New Bankruptcy Rules Proposed: How Will Bill C-55 Impact on Your Bankruptcy?

The Wage Earner Protection Program - This program has been established in order to protect employees who in the past would have been left in the dark when employers go bankrupt. Under the new Act, employees will be guaranteed wage payments of up to $3,000 if their employer goes bankrupt. In addition, employees will be given top priority over bank loans for payback. Having priority over bank loans will be an advantage to employees on a short term basis; however, banks may be reluctant to give large loans to some companies, knowing that it will be difficult to get the money back. This could end up hurting employees as well.

Student Loans - A reduction in the student loan discharge period will see students being discharged after 7 years rather than 10. After 5 years of being out of school the student may apply to have their debts discharged More information on proposed changes to the student loan discharge rules can be found at www.student-loan-bankruptcy.ca.

Bankruptcy Duration – The period of time that debtors are bankrupt for will be extended in some cases. Currently, first time bankrupts are eligible for automatic discharge after nine months. If Bill C-55 is passed, if a debtor has income over the government allowed threshold, ($1,713 per month for an individual, higher for a family) it is likely that their bankruptcy will be extended for an additional 12 months. Repeat bankrupts will be bankrupt for an even longer period of time.

Debt with Revenue Canada - It will be more difficult to discharge substantial debts with Revenue Canada. If an individual in debt owes more than $200,000 in tax debt, and the tax debt is 75% or more their total debt, debtors will be ineligible for discharge after nine months. The individual in debt will need to attend a court hearing to convince the court that they are capable of paying off debts, that they have a promising financial future, and that they should be discharged.

RRSPs - RRSPs will be exempt from seizure in certain circumstances. Contributions made in the 12 months prior to the bankruptcy will not be exempt. The RRSP will only be exempt if the person in debt "locks in" the funds, subject to a maximum cap.

Tax Refunds - In the past, debtors automatically lost their tax refunds for the years prior to the bankruptcy, and the period up to the date of the bankruptcy. Now, in the year that the debtor goes bankrupt, they will lose their tax refund for the entire year.