Bankruptcy and Insolvency Act Changes Come into Force

On September 18, 2009, changes to the Bankruptcy and Insolvency Act will come into force.  These changes will have a significant impact on personal bankruptcies and consumer proposals in this country.  The following are a few of these changes:

• Definition of Income – The definition of “total income” has been amended to include amounts received by the bankrupt between the date of bankruptcy and the date of discharge, including amounts for wrongful dismissal, pay equity settlements or workers’ compensation, but not including amounts received during the same time period as a gift, inheritance or other windfall.  Moreover, a requirement to pay surplus income is enforceable against income that would otherwise be exempt, and income earned but not yet received is included in the definition of “total income.”

• Bankrupts with High Income Tax Debt – First-time bankrupts with personal income tax debt in an amount exceeding $200,000, representing 75% or more of total unsecured proven claims, will no longer be eligible for an automatic discharge from bankruptcy.

• Surplus Income[1]  – First-time bankrupts who have surplus income will be required to contribute the surplus income to their estate for 21 months.  Second-time bankrupts will be required to contribute the surplus income to their estate for 36 months.  In both cases, the requirement to contribute the surplus income are subject to a change in circumstances that impact on the surplus income obligation.

• Discharge of Second-Time Bankrupts  – Second-time bankrupts will now be eligible for an automatic discharge after 24 months if there is no surplus income and after 36 months if there is surplus income.

• Definition of Consumer Debtor – A consumer proposal may now be filed by someone with up to $250,000 in debts (up from $75,000), excluding mortgages on their principal residence.

• Mandatory Counselling – Debtors making a consumer proposal will now have to undergo mandatory counselling in order to receive a certificate of full performance of the consumer proposal.

Anyone considering a personal bankruptcy or consumer proposal should seek the advice of a qualified bankruptcy professional.

Joël M. Dubois is a member of the Litigation Law Group at Perley-Robertson, Hill & McDougall LLP. Joël can be reached at 613.566.2815 or [email protected] to answer any questions you may have regarding listing this article.