Bankruptcy in Canada - Some changes re RRSPs, Student loans and discharges - by Murray Morisson A Greater Vancouver Lawyer speci

This is a guest Editorial by Murray Morisson.  Murray is the type of person you should go to first when in financial diffivulty.  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 unde 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.
A Potpourri of changes to the Bankruptcy and Insolvency Act
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
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.
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.
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 or call Murray Morrison at (604) 930-9013
The following was published in the Western Investor in March, 2004
March 2004 ­ Western Investor 
Column: Bankruptcy ­ David Ingram 12 blocks 
Pullquote:  "Pull the plug if you are fighting a losing battle"
LEAD = Last year in B.C. 9,527 consumers and more than 1,100 businesses filed for bankruptcy. 
( Photo)
Editor¹s note: In 2003 David Ingram lost a near $5 million tax battle with Canada Customs and Revenue Agency, one of the largest personal tax judgements in Canadian history.  In this, the second of two parts, he offers a first-person account on dealing bankruptcy, what you are allowed to keep and what you have to lose.  
I have just received my discharge from bankruptcy.  It isn¹t completely over.  I have to pay $800 a month for 36 months starting on February 7th, but that is a lot better than the $4,853,000 income tax bill that started it with no assets. 
Well there were family assets. But over a period of 21 years I went from a positive paper net worth of $4,800,000 to a negative $4,800,000 because of an income tax bill that I fought in court and lost and then got stubborn. 
If I had to do it again, I would have walked into a bankruptcy trustee¹s office 15 years ago and got on with my life.  Instead I decided to fight. 
So the house was put in my wife¹s name, the cars were in my wife¹s name, the motorhome was in my wife¹s name and the business was in my wife¹s name.  How could I get hurt? 
Then my wife left me and took all the assets with her.
Thankfully, the CCRA finally gave up on collecting and hired a trustee to put me into bankruptcy.  I understand that I might be the first person that the CCRA put into receivership in Canada. Oh sure, there are thousands of instances where a taxpayer has declared bankruptcy because of a tax bill.  But apparently no one knows of an individual put into bankruptcy by the CCRA. 
Now you have to know that I have advised a couple of hundred people to go bankrupt over the years.  Their situation was hopeless and bankruptcy was the only solution.  I had had an appointment to see a bankruptcy trustee myself on July 22, 1999 but broke my arm and leg in a motorcycle accident and never made the appointment. But I should have rescheduled and got on with my life three years earlier because it took the CCRA three more years to put me into bankruptcy. 
Subhead = Ask for help 
This article is meant to encourage you to see a trustee and pull the plug if you are fighting a losing battle, particularly if the major creditor is the CCRA. 
If you have money problems for any reason that could include divorce, separation, unexpected tax penalty, leaky condo, company downsizing, illness, an accident or any combination of the above, you will need help. 
That help may be as simple as taking an adult education course in family finances at your local high school.  Most adult education courses include such a course and even though I taught them for years, it did not keep me out of that $5,000,000 bankruptcy after three of the above events occurred. 
If you need more immediate help and you happen to live in Greater Vancouver, contact a credit counselor. There are lots around. If you want a referral, send me a request to taxman at 
I am now seeing financial disasters of others on a daily basis.  I am talking about the $186,000 income tax reassessment for something that happened five years ago.  I am talking about the leaky condominium where the debt is $100,000 and you would have to earn $190,000 and pay $90,000 income tax to have $100,000 left and that is not counting interest accruing while you are doing it. 
In this case, you need to consult competent legal help, a lawyer who specializes in bankruptcy law and will work for you and give you and your family the advice it needs to preserve any assets possible and tell you what you can do and cannot do.
Why not save a couple of dollars and go directly to the trustee? 
The simple fact is that the trustee does not work for you. The trustee is working for the creditors.  
Subhead = What can you keep?
The trustees job is to get the most for the creditors following local federal, state or provincial guidelines that have different limits in each province and each state. 
In British Columbia, the assets that a bankrupt can keep are: 
Equity in a home in Greater Vancouver and Victoria = $ 12,000. 
In the rest of the province   = $ 9,000; 
Equity in household items   = $ 4,000; 
Equity in a vehicle    = $ 5,000;  The vehicle exemption drops to $2,000 if the debtor is behind on child care payments (to facilitate the enforcement of Maintenance Orders) 
Equity in work tools    = $ 10,000; 
Equity in essential clothing and medical aids is unlimited. 
Alberta shows its agrarian roots with much larger exemptions as follows: 
Food required by the debtor and dependants for next 12 months; 
Necessary clothing of debtor and dependants to a value of $4,000; 
Household furniture and appliances to a value of  $4,000; 
One motor vehicle not exceeding a value of $5000; 
Medical and dental aids required by the debtor and dependants; 
Where the debtor is a bona fide farmer and whose principal source of  livelihood  is farming,  160 acres, if the debtor's principal residence is located on  that 160 acres and that the 160 acres is part of the debtor's farm; 
The equity in the debtor's principal residence, including a mobile home, up to a value of $40,000; 
If the debtor is a co-owner of the residence, the amount of the exemption is reduced to an amount that is proportionate to the debtor's ownership interest; 
Personal property (i.e. tools, equipment, books) required by the debtor to earn income from the debtor's occupation up to a value of $10,000; 
Where the debtor's primary income is from farming operations, personal property required by the debtor for the proper and efficient conduct of the debtor's farming operations for the next 12 months, plus some other specific exemptions.  
Saskatchewan Exemptions and agrarian routes are even more generous: 
For Non-Farmers: 
Household furniture and personal effects to a value of $4,500 per person; 
Tools of the trade to a value of $4,500; 
A motor vehicle, if required for employment; 
$32,000 equity in your home ($64,000 if jointly owned); 
Certain life insurance policies; 
RRSPs, RRIFs and DPSPs are exempt from seizure (effective March 4, 2003); Certain pensions. 
For farmers, the exemptions are more generous and include equipment and machinery for one year of farming; living expenses to the next harvest, certain life insurance and pensions and other specific exemptions.   
Manitoba Exemptions are a little light: 
Furniture, household furnishings and appliances not exceeding total value of $4,500; 
Necessary and ordinary clothing of the debtor and family; 
Food and fuel necessary to the family for period of six months or cash equivalent; 
Actual residence of the bankrupt, equity of $1,500 each if in  joint tenancy, or $2,500 if not in joint tenancy. 
If debtor is a farmer, exemptions include livestock, machinery and equipment necessary for farming operation for 12 months; enough seed all debtor land under cultivation, plus some other specific exemptions. 
(For complete information on provincial farming exemptions see: )
Subhead = First step 
Talk to a bankruptcy lawyer first.  If you want a reference, email me at taxman at  Get your law straight.  Learn what you get to keep and what the limits are.  In B.C.for instance you can have $5,000 equity in a car.  However, The Bank of Nova Scotia (for one) will insist on seizing your car even if you have never missed a payment if the car loan is with them.  Arranging for someone else to take over the loan before you go bankrupt could make the transition easier. 
Hope this helps.  Remember - see the lawyer first - before you see the trustee.  And only talk to a lawyer who deals regularly with bankruptcy and appears in court for bankrupts protecting their rights. That means perhaps one in 100 lawyers.  There is little chance that a lawyer you are already dealing with would be the one you would use because a bankruptcy lawyer is likely too busy today to do anything else. 
At bottom: 
- David Ingram is the CEO of david ingram's CEN-TA of  North Vancouver.  Ingram can be reached at (604) 980-0321 or email at  taxman at
End of Western Investor Article
david ingram's US / Canada Services
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David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental 
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out 
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.  
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.  
This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
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