CONSUMER INSOLVENCY BULLETIN - July 10, 2008

On Monday July 7, 2008 the first of many long awaited changes to the Bankruptcy and Insolvency Act came into force. These changes have been widely anticipated since legislation first became law in 2005, and have only now been partially introduced. We have highlighted the current changes that are most of interest to individuals facing financial difficulty.

RRSP, RIF & Deferred Profit Sharing Plans

RRSP's (Registered Retirement Savings Plans) and RIF’s (Retirement Income Funds) are now exempt from seizure by a trustee in bankruptcy. There is a restriction that contributions made in the 12 months prior to the date of bankruptcy are excluded from this exemption and can be recovered by a trustee, except in provinces where exemption legislation is already in force.

There is no change in the rules relating to RRSP’s in Consumer Proposals as, by definition, assets cannot be seized by a trustee unless provided for in the Consumer Proposal.

There is no limitation on the total value of the RRSP or RIF of a bankrupt that is protected. Deferred Profit Sharing Plans have also been added as property of a bankrupt that is entirely unavailable to a trustee. These revisions apply to bankruptcies filed on or after July 7, 2008.

Student Loans

The period for which a student loan is non-dischargeable has been reduced from 10 years to 7 years after ceasing to be a student. This will assist a number of debtors that have continued to experience difficulty in paying student loans after ceasing to be a student. Further, the period of time that a bankrupt must wait to make an application to court for a discharge of the student loan debt on the basis of hardship has been reduced from 10 years to 5 years. Now if an individual has been out of school for more than 7 years from the end date of the course in which they were enrolled, the student loan debt can be released on discharge. These changes apply to bankrupts who have not been discharged on or before July 7, 2008.

Security Agreements in Proposals

Provisions have been amended to now restrict secured creditors from terminating or amending security agreements following the filing of a Proposal or a Consumer Proposal. This means that a creditor who has security on, for example, a vehicle can no longer seize the vehicle simply because an individual has filed a Consumer Proposal or Proposal.

Non-dischargeable Debts

Paragraph 178(1)(e) now includes services as a debt that is non-dischargeable when the services are obtained by false pretences or fraudulent misrepresentation. Previously the section only referred to “property” which referred to a purchase of a physical item. These revisions apply to proceedings filed on or after July 7, 2008.

For complete information and to answer your questions thoroughly, we encourage you to contact your local BDO office, request a call, or use our application form.