This article will be helpful to someone who is trying to deal honestly with overwhelming personal indebtedness and who has a genuine desire to make a fresh start financially.
Briefly noted are two of the changes to Canada’s Bankruptcy and Insolvency Act (BIA) applicable to individuals since July 7, 2008. The topics are:
- a slightly more lenient handling of government student loans and
- broader protection for registered retirement savings plans (RRSP). Both relate to a lifetime’s most laudable endeavours – getting an education and planning for retirement.
Briefly noted also are two of the changes to the BIA applicable to individuals as of September 18, 2009:
- the automatic discharge from bankruptcy for individuals has been changed, and
- an exception was created to deal with certain personal income tax debtors who become bankrupt.
These modifications are intended to prevent abuse of the bankruptcy law.
A fundamental purpose of the BIA and the personal bankruptcy process is the financial rehabilitation of the honest but unfortunate debtor.
Make a Proposal or Go Bankrupt
The BIA requires the debtor to be advised of the merits and consequences of the options available to resolve financial difficulties, including making a proposal to creditors, rather than voluntarily going into bankruptcy. This advising is the duty of a licensed trustee in bankruptcy.
The BIA enables a person (an insolvent debtor who is an individual) to make a formal proposal to his or her creditors to settle debts and avoid (the stigma of ) bankruptcy. Proposals under the BIA are either general or consumer. Since 1992, the streamlined process of a consumer proposal is available to a person where total debts do not exceed $250,000 (increased from $75,000 as of September 18, 2009) excluding mortgages against a principal residence. A successful proposal settles the debts on the terms set out in the proposal.
Bankruptcy involves a liquidation of the bankrupt’s available assets (if any) and distribution of the proceeds by the trustee of the bankrupt’s estate to the creditors. A discharge from bankruptcy releases the bankrupt from the unsecured debts existing when the bankruptcy began except for certain specified claims. A controversial exception since 1997 is that unpaid government student loans continue to exist after bankruptcy until paid or released by the bankruptcy court.
