Bankruptcy Modernization Legislation Introduced in Canada

1.)

Wage Earner Protection Program - In the past, employees have been left in the dark when their employers file for bankruptcy. With the new protection program, employees will be guaranteed wage payments of up to $3,000 if their employer goes bankrupt. In addition, they will also be given top priority over bank loans for payback. Having top priority may seem like a benefit; however, it should be noted that banks may be reluctant to give large loans to companies if they know they will not be the first to be paid back. This could in turn affect employees as well.

2.)

Student Loans - Students can expect to see a reduction in the student loan discharge period. Presently, students cannot have their loans discharged until ten years after they have left the school. With the new bill, students may be discharged after 7 years.

3.)

Bankruptcy Duration - Individuals in debt are currently eligible for discharge after nine months. With the new legislation, if a debtor has an income over the government allowed threshold (for example $1,713 per month for a single individual) their bankruptcy will likely be extended for an additional 12 months.

4.)

Debt with Revenue Canada - Those who have significant debt with Revenue Canada will have a difficult time discharging them. If they owe more than $200,000 in tax debt, or the tax debt is 75% of the total debt, they will be ineligible for discharge after nine months. They will need to attend a court hearing in order to convince the court that they are capable of paying debts, that they have a promising financial future, and that they deserve a discharge.

5.)

RRSPs - RRSPs will now be exempt from seizure under certain circumstances. Any 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.

6.)

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