This is a guest Editorial by Murray Morisson.  Murray is the type of person you should go to first when in financial difficulty.  His office has a credit counselling service as well but the main thing is that if you contact a bankruptcy "lawyer" first, rather than a bankruptcy trustee, you are now dealing with a person who is working for you, not the creditors.  The sad part is that the trustee's job is to get the most for the creditors while treating you with your rights under the law.  Unfortunately, things that you tell your trustee may backfire.  My advice is to see a lawyer like Murray Morrison FIRST.
To read about my own experience as published in the Western Investor, go to the end of Muray's article.

 As is so often the case, our Federal Government recently passed (but didn’t proclaim) wholesale amendments to the

Bankruptcy and Insolvency Act.

 In this Article, it is just referred to as the "Act".

Even though these amendments were passed, the majority of them were not proclaimed into law (heaven knows why), and some were proclaimed piecemeal.

A summary of some of the more significant changes follows together with a bit of history, where required

STUDENT LOANS

Prior to 1992, all monies owed in a bankruptcy to either the Federal or Provincial government were known as "Preferred Claims", and were given priority over all unsecured claims;

In 1992, for whatever reason, the Government elected to give up its "preferred" status, and become a regular unsecured creditor, just like, for example,  Visa, MasterCard and the like, which meant that these government debts would be discharged (legally forgiven) in the normal course of events like any other unsecured debt.

It didn't take very long for the government to decide it was unhappy with that approach, and on September 30, 1997, the Act was amended to state that Student Loans could not be discharged from bankruptcy in the ordinary way, unless two years had elapsed from the time the person left school until they filed for bankruptcy.  In fairness, it did seem at that time that a lot of people were leaving school and turning directly into the office of a Bankruptcy Trustee and filing, where their primary and most substantial debt was the Student Loan.

The institutions which granted Student Loans were unhappy with this short two-year period; and in June 1998, that period was extended to a full 10 years.  This made life very difficult for Student Loan recipients; as, while they could obtain a discharge from their "regular" debts within the nine-month automatic discharge period, their Student Loan debt was often forgotten and remained undischarged and subject to attack until the student separately applied for and obtained a discharge from that Student Loan debt.

Following years of major outcry by student’s rights groups, the Government has now dropped the time period from 10 years to 7.  Quite frankly, this writer finds that concession completely underwhelming.  The Government then goes on to confuse the issue further by saying that anyone can apply on the basis of "hardship" after five years.  What does this mean?  "Hardship" is not defined in the Act.  What the Act does say is that if the Court is satisfied that the bankrupt "has acted in good faith" with respect to the loan, and will continue to experience financial difficulty such that he or she cannot pay the loan, the Court can release that person from liability.

The likely consequence every bankrupt who isn't doing well and has been out of school for a total of five years may be bringing application under this section.  It is hoped that these applications will be so numerous that the Court complains, resulting in a further modification to this legislation.

RRSPs

On the good news side of the ledger, RRSP’s and RIFFs are now exempt from being attached in a bankruptcy, except for payments made within the 12 months preceding the bankruptcy, which can be "clawed back".

Some provinces had legislation to this effect, but British Columbia did not; other than to make this type of financial instrument exempt if it had a named beneficiary, such that it was, in effect, an insurance policy.

As is so often the case however, the Court, on application, may extend the clawback period.  This will make for some interesting litigation, as the Act does not specify on what basis such an extension may be granted to an applicant.

AFTER THE TRUSTEE

In bankruptcy, the Trustee is in effect, a barrier between the creditors and the bankrupt.  This is called a “stay of proceedings" and is effective until the Trustee is discharged. Woe betide the bankrupt who doesn't obtain his or her discharge prior to the Trustee obtaining their discharge.  The writer sees this happen in his practice constantly.  The bankrupt doesn't file monthly budgets, or doesn't obtain counseling as required by the Act, and the Trustee objects to the bankrupts discharge.

The Trustee ambles down to Court, and in a very summary way obtains an Order adjourning the bankrupt’s discharge.  The responsibility to get the discharge now rests squarely on the shoulders of the bankrupt, but Trustees are not at all good at passing on this information in a clear fashion, and folks often assume that their bankruptcy is over, done with, finished etc.

Then the Trustee obtains its discharge, and the creditors can now sue, seize and create all sorts of mayhem without the bankruptcy having any impact at all.  This was common law in British Columbia, but has now been codified into the Act for all provinces.

For questions relating to bankruptcy, please see

morrocolaw.ca

or call Murray Morrison at (604) 930-9013

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