July 7 2008 Changes In Bankruptcy Legislation

These are some of the changes that came into force on July 7, 2008. The full text of the July 7, 2008 changes will be made public on July 23, 2008 when they are published in the Canada Gazette.

Major Consumer Changes

Some New Legislation was passed:

Wage Earner Protection Program (WEPP)

• On July 7, 2008, The Government of Canada announced that the Wage Earner Protection Program Act and Regulations were proclaimed in force.
• The purpose of WEPP is to provide payment of outstanding wages to individuals whose employers become bankrupt OR subject to a Receivership.
• To be eligible for compensation under the program, a worker must have his/her employment ended as a result of his/her employer filing for bankruptcy or being subject to a receivership.
• The worker must be owed wages and vacation pay earned during the six months prior to the date of bankruptcy/receivership.
• Officers and Directors of the employer are NOT eligible.
• Benefit amount can be up to $3,000.

Student Loans

• Effective July 7, 2008, student loan debt can be discharged in a bankruptcy if 7 years has passed since the former student has terminated his/her studies.
• Effective July 7, 2008, if the bankrupt has a case for undue hardship, the bankrupt may apply to court to obtain a discharge of student loans after 5 years.

RRSPs

• Effective July 7, 2008, amounts held in Registered Retirement Savings Plans, are exempt from seizure in a bankruptcy. The exemption is subject to a clawback for contributions made in the 12 months preceding the bankruptcy
• Where provincial legislation exempts RRSPs from execution, the provincial legislation will apply
• Where provincial legislation is silent regarding the treatment of RRSPs, they will be exempt subject to the 12 month clawback

Legislation still awaiting implementation.

Individual Bankrupt’s Discharge

• If a bankrupt has surplus income during the first 9 months of bankruptcy, the bankrupt will NOT receive an automatic discharge and will be subject to a further 12 months of payments before discharge. Total of 21 months of surplus income payments
• If an individual has a second bankruptcy, he/she would be eligible for an automatic discharge (no court appearance) in 24 months
• If an individual has a second bankruptcy, and has surplus income, the individual will be subject to 36 months of surplus income payments
• IF the bankrupt has more than $200,000 in personal income tax debt and this amount represents 75% of the bankrupt’s total unsecured debt, he/she will not be eligible for an automatic discharge. Discharge must be dealt with before the court. The court can not grant an absolute order of discharge to the bankrupt, only a suspending order of discharge, conditional order of discharge or an order refusing discharge

Miscellaneous

Income Tax Refunds

• Pre and Post bankruptcy income tax refunds are now automatically part of the Bankruptcy Estate. Previously only the Pre bankruptcy tax refund was automatically part of the estate

Trustee Fee Agreements

• Agreements regarding the payment of Trustee’s Fees and Expenses are now permissible and enforceable after the Bankrupt has been discharged.

Consumer Proposals

• The debt ceiling for filing a consumer proposal will be increased from $75,000 to $250,000, excluding mortgages on principal residence
• Administrators of consumer proposals will be given the discretion to “revive” a consumer proposal that is in default. Previously there was no provision to “revive” a consumer proposal in default