rate, the number of people that are not successful at this program is pretty significant. There’s a 50% failure rate at the written examination level and a 50% failure rate at that oral board. So, one out of four people that start the program might successfully get a license. It’s much more difficult than anybody realizes.
Doug Hoyes: Yeah and in fact the last two years, 2014 and 2015, the success rate on the final written exam was in the 30 some percent range so it has been considerably less than 50%. So, it’s a very difficult thing to become licensed. So, why should the public care about that? So, great you’ve gone through all this training to become licensed but hey all we’re talking about is debt here, why can’t I just go see anybody else on the street? Why is this license thing so important?
Ted Michalos: Well, there’s more to just dealing with this debt than just saying, you know, I’m just not going to pay people back. The system is designed to be fair to the individual; it’s designed to be fair to the people that you owe money to. And by fair I mean the government sets standards that we all have to follow. It’s not a question of you going to the cleverest guy on the block or a lawyer that knows somebody; he knows a guy and he can get you a deal. Everyone is subject to the same rules, responsibilities, it’s equitable and it’s supposed to be transparent. One of the problems we’ve had in the past is there’s a whole new industry that cropped up about seven or eight years ago they call themselves debt consultants. And I’m not going to get off on this too badly ’cause you know it pushes my buttons.
Doug Hoyes: That’s why I asked.
Ted Michalos: But these people aren’t licensed by anybody, they aren’t regulated. And they’ve been preying on the public. And what they do is they run advertisement saying we can help you reduce your debts, avoid bankruptcy, we’re not a trustee, ’cause they’re not. You go to them, you pay them a fee and then they have to refer you to a trustee to actually deal with the problem.
Doug Hoyes: And so, is that one of the reasons then that the government has changed the name to take the word bankruptcy out of it? You’ve got all these guys out there saying don’t go bankrupt, we’re not bankruptcy, guys, bankruptcy, bankruptcy, bankruptcy, we’re not that, come see us. When really all it is, is a ruse. They’re getting you in the door and they can’t actually solve your problem. They cannot legally do a consumer proposal for example
Ted Michalos: That’s right.
Doug Hoyes: Unless they’re licensed. So, is that what’s really driving this name change to get that bankruptcy out of there that has been scaring people?
Ted Michalos: I think that’s defiantly one of the arguments that was advanced. That you want to get bankruptcy out to try and level the playing field with all these debt consultants.
Doug Hoyes: Well and in fact I guess it’s a negative thing to be called a bankruptcy guy. These guys are able to use it as a marketing advantage to say they weren’t that, when in fact no, it’s actually a positive thing. And I guess that’s where the word licensed comes in now, that you have to have a license to be able to do this. So, what are the services then that a licensed insolvency trustee can provide that one of these unlicensed debt consultants can’t provide?
Ted Michalos: Well, first and foremost the only folks that can perform some sort of legal insolvency service for you are license insolvency trustees. And there really are two big classes of work. There’s something called a proposal to creditors, which is a program where you offer to repay a portion of what you owe or there’s an actual bankruptcy filing. And they’re very complicated rules for both of them but the concept is simple enough. You need relief from your debts. And then depending on your circumstances are you able to repay a portion, which would make the proposal more attractive or do you need complete relief, there is no ability to repay, in which case you’d be looking at bankruptcy.
Doug Hoyes: Well, see I’ve talked to these debt consultant guys and they say look it’s not that complicated. You owe a bunch of money on credit cards, here’s what we’re going to do, we’re going to phone the credit card company up and say we’re offering you 30 cents on the dollar, that’s it, that’s the deal. You don’t need some fancy high falutin guy who’s gone to school and has all these courses and done all this licensing thing, it ain’t that difficult.
Ted Michalos: Unfortunately let’s say you owe five or six different people and so somebody offers to do this for you. That would be a debt settlement company, don’t get me going on them. You call the first fellow and you say I’ll give you 30 cents on the dollar and let’s say he says yes. Call the next guy and he says no. You call the next guy and he says no, I’ll take 50 cents. You call the next guy and he says nah, I’m going to garnishee your wages ’cause I want to get paid ’cause now you told me that you’re broke.
The idea behind a consumer proposal is provide a structure, framework, something that provides the individual with legal protection so people can’t try and garnishee your wages, they can’t freeze your bank account, they can’t take advantage of you when they know you’re in trouble and it provides you with a simplified solution. You’re going to make one monthly payment to one place. There won’t be any interest on your debt. It’s going to deal with the problem to everyone’s advantage. That’s what the real purpose of the act is.
Doug Hoyes: Well, I guess that phrase legal protection is really the whole key to it.
Ted Michalos: That’s right.
Doug Hoyes: You can’t be offering legal protection unless you’ve got some legal background to do that. Does the – so, when I think of the word legal I think of the word court. So, does the court system come into any of this at anytime?
Ted Michalos: It’s interesting, bankruptcy – license insolvency trustees, I’m going to keep using the wrong term for the next three years – are officers of the court. I used to tell people to think of us like junior judges. I mean we don’t have that kind of power but the license means we can administer consumer proposals and bankruptcies as representatives of the court. And the court only comes into play when there’s some complicating issue.
Let me give you an example. Let’s say a young man went out and borrowed $20,000 to buy a pickup truck. And of course he didn’t use the $20,000 to buy a pickup truck; he used it at casinos, which unfortunately is happening more and more often. Well, he files bankruptcy, he wants relief from his debt, he tells the court well, I can’t pay these bills. The creditor says, well I loaned him money for the pickup truck, where’s my pickup truck? Well, that would be a complicating matter that probably a judge would want to look at. And they would have to decide well, was this fellow honest? Did he really do what he said he was going to do when he borrowed money? Or was he less than honest and maybe we have to look at some penalties?
Doug Hoyes: Well, I think an even more common example of a legal issue would be what you said earlier, where you didn’t pay someone, they took you to court and started garnishing your wages.
Ted Michalos: That’s certainly simpler to understand.
Doug Hoyes: So, these guys that are advertising they can settle your debts, just come and see us, they don’t have the power to stop a wage garnishment but a licensed insolvency trustee does. Why? How does that work?
Ted Michalos: Well, so the law specifically says and this is the Bankruptcy and Insolvency Act, that when you file a consumer proposal or you file an assignment and bankruptcy, there’s a provision called an automatic stay of proceedings. So, it’s not that you have to apply to the court for protection; you’re automatically entitled to this protection as part of the law. And the reason they do that is to make sure that all of the people you owe money to are treated the same way and that you are treated fairly. Obviously if somebody’s gone to court and they’re taking 20% of your paycheque, you’re not in a position where you can deal with all the other people that you owe. So, we put a stop to that wage garnishee and everyone gets treated the same way.
Doug Hoyes: And only a licensed trustee can do that. So, a licensed insolvency trustee, there you got me saying the wrong terms too.
Ted Michalos: That’s right; we’re going to change your name later.
Doug Hoyes: That’s right. So, who does a licensed insolvency trustee work for? So, they go to hoyes.com, they hear our ads on the radio or they go to some other licensed insolvency trustee and they say yeah we need to do a proposal can you help me? We say yeah, sure. Are they hiring us?
Ted Michalos: No, so it’s much more complicated than that. The way to think of a licensed insolvency trustee, literally the reason I used that junior judge analogy is it’s a pretty safe one. Think of us as a referee in a hockey game. So, we’re the fellows that make sure both sides, so the individual that’s in trouble, plus the creditors, play by the rules and that everyone works in a fair and equitable manner.
I’m trying to think of a good way to describe this that doesn’t step on toes anywhere, well, maybe there isn’t. So, it’s complicated because you go to the trustee’s office and you’re looking for help. But legally we’re actually appointed by the Office of the Superintendent, their employees which are known as official receivers. And so, our duty is to apply the law fairly and to see that everyone complies with their duties and responsibilities. Most of the people that owe money and more importantly the creditors so they stop lawsuits, they stop wage garnishes, they stop all that sort of stuff.
Doug Hoyes: And that’s why we’re completely up front with people when they come in. We say okay here’s the deal. You eluded to earlier this concept of surplus income in a bankruptcy. Where the more money you make the more you’ve got to pay. Okay, before you sign any paperwork with us, we’re going to explain how that process works. Here’s how all the math works, here’s what the implications of it are. We’re going to go through all the different issues with you.
So, we are certainly doing our best to help you through the process, to explain everything so there are no surprises but what we are doing is explaining the rules so that you can then know what all those rule are that you have to follow.
Now a lot of people say wait a minute, it really sounds like who you’re really working for is the creditors, the people I owe money to because in the proposal or the bankruptcy you’re going to collect money from me and give it to them. If you’re giving money to them you must be working for them not to me. And that’s what these debt consultants are always saying. Oh, you don’t want to go see a licensed insolvency trustee because they work for the creditors, they’re collecting money for the creditors. Is that true? What do you say?
Ted Michalos: Well and so, again you’re right. That’s the argument thatthe other side makes, the people that, sorry the debt consultants. And you can see why they say that but quite frankly, the truth is, we work for ourselves. It’s the trustee’s responsibility, we’re independent businessmen. So, we’ve got to try and secure clients to provide our services to. The same way a lawyer would or a doctor or a dentist. And we’ve got to maintain a reputation in the community, particularly in the insolvency community so that the creditors will allow us to deal with people. Creditors have the right to call a meeting and replace a trustee if they don’t find them trustworthy.
Doug Hoyes: Yeah, so our reputation and any other licensed insolvency trustee’s reputation is very important because we have to – if we’re the referee in the hockey game we’ve got to get both sides on the same page. So, I’ve got to come up with a solution that’s going to work for you but it also has to be acceptable to the creditors. And unfortunately in my experience with the debt consultants they don’t really care about what the bank is going to say because the bank doesn’t even know their name. They’ve sent the person to see a trustee and if it doesn’t work, oh well the trustee looks bad. In our case we want to make sure that everyone’s on the same page with it, that’s pretty key.
Ted Michalos: Well and we kind of missed something here, one of the requirements of the law, so a licensed insolvency trustee is required to review all of your options with you. So, a debt consultant’s trying to sell you something, in nine cases out of 10 they’re trying to sell you a proposal to creditors, they just don’t call it that. Half the people that come and talk to a licensed insolvency trustee don’t actually file an insolvency engagement. So, they don’t follow a proposal or bankruptcy. What they needed was somebody to help them assess their financial situation and give them honest answers about options and alternatives. What can I do to get out of debt? And quite frankly more than half the time the solution isn’t to file bankruptcy or to file a consumer proposal, it’s to take a look at some of the other things that they can do.
Doug Hoyes: Like refinancing their house, getting your taxes filed to get up to date on that, cutting some expenses.
Ted Michalos: Just becoming more disciplined with your finances. I mean no one’s really taught how to balance a cheque book anymore. Nobody’s taught to look at what they’re paying for things. You want to know what your monthly payment is but not everybody takes the time to figure out how much interest are you paying because you’re buying this thing over three or four or five years or worst you’re putting it on your credit card. A trustee’s going to look at all of the things before they suggest to you these are the solutions that would make the most sense to your family and then you make the decision yourself based on good information.
Doug Hoyes: So, final question for you, what is the cost upfront to meet with a licensed insolvency trustee?
Ted Michalos: There shouldn’t be any cost whatsoever. I mean the law allows licensed insolvency trustee to charge a fee for people to come in and have a consultation. But I’m not aware of any licensed insolvency trustee that does it. In fact if you’re sitting down with somebody and the first thing they say after talking to you for 15 minutes is you know what? You need to sign his piece of paper and write a cheque for $250 before we can do anymore work, you’re sitting in the wrong office.
Doug Hoyes: Yes because even though the law allows a licensed trustee to start charging upfront, if they do those fees have to be rolled into the eventual procedure anyway.
Ted Michalos: That’s right so they apply to your bankruptcy or your proposal.
Doug Hoyes: They apply to your bankruptcy or your proposal, which means really there’s not a whole lot of point in a trustee charging you anything up front. It’s all going to get rolled in. So, I think that’s I guess the final key point to remember here. A licensed insolvency trustee is licensed by the federal government and they aren’t charging upfront fees. And those are two things you can look for. If someone’s offering to help you and they aren’t licensed and they’re looking for upfront money they’re probably not the people you want to be dealing with.
Ted Michalos: Yeah the first question you should always ask is are you a licensed insolvency trustee or are you simply going to refer me to one to solve my problems? And if they are, why are you going to pay this person any money at all? But that’s a whole different show.
Doug Hoyes: I totally agree and I will put a link in the show notes to all of this information so if you’re trying to figure out if the person you’re dealing with is a licensed insolvency trustee all the names are listed on the government’s website. So, it’s easy enough to do a search.
Great, thanks very much Ted for that. I’m going to take a quick break and then I will be back with the next segment. You’re listening to Debt Free in 30.
It’s time for the Let’s Get Started segment here on Debt Free in 30. As Ted and I discussed in the first segment on April 1st, 2016 the rules are changing and the term bankruptcy trustee will no longer exist. To understand how long the word bankruptcy has existed let’s review some history.
One of the earliest mentions of a process for settling debts is contained in the code of Hammurabi, which as I’m sure you know is written by King Hammurabi who ruled Babylon from 1792 to 1750 B.C. That’s over 3,700 years ago. In Hammurabi’s code of laws he says if anyone fails to meet a claim for debt and sell himself, his wife, his son and daughter for money or give them away for forced labour, they shall work for three years in the house of the man who bought them or the proprietor and in the fourth year they shall be set free.
In other words if you incurred debt you and your family could become slaves for up to three years to repay the debt. Ancient Greece had a similar approach but by the seventh century B.C the wealthy people in and around Athens had so many poor people in bondage that economic collapse and rebellion appeared likely. So, the lawmakers granted amnesty to many of those in bondage and outlawed using a person’s freedom as collateral for a debt. Julius Caesar a few hundred years later enacted laws against extreme interest rates. And he enacted laws of bankruptcy that are not that different to what we have today.
Many people think bankruptcy is a modern concept but it isn’t. The word bankrupt is taken from the Italian word bankarupta, and my apologies to my Italian friends I’m sure I totally mispronounced that word. It means bench broken. There have always been bankers or what in biblical times were called money changers. If you went to the marketplace in Ancient Athens or the forum in Rome or the temple in old Jerusalem, the money changers would set up a table or a bench to serve their customers. If someone had currency from a foreign country ’cause there was a lot of travelling amongst countries and they all had different currencies, they could see a money changer to change it into the local currency.
Fast forward to the middle ages where the financial centre of the modern world were cities like Florence and Venus and the table or bench was known in Italian as banka, which is the source of our modern world bank. The money changers would exchange your money from one currency to another but these guys would sometimes take money from their wealthier clients and lend it others at a profit. They would charge what even today would be considered a very high rate of interest, think pay day loan interest.
As with all loans there’s a risk. Just like today the borrower might lose his property or even his life and be unable to repay the loan. If the lender has a few bad loans it would cause the failure of the banker, he would be unable to repay the people he borrowed from. And what would the creditors do if a banker couldn’t pay them back? In the middle ages the creditors may break his table or bench to show the world that he was no longer in business. His bench was broken, he was bankarupta. This expression made its way in the 16th and 17th centuries from Italy to England and over time the expression morphed into our current word, bankarupta has become bankrupt.
As I said in the opening the first bankruptcy in Canada came into force in 1869, it was called an act respecting insolvency but it only applied to businesses. In 1880 that act was repealed and it was left to the provinces to deal with. Then in 1919 the federal government got back into the bankruptcy legislation business passing the bankruptcy act of 1919 and it covered both companies and individuals. The trustee at the time was appointed by the government.
The bankruptcy act was amended in 1923 and the estate’s creditors were given the power to select a trustee. The act was amended again in 1932 and the Office of the Superintendent of bankruptcy was created with the power to grant licenses to bankruptcy trustees. A further amendment in 1950 created summary administration bankruptcies, which are the most common form of personal bankruptcies today and a proposal process was also created. In 1992 the name of the legislation was changed to the bankruptcy and insolvency act and consumer proposals were created. So, there’s the background on bankruptcy legislation in Canada.
So, why am I telling you all of this? Well I’m making the point that the word bankruptcy has existed for many hundreds of years and bankrupt trustees have been licensed by the federal government since 1932.
For over 80 years we’ve been called bankruptcy trustees but that’s about to change. On April 1st, 2016 the term bankruptcy trustee will no longer exist in Canada. The federal government is changing our name. And no, this is not an April fool’s joke, although you’ve got to hand it to the federal government for picking April Foot’s day as the day to introduce new rules. Affective April 1st, 2016 bankruptcy trustees in Canada licensed by the Office of the Superintendent of Bankruptcy, a division of the federal government will be known as licensed insolvency trustees.
I guess in a way it’s somewhat fitting because the first bankruptcy legislation in Canada in 1869 was called an act respecting insolvency so in a way we’re going back to our roots. Of course it will take the public a bit of time to get used to the word insolvency and stop thinking about bankruptcy, which is the word we’ve used in Canada for 97 years. Time will tell how long it will take to get used to the new term licensed insolvency trustees.
That’s the Let’s Get Started segment. I’ll be back with some final thoughts right here on Debt Free in 30.
Doug Hoyes: Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show Ted Michalos and I discussed the new term licensed insolvency trustee, which effective April 1st, 2016 replaces the old term bankruptcy trustee. That’s the 30 second recap of what we discussed today.
So, what’s my take on the new term? Well, I’ve got mixed feelings. On the one hand everyone knows what the term bankruptcy means because we’ve been using that term in Canada for 97 years. The average guy on the street has no idea what the term insolvency means so, it will take a period of time for the public to become familiar with the new designation. I am however pleased that the word licensed is part of the new name because that’s an important distinguishing feature between licensed insolvency trustees and unlicensed debt consultants.
That’s our show for today. Full details on these new rules are available on our website at hoyes.com. Thanks for listening, until next week I’m Doug Hoyes and that was Debt Free in 30.