Mandatory Bankruptcy Counseling: The Canadian Experience

I. INTRODUCTION Like the United States, Canada has a relatively high rate of individual bankruptcy filings compared with other industrialized countries.1 While there are significant differences between the bankruptcy systems of the two countries, the Canadian system has two characteristics of interest to the current United States proposals on consumer bankruptcy reform. These are the use of means testing2 and the requirement of mandatory counseling as a condition of receiving a discharge.3 In this Article, I focus on mandatory counseling and discuss four issues concerning counseling: the nature and scope of bankruptcy counseling; its implementation in practice; existing evidence on its effectiveness; and finally, contrasting assumptions about counseling as a response to problems of debt. I conclude that the role and value of mandatory counseling remains controversial and the difficulties of providing objective measures of its success or failure ensure that a clear resolution of its success or failure is unlikely. II. THE INTRODUcTION OF MANDATORY COUNSELING Canada introduced mandatory counseling for bankrupts in 1992.(4) The rationale for the introduction of counseling was to prevent repeat bankruptcies5 and to further rehabilitative goals of behavior modification.6 Creditors had lobbied for the inclusion of mandatory counseling during legislative debates.7 The concept of counseling was also supported by the Office of the Superintendent of Bankruptcy, the independent agency that regulates the bankruptcy process in Canada.8 Debtors in Canada may choose to declare straight bankruptcy, resulting in a discharge of most unsecured debts after nine months, or make a consumer proposal to repay all or a portion of their debts over a period not exceeding five years! The majority of debtors who declare bankruptcy make income repayments to the estate during the nine-month period before discharge, primarily to pay the fees11 of the trustee in bankruptcy. In addition, individuals with surplus income, as defined in the statutory guidelines,12 are required to contribute a percentage of their income during the nine-month period.13 Approximately fifteen percent of bankrupts fall within this category.14 The norm for a consumer proposal is a three-year repayment plan and the average proposal offers to pay approximately fifty percent of unsecured debts.15 Whichever route is chosen, whether bankruptcy or proposal, individuals are required to undergo two counseling sessions. A failure to attend a counseling session results in a debtor not receiving an automatic discharge and requires a court application for discharge.16 There are three instances in the Canadian bankruptcy process that could be characterized as counseling, although only two are formally described as such. At the point when an individual is considering bankruptcy and has visited a trustee, the trustee is required to make a pre-bankruptcy assessment of a potential bankrupt.17 This includes an outline of the debtor's financial affairs, a discussion of the debtor's options, including the option of a consumer proposal, and the various rights and responsibilities of the debtor.18 This directive was introduced in response to concerns that individuals were being processed through bankruptcy by clerical personnel in trustee firms without being provided with a full explanation of their options and without an opportunity to meet a trustee.19 The first formal counseling session takes place shortly after the declaration of bankruptcy20 and is titled Consumer and Credit Education.21 The counselor should provide the debtor at this stage with consumer advice in (i) money management; (ii) spending and shopping habits; (iii) warning signs of financial difficulties; and (iv) obtaining and using credit.22 The second counseling session, which takes place shortly before the discharge23 in a straight bankruptcy is entitled Identification of Road Blocks to Solvency and Rehabilitation. …

Récupéré en direct depuis OpenAlex et désinversé. Les résumés ne sont pas conservés dans cette base de données : les index inversés représentent 8,6 Go des 9,3 Go de texte de la base, et le serveur dispose de 13 Go libres.