As readers of the Credit Slips blog are well aware, a central feature of BAPCPA was means-testing. Means-testing requires all debtors to calculate their estimated ability to pay (according to complex formulae) and to file these calculations with their Chapter 7 petitions. A failure to do so results in automatic dismissal of their petition. In contrast, the Canadian approach is to focus on means-measurement. That is, for liquidation bankruptcies, the bankruptcy trustee on the basis of regulations set by the Office of the Superintendent in Bankruptcy (OSB) sets the amount debtors are required to pay (if any) during the bankruptcy period. For debtors who are required to pay under the current means-measurement tests, the reforms will increase the period of repayment. The reforms do not seek to introduce means-testing into the Canadian system.
Functionally, the key difference between means-testing and means-measurement is that means-testing, as put into place in the United States, creates a hurdle at the front end for all debtors filing for liquidation bankruptcies. The means-testing calculation results in a more complex and time-consuming bankruptcy process, which in turn drives up the fees of filing for bankruptcy, even for those bankrupts who clearly meet the test. The result is that an increasing number of debtors are not able to afford bankruptcy. At the ideological level, means-testing operates on a presumption of abuse.
I have asserted that Canada’s resistance to adopting the American means-testing model is a laudable feature of the reforms. I argue that the Canadian means-measurement approach, while not without its own flaws, is more effective than the American model at putting into practise the objectives articulated by proponents of means-testing in the United States. See “The Canadian Consumer Bankruptcy Discharge” in Stephanie Ben-Ishai and Tony Duggan, eds. Canadian Bankruptcy and Insolvency Law: Bill C-55, Statute C.47 and Beyond (Toronto: LexisNexis Canada Inc., 2007).