New Bankruptcy Laws Proposed: How Will They Impact on Residents of Nova Scotia?

On June 3rd, 2005 the Government of Canada introduced bankruptcy reform legislation, Bill C-55. The primary purpose of the reform is to create the Wage Earner Protection Program and to amend the Bankruptcy & Insolvency Act. Though the bill has yet to be passed, there are numerous changes that Canadians should take note of and understand for the future.

First, the Wage Earner Protection Program will ensure that employees are not left hanging out to dry if their employers go bankrupt. Under the new legislation, employees will be guaranteed wage payments of up to $3,000 if such a case occurs. In addition, employees will be given top priority over bank loans for payback. Although this will help employees get paid back more rapidly, banks may be tentative to give large loans to companies knowing they will not be the first to be paid back. In turn, this could hurt employees as well.

Second, students will be eligible for loan discharge after only 7 years of leaving school as opposed to 10 in the event of a bankruptcy. More details are available at http://www.student-loan-bankruptcy.ca

Third, debtors could find themselves bankrupt for a longer period of time. If they have an income over the government permitted threshold (for example, $1,713 per month for an individual) it is likely that they will remain bankrupt for an extended 12 months.

Fourth, substantial debt with Revenue Canada will be more difficult to discharge. If a debtor owes more than $200,000 in tax debt, or if the tax debt makes up 75% of the total debt, the debtor will not be eligible for discharge after 9 months. They will need to attend a court hearing in order to convince the court that they are capable of paying back debts and have a promising financial future.

Fifth, RRSPs will be exempt from seizure under certain circumstances. Contributions made 12 months prior to the bankruptcy will not be exempt.

Finally, in the year that the debtor goes bankrupt, they will lose their tax refund for the entire year.

These rules are not yet law, so we recommend that you contact a local Nova Scotia trustee for further information.