The reforms we’ve discussed so far signal that a paradigm shift with respect to consumer bankruptcy in Canada is well under way. A key component of consumer bankruptcy in Canada has, since 1919, been the non-waivable or mandatory consumer bankruptcy discharge. In a similar, but more mediated fashion than our American neighbors, bankruptcy’s discharge of past debts that cannot be contracted out of has in recent times been regarded as part of economic rehabilitation, which is equated with a “fresh start.” However, the 1997 amendments attempted to effect a move from rehabilitation of the debtor to asking debtors to rehabilitate their debts by making payments out of surplus income. The 1997 amendments required trustees to assess whether bankrupts could have made a viable consumer proposal and whether they cooperated with the trustee by meeting any surplus income requirements.
Despite the underlying assumption that many bankrupts have an ability to make repayments to creditors, in practice these amendments had a limited impact on the majority of bankrupts who could not make a proposal because they did not have surplus income. Over a decade later, the current reforms will take the 1997 amendments further, as these reforms impact bankrupts with surplus income and also expand the group included in the paradigm shift to include certain debtors who do not have surplus income but owe tax debt or student loan debt to the government. While the 1997 BIA amendments had limited practical impact, they signaled a return to the “deviant debtor” construct, which positions bankruptcy law as a response to deviant behavior. The current reforms hold the potential to further entrench this construct in Canada’s consumer bankruptcy system. The following are three examples.