A Dirty Little Secret about the Government and Bankruptcy in Canada

June 22nd, 2009 by A Licensed Insolvency Trustee

The purpose of Trustees Talk is to give you an inside look at the bankruptcy process in Canada, and to provide information you can’t find anywhere else. Today, I’ll let you in on a dirty little secret: the federal government is fast asleep.

In Canada, bankruptcy laws are created by the federal government. Their job is to make sure bankruptcy laws are fair to all parties (both debtors and creditors). As the economy grows and changes, it’s important that laws are modified to keep up with the changes.

Here’s an example: You can only file a consumer proposal if your total debts, not including the mortgage on your principal residence, are less than $75,000. When this rule was created in 1992, $75,000 was a lot of money, so the limit made sense. Today, thanks to inflation and the expansion of credit over the the last 17 years, it is not unusual to owe more than $75,000 on credit cards, bank loans, car loans, and other debts. Unfortunately, if you do, you can’t file a consumer proposal if you have more debt than you can handle. If you are insolvent your only options are either personal bankruptcy, or a proposal filed under Division 1 of the Bankruptcy & Insolvency Act, which is a costly and cumbersome procedure.

The logical solution, of course, is for the government to increase the limit on debt allowed in a consumer proposal, so that more people can avoid bankruptcy and file proposals. The government agreed, and passed new laws to increase the debt limit on consumer proposals to $250,000. This new rule was contained in two new bills: Bill C-55 that was given Royal Assent on November 25, 2005, and Bill C-12, that contains other changes, which was passed and received Royal Assent on December 14, 2007.

Great news, right? Not quite, and here’s the dirty little secret: Although these laws were passed and given Royal Assent, they have not yet been proclaimed into force!

You read that correctly: on two separate occasions Parliament passed new laws to help the average Canadian, but they have not set a date for the new rules to be implemented.

What are they waiting for?

I have no idea.

My theory is that with a minority government in Ottawa, the Prime Minister doesn’t want to announce any new laws with the word “bankruptcy” in them, even if the new laws actually help Canadians avoid bankruptcy. The Prime Minister wants everyone to believe that the economy is improving, and everything is getting better, and therefore we don’t need to worry about bankruptcy. Unfortunately that is a very naive view of the world. It’s silly to do nothing and assume everything will get better; a smarter strategy would be to help people now.

I’m just one person, so I have no power to influence the government. I’m not a highly paid lobbyist with some big corporation, I’m just a trustee but that won’t stop me from trying to get the government to listen. In May, 2009 I sent e-mails to both Prime Minister Stephen Harper, and Industry Minister Tony Clement, asking that they bring the new consumer proposal rule into force. The Prime Minister’s office responded by saying that the statements I made “have been carefully reviewed.” A few weeks later the Industry Minister’s office responded in a letter saying “The government is committed to bringing the consumer proposal amendments … into force at the earliest possible opportunity.”

The new consumer proposal rule was first passed in November, 2005. It is now the summer of 2009, almost four years later, and we are still waiting for implementation. Does that really sound like the “earliest possible opportunity?”

I will keep sending letters, and I will travel again to Ottawa to speak before anyone who will listen if asked, because I believe this rule should be changed. There is nothing in this for me. As a trustee I actually charge a higher fee in a a complicated Division 1 proposal than I can charge in a simplified consumer proposal. But that’s exactly the reason this limit should be changed. I will charge less, so the creditors will receive more money, so they will be happy. And Canadians in financial difficulty are more likely to be able to negotiate a settlement through a consumer proposal, than a more complicated Division 1 proposal.

Creditors win. Debtors win. Taxes don’t increase. There is no cost to the government, or anyone else. That’s a win win, so I will continue to advocate that the federal government do their job and implement rules to help Canadians in financial difficulty. And if the rules do change, I’ll post something here on the Bankruptcy Canada web site. Check back often for the latest news and information.

A Licensed Insolvency Trustee

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