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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 7 - Evidence - Meeting of February 7, 2008

OTTAWA, Thursday, February 7, 2008

The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:55 a.m. to examine and report upon the present state of the domestic and international financial system. Subject: Bankruptcy and Insolvency.

Senator W. David Angus (Chair) in the chair.


The Chair: Good morning, ladies and gentlemen. I am calling the meeting of the Standing Senate Committee on Banking, Trade and Commerce to order.

We are continuing our study on bankruptcy and insolvency, in particular, the provisions contained in Bill C-12, which was approved without amendment by this committee just before Christmas. Now we are reviewing not only Bill C-12, but its predecessor or companion legislation, Bill C-55, enshrined in the Revised Statutes of Canada, 2005, as Chapter 47.

Before we start our hearings, I would like to welcome a new member of our committee, Senator Mobina Jaffer, a very prominent attorney from British Columbia. We are delighted, Senator Jaffer, to have you with us.

Senator Jaffer: Thank you.

The Chair: It is also my custom at the beginning of each meeting to introduce the committee members. I am Senator Angus, from Quebec, and I am chair of the committee. Senator Goldstein, the deputy chair, is also from Quebec and Senator Tkachuk is from Saskatchewan. We also have Senator Harb, from Ottawa; Senator Moore, from Halifax; and Senator Ringuette, from all of New Brunswick.

We will start with Mr. Doug Hoyes and Mr. Ted Michalos, of Hoyes Michalos & Associates Inc., which I understand is a firm of bankruptcy trustees.

Doug Hoyes, Bankruptcy trustee, Hoyes Michalos & Associates Inc.: Thank you, Mr. Chair and honourable senators, for giving us the opportunity to present our submission today.

Mr. Michalos and I founded Hoyes Michalos & Associates Inc. in 1999. Since then, we have assisted in excess of 14,000 individuals and families through the insolvency process. Our firm operates from 21 locations in Ontario; and in 2008, we expect to help an additional 3,000 people resolve their personal financial problems.

We are one of the largest independent firms in the country that works exclusively with people, not corporations, so our comments today will focus solely on the area of personal insolvency reform.

Mr. Michalos and I and our bankruptcy trustees spend each day meeting with people in financial distress. These are real people who, in many cases, have lost their jobs, gone through a marriage breakup or suffered through an illness; and after these personal tragedies, they are faced with insurmountable debt.

These are not bad people. We believe it is important that when parliamentarians draft bankruptcy legislation, they remember that real people are affected.

A great deal of emphasis has been placed on the new wage-earner protection provisions of the law. While these are important, these provisions will affect, at most, 15,000 Canadians a year. More significant is the fact that about 100,000 Canadians file bankruptcy or a proposal each year.

Unfortunately, that group is not organized and so probably will not have anyone to speak on their behalf before this committee. We hope that our testimony will highlight some of the concerns of the average bankrupt.

I believe everyone agrees there are two principal objectives of the Bankruptcy and Insolvency Act. The first is to bring about the rehabilitation of the honest but unfortunate debtor by discharging their debts and providing them with the skills necessary to avoid financial problems in the future. The second purpose is to provide for the orderly and fair distribution of the bankrupt's property to their creditors by maximizing the funds distributed to the creditors.

In our opinion, the recent changes emphasize the act's second purpose — that is, increased realizations for creditors — and are less directed toward the rehabilitation of the honest but unfortunate debtor. We base this conclusion on the fact that the majority of the amendments focus on reducing administrative work and costs while extending the period of repayment for persons with higher incomes.

The only obvious amendments that will make the insolvency process better for debtors are the new exemption for certain RRSPs, the new rule that prevents a lender from cancelling a security agreement simply because a bankruptcy or a proposal has been filed and the increased debt limit on consumer proposals.

We believe that the debt limit for the filing of a consumer proposal being increased from $75,000 to $250,000 will encourage even more people to take advantage of the consumer proposal option, and we strongly support that amendment. However, there are two areas where the proposed new rules are biased in favour of increasing recoveries for creditors, as opposed to rehabilitating the honest but unfortunate debtor — student loans and the treatment of tax debts.

I am sure this committee is well aware of the plight of college and university students. The cost of tuition fees for a school year has increased from just over $1,000 in 1998 to over $5,000 today, not including living expenses. That is a 500 per cent increase during a time when the minimum wage in Ontario has increased by 60 per cent.

Back in 1988 a student could work for 16 weeks during the summer at minimum wage and earn enough to cover their tuition. That is almost impossible today, so an ever increasing number of students must resort to student loans to fund their education.

We analyzed the data in our database of debtors that we have helped over the last year and a half, and we discovered that the average insolvent debtor with student loans is a female, age 37, with over $8,000 in student-loan debt. That number may not sound like much, but when we consider that many of these people have been paying their loans for over 10 years when they go bankrupt, it is a significant burden.

We also found the income for debtors whose student loans represent more than 50 per cent of their debts is 12 per cent less than the average insolvent debtor's income and 56 per cent less than the average Canadian's. We believe our research proves that people who file bankruptcy because of student loans are younger than the average bankrupt, disproportionately female and have lower incomes than the average bankrupt.

Tragically, the bankruptcy process has become something of a Band-Aid solution for the real problem of funding for higher education, which has not kept pace with the cost of that education over the years. Our data proves that the average bankrupt with student loans is truly the honest but unfortunate debtor that the bankruptcy process was designed to help. They need help, so we recommend that the rules be amended to allow for student loans to be automatically discharged after two years, not the seven-year rule proposed in the most recent amendments. These debtors need a fresh start, and we believe the bankruptcy process should give them that fresh start.

I would like to call on my colleague, Mr. Ted Michalos, to talk about the second area requiring improvement: The treatment of tax debts.

The Chair: Thank you. Senator Biron, from the province of Quebec, has joined our meeting.

Ted Michalos, Bankruptcy trustee, Hoyes Michalos & Associates Inc.: Thank you for this opportunity to speak with you today. In our opinion, the recent amendments were designed to decrease administrative costs and the direct involvement of creditors in the personal insolvency process, while at the same time increasing their rate of recovery.

Canada Revenue Agency, CRA, is a creditor of approximately of 40 per cent of all personal insolvencies that we handle. As such, the agency has been a major benefactor of these recent changes. The committee may not be aware of the extent that these changes have benefited the agency.

There is only one amendment addressed toward CRA. That is the amendment where large tax debtors, with debts in excess of $200,000, representing 75 per cent of their debt, now have to appear in court at the conclusion of their bankruptcy to have a registrar or master review the circumstances that brought about their insolvency.

When we originally read this amendment, we were not concerned because it affects so few people. Of the 3,000 individuals and families we will help this year, this amendment will affect four or, at most, five people. We did not understand why this amendment was created.

Under current law, any creditor, including the CRA, has the right to oppose a bankrupt's discharge, which forces a hearing and review in court. The effect of this amendment is to automate that process for large tax debtors for the CRA.

Specifically, we have two concerns: First — and we apologize if we appear suspicious to this committee — is this $200,000 threshold the thin edge of the wedge? In the next round of amendments, will that threshold be dropped to $100,000 or even $50,000? For this amendment to have an impact on CRA's processes, the amendment threshold needs to be dropped significantly, and we are concerned that it will be eventually.

Our second concern is one of equitability. Why does this amendment apply only to CRA debts? Our average debtor has unsecured debts totalling approximately $51,000. It is unusual for any debtor to come before us with debts in excess of $200,000. It seems the amendment would have been more equitable if all debtors who had that threshold of debt had to appear in court to explain the circumstances of their insolvency. We are wondering why CRA is getting preferential treatment under this amendment.

Our biggest concern about the agency has nothing to do with these specific items that I have mentioned. It is the collective effect of all the amendments on the decision-making process at CRA when proposals are filed.

Our firm has a bias toward proposals. Nationally, for every six bankruptcies filed, a proposal is filed. In our practice, for every two bankruptcies filed, we file a proposal. Thirty-three per cent of our clients do that. We simply educate them that a proposal is a more viable alternative in many circumstances.

The Chair: To clarify that, I believe you said your firm has a bias toward a proposal. I can understand why. You used some numbers. Is it one in every two is a proposal? What percentage of insolvencies or people in trouble comes to you who end up with a proposal?

Mr. Michalos: Nationally, for every six bankruptcies one proposal is filed. The ratio is approximately 85 per cent bankruptcies, 15 per cent proposals.

The Chair: Not good enough.

Mr. Michalos: It is not. In Ontario, that ratio is five to one; so 80/20. In our firm, it is two to one. For every two bankruptcies we file a proposal. Thirty-three per cent of our clients take that option: One out of three.

The Chair: It sounds as though the trustee to whom the debtor goes has a big effect on the debtor's decision of what to do. If it is one out of two in your shop and one out of seven nationally, we can do the math.

Mr. Michalos: Yes, sir. The principal difference is often the approach of the first person to whom they talk. For instance, our approach is to start at the beginning: How did this problem occur? What has been done so far to rectify it? Has a banker or financial counsellor been consulted?

The next witnesses appearing today are credit counselling agencies. We refer a significant number of people to them before allowing clients to file with our firm. If they have the ability to repay their debt in full, credit counselling is an excellent solution.

Proposals fill a place in the insolvency process between someone who is able to repay 100 per cent of their debt and someone who cannot repay any portion of their debt and files for bankruptcy. A proposal allows them to repay a portion of their debt. That benefits everyone. If an individual, who is in trouble, voluntarily agrees to repay a portion of their debt — a portion greater than bankruptcy — we believe everyone should be encouraged to take that route. That is the approach our practice takes.

Because we have that bias, we have a unique perspective on most creditors' views of proposals. The average creditor looks at a proposal and thinks: Am I getting more money than I would in a bankruptcy? They then agree to the process. We call that the common-sense approach.

Our concern is that the Canada Revenue Agency has adopted a policy in Ottawa that has been imposed on the field offices whereby their opening position in a proposal is a requirement of 100 per cent of the basic tax debt to be repaid.

Fundamentally, that means a number of viable proposals — offers to repay portions of their debt — are rejected out of hand by the Canada Revenue Agency simply because of this policy. We believe that is to the detriment of all creditors, particularly the taxpayers, because it means less money is being collected.

Our concern with the new legislation is that CRA is now effectively being rewarded for not changing that policy. Under the new rules, bankruptcies will be extended to either 21 or 36 months — depending on prior history — resulting in a greater return of money to CRA. They will then be less inclined to modify their policy to accept proposals. I know this is all very complicated.

To summarize, the current legislation will, to some extent, promote proposals as an alternative to bankruptcy, which we believe is a good thing. Unfortunately, because of the way it is structured, CRA will be rewarded for not revising their policies and continue to reject proposals because bankrupts will be required to repay a greater portion of their debt.

Our bias is that we believe the Bankruptcy and Insolvency Act's primary purpose should be the rehabilitation of the honest but unfortunate debtor. Proposals are an excellent tool for doing that. Unfortunately, because of Revenue Canada's policies, they are often rejected when they should not be.

We would encourage this committee, if it is possible, to have a representative from the Canada Revenue Agency come forward to discuss their policies with you. If it is possible to have them review their policies, we would encourage that.

We would encourage this committee to suggest that when this new legislation is brought into force, the Office of the Superintendent of Bankruptcy and the trustee community be encouraged to hold a series of public information sessions for large creditors, particularly the Canada Revenue Agency. We would be happy to participate in such a program in Ontario.

How does that affect future bankruptcy reform? The Bankruptcy and Insolvency Act can only do so much to solve the impending debt crisis that may be developing in our society. The availability of credit is at least as much to blame, if not more so, than persons simply falling back on the rules and provisions of the BIA. We would encourage the committee, if it is within its purview, to look at the second half of the equation — what to do once there is a problem, and how to avoid problems developing in the first place.

In conclusion, we highlighted the two areas that we thought were most important from our submission. We believe that the student loan discharge period should be reduced back to two years; and we encourage this committee to promote the idea of an education series of sessions, following the enactment of these laws, for major creditors including the Canada Revenue Agency. We hope that for the rest of the time we can be resourced because it seems that there are not many people speaking to insolvency.

The Chair: Thank you. You were clear and concise. You are the first spokespersons we have had on individual bankruptcies. There has been a disproportionate emphasis thus far on the restructuring of big companies.

Senator Massicotte has arrived.

We will move to questions.

Senator Tkachuk: I have a few questions about student debt, which has been a controversial subject. Debt is all about future income. One person's debt might not be another person's serious debt if he is to be a doctor with a salary of $150,000 a year, while it might be a problem for a school teacher.

Are there any statistics on the formula as to what happens when people do not pay their debt? Do they end up having debt that is one year's worth of income or a half year's worth of future income? Is there anything to help policy- makers in that area? You want students to have the incentive to pay back their loans.

Mr. Michalos: The fundamental issue is that government has to make a policy decision on how much we will fund education and how much the individual will be responsible.

Senator Tkachuk: Or the parent.

Mr. Michalos: That is correct. The average bankrupt who files with us with student debt has $8,000 worth of debt 10 years after the fact. They incurred that debt back when tuition was $1,000. The average student graduating today has $25,000 worth of debt. Presumably, seven years from now, that $8,000 figure will have risen significantly.

Mr. Hoyes: Most of the studies on the subject, as well as the anecdotal evidence from people, indicate that those with student loan debts are from families who are not able to help them with education. If the parents have money and can pay for the education, those people do not appear in our offices. Often it is the people who come from families with no post-secondary education. They are not families with enough wealth to pay for the education, so they have to incur a debt. Then, there is a disjoint because the person is unable to complete their education. We have many people who go to private vocational schools, go bankrupt in the middle of their education and do not graduate. We have people who get sick, or have to support their family and do not finish, or they complete their education and are not able to get a job with enough money to pay back their loan. That is the reason our numbers show that the person with student loans has lower income than even the average bankrupt. It is a combination of all those factors that causes the problem with the student loans.

Senator Tkachuk: You talked about proposals and bankruptcy. How does this affect the credit rating of a person who files for bankruptcy versus someone who has a proposal for repayment? The creditor has to agree to that lower sum. Do you get cooperation in most cases? Does that provide enough incentive to do a proposal so that the person pays back a good portion of the debt and thereby maintains a reasonable credit rating?

Mr. Hoyes: We get good cooperation. Our success rate on proposals is over 95 per cent. We do the math upfront. In a proposal, it is determined what a bankruptcy will yield, and a proposal will yield more. Perhaps in a bankruptcy, the debtor would have to pay from $500 to $800 per month over a nine-month period. We would do a proposal whereby they pay only $200 or $300 per month but over a three- to five-year period. The creditors are happy because they get more money.

Your question was: How does this affect ones credit? Someone with perfect credit is an R-1 on their credit report. A bankruptcy is an R-9, the worst possible rating. A proposal is an R-7. A debt management plan through a credit counsellor is also an R-7; they are identical in that respect. The note that says you filed a proposal stays on your credit report for three years after the proposal is completed. The note about a first bankruptcy stays on your credit report for six years after the bankruptcy is completed — roughly 7 years in a typical bankruptcy.

For most people, it is not the impact on their credit report that causes them to do a proposal or a bankruptcy. They know that their credit will be worse after a proposal or a bankruptcy than if they pay their debts in full. People do it because they do not want to go bankrupt, which is a good moral decision. They owe money and would rather pay half of it than none of it. It is more affordable to do a proposal because, even though they are paying more, they are doing it over a longer period of time. It is a win-win situation for everyone.

Senator Goldstein: I do not know if you had a chance to review the Personal Insolvency Task Force Final Report. In the course of that report, it became apparent that where a proposal lasts more than three years, the person making the proposal is disadvantaged vis-à-vis going into bankruptcy. I do not want to testify, but I want you to clarify that for the record. That is a significant disincentive for consumer proposals.

Mr. Hoyes: You are referring to the math. If a proposal lasts for five years and a note on the credit report for three years beyond that, the total is eight years. A bankruptcy is six years plus nine months, which is closer to seven years. You are correct: The proposal is on the credit report longer, and that is a disincentive to doing a proposal over five years.

Our typical proposal is usually four years or less for that exact reason. Once the proposal begins and the phone calls and pressure to pay end, they are able to concentrate on work, their incomes go up and they are able to get the proposal paid off quicker. Obviously, that is to everyone's benefit.

Mr. Michalos: We do not feel the task force went far enough in being critical of the way the credit bureau operates. Most Canadians think the credit bureau is a government agency. They do not realize that these are for-profit companies. The amount of misreporting, in the clients that we see, is significant. If that is something this committee could investigate, we would encourage it to do so, but it is obviously beyond the hearings today.

Senator Tkachuk: If one person denies the proposal, does that stop everything? I am thinking of income tax.

Mr. Michalos: There are two types of proposals. First, there is a consumer proposal, which has, under the new legislation, a debt threshold of $250,000 — of which we are in favour. Currently, the debt threshold is at $75,000. In that proposal, it is approved if the majority of the dollars vote in favour. If one creditor held the majority of the debt, it would control the process.

Second, there is a Division I or commercial proposal for debts that do not fall in the first category. They have a two- tiered approval process: a majority in number, whereby each different creditor is considered a vote toward the majority, plus two-thirds in dollar value.

I was discussing an example with respect to the CRA — in fact I brought one from last week. The CRA is a creditor with about 55 per cent of the debts in a Division I proposal. We had a meeting last week, but they did not attend the meeting; they sent a fax saying, ``It is not 100 per cent of the debt; we vote `no.''' The proposal was rejected.

This person, who is now bankrupt due to the rejected proposal, will have to repay about $20,000. In the proposal, they voluntarily offered to pay back $45,000. We do not understand from a taxpayer's perspective how this policy makes sense.

Senator Ringuette: That is an excellent point. It is a disincentive. The agency, because of its policy, is collecting fewer tax dollars.

Mr. Michalos: That is our perception.

Senator Ringuette: Many strange occurrences are happening with respect to policy with the agency. There was a dangerous precedent that came out publicly in December. A group of people that had not filed a bankruptcy or a proposal were discharged of taxes that they had to pay. It was discharged by cabinet.

Mr. Michalos: That is beyond our area of expertise.

Senator Ringuette: You have your precedent in order to argue.

We had an interesting presentation at this committee in regard to student loans. One official was saying that the average student loan interest rate is twofold: Some students adopt the variable rate, which is currently 8.75 per cent; some opt for the fixed rate at 11.5 per cent.

In relation to student loan interest rates and the cases you have seen through your business, if someone files a proposal or a bankruptcy, is the rate of interest for the student loan the average of the interest on their other debts, or does it stand out?

Mr. Michalos: When someone files either a proposal or a bankruptcy with our office, they are not required to disclose the rate of interest; we often see them. You are accurate, senator: They will range somewhere from 8 to 12 per cent depending on when the loan was negotiated.

Mr. Hoyes: The issue for most people is not the interest rate but the amount of debt they have and the ability to service that debt. Therefore, even if the interest rate was only 5 per cent, it becomes a burden if they have $50,000 worth of debt. Our numbers show that the people who have trouble servicing the student loan debt are people with lower incomes. When a high interest rate is combined with a low income and a large amount of debt, serious problems can result.

Mr. Michalos: We do not want to focus on the student loan as being the only problem for these people. However, it is singled out because, at the end of a bankruptcy or a proposal, all the other debts causing them anguish have been discharged. The student loan will survive the process, interest will be accrued during the process and on it goes.

Senator Ringuette: I distinctly remember asking why student loans are not at prime, to help out.

Thank you very much. Your presentation was most interesting.

Senator Moore: When our committee reviewed these statutes in 2003, we heard evidence from various interested parties with regard to the time for the discharge of student loans for those who were heavily in debt. One student body said they would like it to be immediately. At that time, it was set at 10 years; however, one cannot blame them for trying.

Most of the evidence was for five years, except for that student organization. Mr. Hoyes, I believe you mentioned two years was preferable. That is not a figure we heard from anyone in your shoes, or from the credit rating agencies or banks. Can you tell us, from your experience in handling these types of cases, why you suggest two years?

Mr. Hoyes: If a student has graduated and, if after two years, he or she is not employed or earning enough money to be servicing the loan, do we need to wait five, seven or 10 years? For any other type of debt, the period is zero. There is no other time limit on any other type of debt except the student loan. We understand why that is: Education stays in your brain for your entire life; you benefit from it. We understand why the limit is not zero.

Most student loans have an interest-free period and a period in which the student does not have to pay loans immediately upon graduating. When those are added up, if a person has not been able to start making payments after two years, that is the first indicator of trouble.

I do not believe every single student will go bankrupt at the end of two years. In a bankruptcy, the bankrupt has duties and responsibility. If someone finds a job as a doctor immediately or a year out of university and makes a significant income, their bankruptcy would be very expensive. The more one makes, the more one has to pay. Under the new rules, if a person has surplus income, that person is guaranteed to be bankrupt for at least 21 months.

There is not a significant risk that everyone will just go bankrupt on their student loans. The people who will take advantage of this are the people who do not have the income and cannot pay the loans back. That is why we settled on the two-year limit.

Mr. Michalos: We like to give the following example: Jane Student, instead of borrowing student loans and going to school for three years, decides to start a small business and applies for a small business loan guaranteed by the government. Three years later, the business fails. Jane falls on the availability of the Bankruptcy and Insolvency Act to relieve that debt. It is gone. She has not lost the knowledge she earned during the three years of struggling with the new business. It is likely that she will open a new business within 12 or 24 months. Hopefully, it will be more successful based on her previous knowledge.

Why is Jane's business loan completely dischargeable whereas the student loan is not? That is the conflict we have.

Senator Massicotte: Your argument is valid. The structure is such that there is no incentive for the student to declare bankruptcy. However, a potential doctor would have to make further payments because of his potential income. Describe the process that polices that interest and ensures the whole thing is fair. I can appreciate with the proposal, the creditor at the table that says, ``You have immense potential income. We will not give you that deal.'' What happens in a straight-up bankruptcy?

Mr. Hoyes: I will give a simple example: As a single person who goes bankrupt, you are allowed to have take-home pay of $1,797 a month. Therefore, every month that you are bankrupt, you are required to send us copies of your pay stubs. We do the math. If you are over $1,800, you are required to pay a penalty on surplus income equal to half the amount you are over. However, if you are more than $1,000 over the limit, the penalty increases to 75 per cent.

We have detailed comments in our submission about the fact that that particular rule is not enforced consistently across the board.

Putting that aside, if you go bankrupt and are earning $10,000 a month, you will have to pay a significant amount — 75 per cent of a large portion of that amount while bankrupt. Even under the current rules, their bankruptcy will not end in nine months; under the new rules it will last for at least 21 months. If you must repay $5,000 a month for 21 months, you will have to have huge student loans if you are a doctor for a bankruptcy to make sense.

Senator Massicotte: I imagine that for many long-time students — doctors or whatever — in the new tuition fee structure we see in Canada, with the exception of Quebec, the loans will be very high. If we look at the American situation, a debt of $75,000 or $100,000 is not unusual for a student coming out of school.

If we do the numbers, if it is only 21 months of sharing 75 per cent; it seems to me that a student would gain by declaring bankruptcy after two years.

Mr. Michalos: Can we make an assumption that this doctor in residency is making $8,000 a month or $10,000? Pick a number, senator.

Senator Massicotte: Presume the doctor makes $8,000 a month and has $100,000 of debt.

Mr. Michalos: Is he married with a dependent? Is he single?

Senator Massicotte: He is single.

Mr. Michalos: So he is allowed $1,800. He is bringing home $8,000; he is $7,200 over the guideline. It is a $500 penalty on the first $1,000.

Senator Massicotte: The figure of $8,000 a month is obviously gross; are you saying net?

Mr. Michalos: I am sorry; I am saying net. Pick whatever number you like; we will play the numbers.

Senator Massicotte: Make it $6,000 net.

Mr. Michalos: Okay; he is $4,200 over the guideline. There is a $500 penalty on the first $1,000 and then 75 per cent of $3,200, which we will call $2,400 to make it a round number. Therefore, $2,900 per month is his obligation under the act. Extend it through to 21 months — I will round it to $3,000 to make everyone's math easier — and the bankruptcy will cost him $60,000. You are correct; $60,000 is less than the $100,000, so there might be a reason to do that.

However, probably this person with this $100,000 worth of debt does not just have student loans. He might have a number of other credit vehicles that he used — student lines of credit, MasterCards, Visa cards, whatever it may be. The question then becomes whether he is willing to destroy all of the other credit vehicles, given his position in the community and his standing, to relieve himself from the debt.

There are people that would choose that route. There is no doubt of that. However, the average person will not. The average person who comes to see us really is looking for a way to repay the debt. Bankruptcy is the last action they want to take.

Senator Massicotte: That is the problem I have. The numbers do not work for many students. You are dependent upon moral suasion, if you wish, for a person to say they will not do this. Is that good enough?

Mr. Michalos: To be honest with you, we do not believe the BIA should have anything to do with student loans. It is a fault on the part of government policy that students fall back on the bankruptcy act to get relief from these debts. It is just a bad policy decision.

I do not have the answer for how student education should be funded, so perhaps I should not be throwing stones here. However, the issue is that we are using the wrong tool to solve the problem.

You are correct; moral suasion may be the only reason students choose not to file bankruptcy. The basic premise, though — that they have to consider bankruptcy or that it is attractive for them — is fundamentally flawed here.

Senator Moore: I would like to get back to the reason, at the time in 2003, that the period was 10 years. When these statutes were reviewed prior to that, which had been 1998, the evidence — primarily from the banks — was that students were taking advantage of the statute and declaring bankruptcy right away to get rid of their debt. I was not on the committee at the time, but I looked at the evidence.

The banks were advocating a longer period to provide this policing, which you do not feel is an appropriate tool. That is fine, but that was the evidence at the time. However, you now feel that two years would be appropriate.

Mr. Hoyes: Yes we do. There is a big difference between two and 10 years.

Senator Moore: Yes; our committee recommended five years at the time. Is there anything wrong with five years?

Mr. Hoyes: Five years is better than seven years. We feel two years is better than five years, obviously.

I can see the point raised: I have just graduated from school and have all this student debt, so I am will take a nine- month vacation and go bankrupt. I will have no income; I will not have to pay anything and then the debt will all be gone.

I can understand why a zero limit would not be advisable. However, if after two years, I have had the benefit of this education and am now working, I have income. Hopefully, I have surplus income as a result of my education, so I am not about to just turn around and go bankrupt.

The average person we have looked at has about $8,000 in student loan debt. I do not recall seeing someone with $100,000 in student loan debt. We do not do many bankruptcies for doctors. We have, but not usually.

Senator Moore: That is interesting, because Mr. Michalos, you mentioned that the other side of this problem is the availability of credit. I recall, at the time in 2003, we had a trustee, or perhaps he was an accountant, as a witness. He had a client with him, a young lady from New Brunswick, who had gone to medical school and racked up debts of well over $75,000 — I forget the exact numbers.

It was because she was in medical school that she was offered all sorts of credit — whatever she wanted. She had no business skills, no financial management skills and was just going in and getting cash as she needed it. People were giving her credit cards, student loans and so on with the attitude that she could have more because she would be making more.

The student is there asking for money, but there is some responsibility for someone to ensure that that student is able to pay this debt back.

Mr. Hoyes: I agree; the banks feel it is unfair that the student loans get wiped out, but it is the banks that give them all the debt; that is the fundamental problem.

Senator Moore: There is some responsibility by the financiers, too.

Mr. Michalos: There is a relief valve in the act that creditors almost never use. Any creditor can oppose any bankrupt's discharge.

I would submit that if the banks had concerns about someone with large student loans and a medical degree filing bankruptcy two years after they graduated, it behooves them to take advantage of that and let the court review the case. Maybe they should not be discharged in nine or 21 months. Maybe, because of their future income, the bankruptcy should be extended.

The problem is that most creditors do not avail themselves of the provisions of the act that allow for oppositions. Commercial creditors have structured their businesses such that 1 per cent of their customers do not pay. The rest of us cover the cost of that.

It is not in their best interest to incur legal fees to drag something to the courts. The courts will not be happy about me suggesting this as a solution; but, in fact, that is the way the bankruptcy act is designed. If someone is abusing the process, get them in front of a registrar or master and have the situation looked at in greater detail.

Senator Goldstein: You are aware, I believe, that there is presently a private member's bill pending before the Senate to reduce that period to two years. There is a feature of that bill on which you may want to comment.

It provides for recourse to a judge on the part of a debtor, even before the two years have elapsed, if the debtor is experiencing significant hardship. That is to be defined in the course of negotiations with the minister's office. We have almost agreed — perhaps Senator Tkachuk, you would be aware of that — that that should be amended to provide for certain criteria that a judge would have to apply in order to determine whether, in fact, there is significant hardship.

If that two years went to five years, but the statute permitted recourse to a judge in the event of serious hardship, would that satisfy, from your perspective and in your experience, the needs both of the Department of Finance Canada— which is worried about collecting the student debts — and the needs of students who are really experiencing a great deal of hardship?

Mr. Michalos: The condition would simply be the definition of those terms of hardship. Will the definition be someone who is now on a disability pension, so they cannot pursue their education for medical reasons?

Senator Goldstein: No; there will have to be reasonable criteria.

Mr. Michalos: A clause such as that would be an excellent addition to the act as it currently stands so that, at any time, people have recourse to the courts to say that their situation is unique, that they really do need some compassion to relieve them of some debt. That is an excellent feature. Simply, it will depend on the definition, sir.

Senator Moore: Mr. Michalos, you were mentioning a case that you had done where the CRA rejected a proposal.

You said that CRA held 55 per cent of the debt. Is it a strict vote by a majority of one? Is that how this is decided? You mentioned another figure of 75 per cent. I did not know what those numbers were.

Mr. Michalos: Two types of proposals are available under the law. The consumer proposal is essentially a strip- down process with automated features. You are entitled to use this procedure if you have debts totalling $75,000 or less. The new legislation raises that threshold to $250,000, by the way. It will eliminate the individuals that rely on the second type of procedure, which has the two-tiered threshold. In the example I gave of the person whose proposal was rejected last week, he had $136,000 worth of debt.

Senator Moore: Did you say $40,000 of it was tax?

Mr. Michalos: No, 55 per cent of it was tax. Is that not what I said?

Senator Goldstein: Yes, that is what you said.

Senator Moore: You said he would have paid back $40,000 if he would have gone through it. However, because it was refused, it will only be $20,000.

Mr. Michalos: The way the voting works in these larger-threshold proposals is that I need a majority of creditors — so that each creditor gets one vote — and two thirds in dollar value. Because CRA represents 55 per cent of the debt, if they vote, ``no,'' it is impossible for me to get two thirds in dollar value. Therefore, his proposal was to pay back $45,000, $750 a month for the next 5 years. By rejecting the proposal, CRA now falls back on the surplus income guidelines. We have calculated it will be about $20,000.

Senator Moore: It is 50 per cent plus one; it is just a simple majority.

Mr. Hoyes: In the Division I proposal where the debt is higher than the limit, there are two votes. One is based on the number of creditors. Therefore, if three creditors vote, two of them must vote, ``yes.'' It is a simple majority. However, they each get one vote for every dollar they are owed and more than two thirds of those people or dollars also have to vote in favour. Therefore, a Division I proposal is much more difficult to get accepted because two different votes both have to go your way.

Mr. Michalos: We find the field staff at the Canada Revenue Agency very helpful. They sit down with us at these meetings — when they show up — and they appreciate that their policy does not make sense to the average person.

If they stand to get more on a proposal, why would they be required to vote, ``no''? However, it is a policy that comes out of Ottawa, so they have no control. We do not want to sound as though we are denigrating the staff at CRA. For the most part, they understand; however, their hands are tied.

The Chair: This is one of the reasons we are holding these hearings. This is the type of testimony that makes it so worthwhile that CPAC carries these hearings. The testimony this morning is of wide interest to many Canadians.

We are taking notes for our report; our researchers are here. It is true that the men and women in the field are bound by the policy. This is a quasi-generating public policy forum here. We are delighted to have your commentaries.

On that subject I have one question. You said the facts just came in an email to vote against. Would that vote be from this type of field operative that you have described or would that have come from head office? It is reprehensible that they do not show up, that they simply say, ``No.''

Mr. Michalos: The field offices are usually structured with a specialized insolvency unit. They have staff trained to a certain level of knowledge in insolvency law. They report to a team leader, who reports to a supervisor, who is issued instructions from national policy. In this particular case, the proposal does not meet the terms that policy has set. Therefore, he sent us a fax saying, ``No.'' There is no point in showing up because he cannot do anything if he does. We are not denigrating the employee who sent us this.

The Chair: Are you saying there is no discretion?

Mr. Michalos: That is correct, sir. We have not encountered any. We file more proposals than any other firm in Canada of which we are aware: 1,000 this year. This is no small business for us.

Mr. Hoyes: We have had odd cases where the field officer will take it back and put it up through the channels. The meeting is adjourned, we return in two weeks and they approve it. I do not want to leave the impression that every single proposal we have done in the last year with CRA has been voted down. However, Mr. Michalos is correct: Their opening position is to vote, ``no'' unless they receive all their money.

Senator Harb: You said something that piqued my curiosities. When you were talked about the credit reporting agencies, you said that many people believe they are government agencies when, in fact, they are not. You moved on to say that you feel it would be very important for this committee to investigate what happens.

Could you give us more of a ``horror element'' here?

Mr. Michalos: I will give you some anecdotal evidence.

It is not uncommon when someone starts to run into financial difficulty that their credit bureau rating deteriorates. That is how the system is supposed to work. If a debt gets into collection, if legal action is commenced or it is written off, it is rated an R-9 — the same rating a bankruptcy will give it. If that person files a credit counselling or debt management program, or files a proposal, the system is supposed to write the debt as an R-7 to indicate that the person has done something other than a bankruptcy to repay part of the debt. This is based on the premise that the creditor will report to the agency that the classification has been changed. In most cases, they do not; if it has been rated an R-9, it stays an R-9. Once again, there is disincentive to filing a proposal because the credit bureau will not be corrected to reflect the fact that a person tried to repay some of the debt.

Bankruptcies, proposals, debt management programs and all of these solutions for insolvent persons are designed to clean up your bureau. More troubling is that if through some computer error, say, the debt is sold to another collection agency after the fact — let us say that three years later the bank decides to sell a block of old accounts and this bankrupt account is in there — it will be resurrected on the credit bureau and collections will start again. It is amazingly frustrating for individuals to deal with the credit bureau and have that error corrected.

Again, it is frustrating because people believe they are dealing with a government agency when, in fact, they are dealing with a for-profit corporation. It is not in the corporation's best interest to fix it.

Senator Harb: I am glad my colleagues had a chance to hear from you. We had some discussions about this, and the credit agencies appeared before us to tell us that everything is perfect. They told us that they field millions of calls on a regular basis, that there is no problem; and that there is this way of handling the problem, and another way of handling the other problem.

However, one component I want your feedback on is the following: When a person is on the verge of bankruptcy, government politicians and officials often tell consumers to shop around for interest on credit cards that is cheaper than the bank or trust company that is charging 19 per cent. This person will go around and fill out all types of forms for this or that, and then, apparently, if the credit card company does not give them the credit they apply for, that reflects on their credit bureau. Therefore, someone simply shopping for the best rate is ruining his credit in the process. Is that true?

Mr. Michalos: Our understanding is that if a person applies for credit and it is rejected, it is reported. If that person applies three months later and it is rejected, he or she may as well forget about applying elsewhere. On record, it looks as though that person is deliberately trying to incur debt; it is a warning sign. Therefore, you are correct, senator.

Mr. Hoyes: There is a bigger problem. It does not really matter what is on your credit report. When a proposal is filed, it matters how the creditors treat that.

Some creditors have a bias in that they do not like proposals and will automatically vote, ``no.'' We have already talked about Canada Revenue Agency. Other creditors automatically vote, ``no'' on proposals, as well. I can think of some credit unions that are in that situation and one or two American credit card companies who do that.

The vast majority of creditors we deal with look at proposals and obviously accept them. We have a very high success rate. That is why Mr. Michalos mentioned earlier about the education programs. It would be great if representatives of the different creditor groups could hear from the other side of the fence as to why proposals are a good idea. That may help them to report to the credit bureaus and clean some of that up as well. Everyone stands to benefit.

The Chair: Both of you made points at the outset to indicate that thousands of individuals out there every year are seeking the protection of these statutes. Also, by and large, they are not bad people. Is that correct?

You also stressed that it is about the rehabilitation of honest but unfortunate debtors, which raises the whole issue of stigma. Even today in 2008, there is a stigma attached to bankruptcy. Whether reflected in credit agency reports — about which I share Senator Harb's skepticism — or otherwise, one cannot entertain entering some professions and lines of work if one has filed for bankruptcy. These individuals, good but unfortunate Canadian citizens, are more or less in big trouble from the minute they seek this protection.

This has been my understanding for quite a few years. If the purpose of this is to help rehabilitate and encourage people to become productive citizens without the burden, emotional and otherwise, of the debt, then it makes me curious. What are your comments on that?

It is a social problem that is difficult to come to grips with because the stigmatization attached to it almost equates that attached to mental illness. Instead of viewing these people as ill and needing to be helped, they are deemed to be beyond the pale, and people who have been in bankruptcy are often viewed in a similar way.

Mr. Michalos: It might help the committee members to appreciate the numbers. Four people out of every thousand each year avail themselves of the BIA, which is one person out of every 250. Measured over time, somewhere between 11 per cent and 12 per cent of the Canadian population somehow falls back on the Bankruptcy and Insolvency Act. If you know 100 people, then you know someone that has filed bankruptcy. They can be successful people or people that have had a series of unfortunate events. It is much more common than anyone realizes, but it is not something anyone will discuss in a social situation. People do not say, ``I ran into financial trouble, and this is how I got out of it.'' They just do not talk about that sort of situation.

Mr. Hoyes: As filings become more prevalent, the stigma will reduce gradually. Obviously, there is still a real stigma because there is a note on your credit report. It will change as people become more educated about it. The lack of education is part of the issue because people do not know that some of these processes exist. We talk to bankers all the time who ask about ``this consumer proposal thing you are talking about.'' We are shocked that bankers, accountants and other financial professionals are not even aware of these facilities. More public education certainly can help to demonstrate that these are good but unfortunate debtors.

Mr. Michalos: Buried in our report is an analysis of something we call ``Joe Debtor.'' Most people believe that the average person who files bankruptcy is out of work and maybe living on the street — a guy that has nothing going for him. The truth is that of the last 3,000 clients that we have handled, the average debtor is a 42-year-old male with one dependent and a take-home pay of about $2,100 a month. The problem is, the average Canadian owes about $14,000, but Joe Debtor owes $50,000. The cost of servicing $50,000 is $2,000 per month. As I said, Joe Debtor makes $2,100, so he cannot handle the payments. That is the profile of the average person who makes a file.

The Chair: Senator Goldstein, we will wrap up this session after you have had your further chance to advocate your bill.

Senator Goldstein: Thank you, gentlemen, for your written presentation and your testimony today, which has been very useful, well put together and well-received. It has been enlightening.

With respect to the obligation to pay a percentage of excess income — $500 over the first $1000 and then 75 per cent in excess of that — I did not hear you say that income tax is taken into account. If it is not taken into account, then the excess over $1,000 of excess income would result in a negative effect on the debtor.

Mr. Hoyes: The calculation is based on net income after taxes are paid.

Senator Goldstein: Then that is not an issue. I knew that, but I wanted the fact to be clear in your testimony.

Mr. Hoyes: In the case of a self-employed individual, who does not have taxes withheld at source, they have to demonstrate to us that they have remitted to the CRA every month in order to get the deduction.

Senator Goldstein: I have a question about the attitude of the Canada Revenue Agency.

Are you a member of the Canadian Association of Insolvency and Restructuring Professionals, CAIRP?

Mr. Hoyes: Yes, I am a member of CAIRP.

Senator Goldstein: CAIRP regroups about 95 per cent of the trustees in Canada, I believe. They have made representations to the CRA from time to time but, as I understand it, are not in the process of doing so recently.

Would it be your view that those representations ought to continue? Would it be your view that it might be useful for the CRA to be invited to appear before the committee on a variety of its policies, one of which is the standard refusal of consumer proposals that are less than 100 per cent.

Mr. Michalos: Thank you, senator. We were surprised to not see the CRA on the committee's list of witnesses and to not see them scheduled to appear in the near future. We believe it is important that someone from the CRA appear before the committee to answer, if nothing else, some of the concerns we have expressed.

Senator Goldstein: Have you read the submission of the witnesses who are about to follow you?

Mr. Michalos: We read it this morning, sir.

Senator Goldstein: You are aware that there was one suggestion made by them that credit counsellors be permitted to act as trustees in consumer proposals. What would be your reaction to that suggestion?

Mr. Michalos: On the surface, there is a great deal of similarity between a debt management program and a consumer proposal. We submit that the relationship is really quite superficial. A credit counselling program is a voluntary program to repay 100 per cent of the debt. In effect, the credit counsellors are advocates for the debtor in dealing with the creditors. Consumer proposal is a legal procedure set out by statute whereby the debts are settled or compromised. There are investigative powers associated with consumer proposal. The degree of training and education required to administer consumer proposal is significantly greater.

Mr. Hoyes and I are both qualified insolvency counsellors, so we could provide credit counselling services. However, we do not do that. We specifically send it out to the not-for-profits in our areas because we believe they are uniquely qualified to provide that service. Similarly, I do not believe any of those in our area would want to administer consumer proposals. They have neither the tools nor the education in place to do that.

Mr. Hoyes: Anyone can administer consumer proposals if they get a trustees license. To become a trustee, the average person takes approximately 10 years after graduating university to become accredited. Mr. Michalos and I became chartered accountants first and then specialized in insolvency in a five-year program with numerous exams and so on. The average trustee probably has 10,000 hours of practical experience before they become a trustee. To become a qualified credit counsellor to provide counselling under the Bankruptcy and Insolvency Act, the requirement is to pass one course and have 100 hours of practical experience, so there is a bit of a disconnect. Whoever is administering this legal procedure must be able to handle all of the legal issues that arise as a result of it.

Senator Goldstein: If the ceiling were reduced from the current seven years to two years for the discharge of student debt, would you foresee a rush of students taking advantage of that?

Mr. Michalos: We receive about 1,000 new contacts every month from people who are experiencing financial distress. A significant portion of them have student debt. We have a database. I believe there would be a significant influx.

Senator Moore: What percentage of the 1,000 inquiries per month has student debt?

Mr. Michalos: About 13 per cent of the folks for whom we actually submit filings, either proposals or bankruptcy, have student debt. Of those 1,000 inquiries, we refer 750 elsewhere. We do not have statistics on their proportionate debts. Intuitively, I can tell you that it is about 20 per cent of the people that contact us, in particular by email.

The Chair: Gentlemen, thank you very much. It has been a very enlightening session, as you can tell by our interest.

You have made some points that we will follow up on. We will investigate having witnesses from the CRA. You have also made a number of other points, be they in the student loan area or in some of these other areas where you find the legislation to be less than perfect.

Having heard from two bankruptcy trustees from Ontario, who have emphasized the individual debtor position and the role of their profession in helping debtors who get into trouble, we will now hear more on the consumer side from our next two witnesses.

Ms. Henrietta Ross is the Executive Director of Ontario Association of Credit Counselling Services. Ms. Ross was here all morning and heard the other witnesses. Also with us this afternoon is Ms. Laurie Campbell, Executive Director of Credit Canada, who was detained slightly by the weather. Welcome to you both.

Henrietta Ross, Executive Director, Ontario Association of Credit Counselling Services: Thank you very much, Mr. Chair, and thank you all for the opportunity to meet with you this afternoon. We applaud the committee for its commitment to undertake further review of the bankruptcy and insolvency laws.

The Ontario Association of Credit Counselling Services, OACCS, has a long-standing history of participation with government — both federal and provincial — being called upon as experts in consumer credit issues. We appreciate this opportunity to comment on the Bankruptcy and Insolvency Act and to bring forward recommendations that we believe would be beneficial to Canadians.

Credit counselling services operate in several Canadian provinces and were first established in Ontario in the early 1960s. Our association has been in operation since 1970 as a provincially incorporated, charitable organization, representing 22 community-based, accredited member agencies. We constitute about 70 per cent of the not-for-profit credit counselling agencies in Canada.

The aim of the association is to enhance the personal financial well-being of people through financial literacy, education and industry leadership. As a provincial organization, we undertake advocacy, accreditation, certification, training and other initiatives intended to support the long-term development of the industry and our member agencies to achieve positive outcomes for the clients that we serve.

Individuals and families often come to credit counselling when they experience a downturn in their financial circumstances. This is sometimes caused by an unplanned event such as illness, job loss or family breakdown. Typically, we see clients that lack sound money management skills and have issues dealing with their financial obligations and debt.

Last year, over 40,000 clients were assisted; almost 10,000 clients received bankruptcy counselling; over 75,000 clients were provided with telephone consultation; and 31,091 individuals attended preventative educational programs. Over $40 million was repaid to creditors by consumers using OACCS services last year alone.

Credit Canada, a member of our association, has operated the largest not-for-profit credit counselling agency in Canada since 1966. Ms. Campbell is the executive director of that agency.

Consistent with all our members, Credit Canada provides community-based, realistic, unbiased and confidential counselling services; education about the fundamentals of money management; detailed financial assessments; and budgeting assistance. Consumers are helped to make informed choices about credit and debt management, and to find solutions to indebtedness and money problems. When needed, member agencies establish and administer voluntary debt management programs for consumers.

Bankruptcy counselling as mandated by the Bankruptcy and Insolvency Act is provided by qualified insolvency counsellors who are on staff at our member agencies. These counsellors have completed the Insolvency Counsellor's Qualification Course, ICQC, training that is designated through the National Insolvency Qualification Program, NIQP, a joint initiative of the Office of the Superintendent of Bankruptcy and the Canadian Association of Insolvency and Restructuring Professionals, CAIRP, mentioned earlier.

Based on our extensive subject matter expertise, OACCS was contracted by Industry Canada to create the content for the inaugural Insolvency Counsellor's Qualification Course now mandated into law.

The association establishes standards of practices for members and has a twenty-year history of accreditation practice. Accreditation is a mandatory requirement for membership in the association. It ensures standards of excellence, mandated levels of operations and governance, and uniformity of practices, services and program delivery. Accredited member agencies qualify to operate trust accounts on behalf of clients in accordance with the Collection Agencies Act. In addition to all of our Ontario agencies, there is an agency in Newfoundland also accredited by our association.

To achieve accreditation, agencies must successfully demonstrate that its board, staff and program structures meet the rigorous standards set by the association. Agencies undergo close scrutiny by reviewers who perform an agency on- site evaluation. Management, financial, administrative and program records are examined to ensure that all required standards are in compliance.

The accreditation process initially takes between 18 to 24 months. Upon approval, accreditation is granted for a period of five years. Accredited agencies are monitored for compliance on an annual basis and, before their accreditation term expires, they must requalify for accreditation to have it continue.

Our provincial organization is the only credit counselling association in Canada with its own status and recognition through Bill Pr82, an Act respecting the Ontario Association of Not-for-Profit Credit Counselling Services. It is an offence under the bill to use the term ``accredited, not-for-profit credit counselling agency'' unless the agency is a member of ours.

Counsellor certification is a mandatory requirement for employment as a credit counsellor in one of our agencies. We are the exclusive provider of the OACCS Certified Credit Counsellor designation, the only one available to credit counsellors in Canada. Our designation includes a number of aspects: The individual must have the Accredited Financial Counsellor Canada designation, the Insolvency Counsellor's Qualification Course and a minimum work experience requirement. In addition to this training, we also offer annual structured workshops for our staff.

The association works closely with many social service organizations. We have a partnership with the leading counselling and training educator in the U.S., the Association for Financial Counseling and Planning Education, AFCPE. In conjunction with that organization, we set mandatory education policies for accredited financial counsellors within the counselling profession in both the U.S. and Canada.

We believe that being financially fit is critical for the well-being of Canadians, the generations of today and the future. Financial fitness is an essential life skill that is required in order to function in consumer society.

OACCS recently developed a social marketing strategy to raise public awareness about the importance of financial fitness as an essential life skill. Last October, we commissioned a Canada-wide poll with Environics Research Group to determine how Canadians feel about their level of financial fitness.

We learned that one half of Canadians report being in great or pretty good financial shape; almost one in 10 say that they are in great financial shape; and another four in 10 say that they are in pretty good shape. Conversely, one in 10 say that their financial fitness is very poor or not very good; one third say that they are in neither great shape nor poor shape, and a further 8 per cent either refused, did not know or said that their financial fitness was none of these categories.

Our member agencies are seeing rising debt loads for case loads. Over eight years, the debt load for cases rose from about $15,000 in 1998 to just shy of $25,000 in 2006.

The debt management plans, DMPs, available through credit counselling provide consumers with a workable option to repay debt. Most people who undertake DMPs are technically insolvent, or close to it, but are determined to honour their credit obligations and repay their debt. DMPs are negotiated with creditors to provide full debt repayment over an extended time frame. Upon acceptance by creditor, member agencies manage and administer these DMPs and are authorized to operate trust accounts to facilitate payments to creditors.

Voluntary DMPs do not provide court protection for consumers, nor mandate creditors to stop charging interest on the debt, nor mandate a specified time frame for creditors to respond to debt repayment proposals. They do not mandate that creditors accept a pro-rated share of the debtor's ability to repay, nor do they address complex entitlement issues that may require a more formal plan.

On the other hand, consumer proposals are a court-supervised option to repay debt. A consumer proposal is an offer made by a debtor to their creditors to modify their payments in an effort to settle the debt. Under a proposal, a debtor may offer to pay a lower amount each month over a longer period of time or to pay a percentage of what they owe. A significant benefit to consumers of a consumer proposal is protection by the courts from unsecured creditors. This is important because it prevents creditors from taking legal steps, such as seizing property or garnishing wages, to recover debts.

Access to the consumer proposal process is done through the help of an administrator, who may be a trustee in bankruptcy or a person appointed by the Superintendent of Bankruptcy, as per section 66.11 of the Bankruptcy and Insolvency Act.

For an increasing number of Canadian consumers, this option has become the most viable. Since the introduction of Division II consumer proposals in 1993, the number of proposals filed has steadily increased. There has been a 76 per cent climb in consumer proposals volume over the last eight years in Canada, with just over 17,000 filings in 2006. While consumer proposal volumes grow, DMP volumes have remained flat or decreased. In 2006, the Ontario DMP volume was 4,693, while consumer proposals numbered 9,381.

Ontario is the largest jurisdiction for consumers in Canada without a court-supervised debt restructuring plan operated by not-for-profit social service agencies. Although Ontario leads all other provinces in Canada by a wide margin in the filing of consumer proposals, access to court protection for debt restructuring is only available through for-profit trustees, the only body currently designated to administer consumer proposals.

In other provinces, the Superintendent of Bankruptcy has designated provincial administrators of consumer proposals in addition to trustees. Financially stressed Ontarians are denied access to alternatives to debt relief that is available to consumers in other provinces of Canada. This causes a serious inequity for the people of Ontario and a distinct disadvantage as they have no rights to court protection for debt restructuring through a not-for-profit service.

How did this inequity happen? In the 1970s, most provinces opted for operating an orderly payment of debt program, OPD, which provided a structured process for debt repayment. These OPD programs are administered at the provincial level while bankruptcy falls under the federal jurisdiction of the Office of the Superintendent of Bankruptcy at Industry Canada.

Ontario never proclaimed Part 10 of the Bankruptcy and Insolvency Act, which provides for orderly payment of debt services to be operated by the province, because the Ontario government supported credit counselling services financially and otherwise saw no need for service duplication. Later, a federal debt repayment program, Division II consumer proposals, came into effect. In 1992, the BIA was amended to introduce these proposals. Administrators were identified as bankruptcy trustees and the provincial nominees who had, until then, been delivering OPD plans. Since Ontario had no OPD provider, the BIA failed to identify any not-for-profit administrators at all.

We need to remedy this and provide Canadians with equality of access. We request that the Senate committee agree with our recommendation to insist on the availability of a credible alternative to Canadians for unbiased advice and consumer choice related to consumer proposals. We recommend amendment to the BIA to allow access to court- supervised debt restructuring by designating the OACCS and its member agencies as administrators.

We are trusted organizations that operate and comply with a significant degree of oversight. We are registered with the Ministry of Government Services, operate trust accounts under the Collections Agencies Act, adhere to our provincial legislation and adhere to the requirements of the Canada Revenue Agency to maintain our charitable status. Accreditation is a fundamental and mandatory requirement, and we have vast experience in dealing with consumers in this area of proposals to repay debt, which we have called DMPs for 40 years. Our mandatory counsellor certification requirements assure our qualified professional status.

In summary, for many years credit counselling services have provided advice on debt management to consumers and have operated voluntary pro-rate schemes for the benefit of both consumer debtors and creditors. Our submission requests formal recognition by the BIA and its regulators for qualified credit counselling professionals to be appointed administrators of BIA consumer proposals.

An earlier version of the BIA introduced Part 10, which was intended to afford provinces the opportunity to provide consumer debt relief under an OPD scheme. Most provinces opted into this program but Ontario and Quebec did not. Presumably, Quebec preferred to continue its Service des dépôts volontaires, their volunteer program. The Ontario government of the day supported credit counselling services, both financially and by providing management assistance and mentoring through the then Ministry of Community and Social Services. Being committed to this support, they chose not to participate in OPD.

In 1991, the Ontario government withdrew all its financial support from the Ontario-based credit counselling services. Some agencies were forced to close, others narrowed their service operation and the larger agencies continued to operate by finding alternative revenue streams. Revenue came from voluntary fair-share contributions from creditors, educational seminars for employee groups, the sale of educational material and the bankruptcy counselling that we do.

The 1992 amendments to the BIA established the consumer proposal and indicated that licensed trustees and persons appointed or designated by the Superintendent of Bankruptcy would qualify as administrators. The appointment to act as administrator was granted to those provincial officials who were already delivering OPD programs. As far as we can tell, no other appointments had been granted. The result is that Ontario remains without a court-supervised consumer debt restructuring plan operated by not-for-profit social service agencies.

Why is this important? According to Houlden and Morawetz's Bankruptcy and Insolvency Law in Canada, one of the prime purposes of Canadian insolvency legislation is to ensure, throughout Canada, that insolvency laws are uniform. For some time, the larger of the credit counselling services had prepared files for consumer proposals on behalf of certain trustees. This included statutory counselling, interviewing and assessing the debtor, and confirming the debt load. The Superintendent of Bankruptcy has recently determined that it is incompatible with the trustee's responsibility to outsource this work. This decision has affected our agency's revenue to the detriment of its ability to provide broader services as well as BIA proposals.

Credit counsellors are qualified as insolvency counsellors, having taken the BIA insolvency course and passed the examination. The Ontario Association of Credit Counselling Services provided the lead role in the course's development. Additionally, the agencies are subjected to a rigorous mandatory accreditation program, and counsellor certification assures professional qualification.

Honourable senators, please endorse us as credible organizations that can be confidently entrusted with the administrator designation for consumer proposals. The bankruptcy law currently has provision for the designation of administrators, and the Superintendent of Bankruptcy is authorized to use their legislative and administrative discretion to make these appointments. Expressing your endorsement specifically into law will provide the superintendent with further legislative direction and a compelling reason to change what is, in essence, a monopolistic approach that limits access to the consumer proposal option for those in need.

For the benefit of and fairness to Canadians, it is necessary to encourage appointments of administrators for consumer proposals from our qualified groups. We are ready, willing and able to assist Canadians in this important way. We recommend, once again, to the honourable committee that our members, who are appropriately qualified, should be appointed to act in this way under the BIA. In conclusion, we sincerely thank the committee for this opportunity to offer our perspective in regard to bankruptcy law and the measures that would introduce more fairness and greater accessibility to Canadians.

Laurie Campbell, Executive Director, Credit Canada: It is my pleasure and privilege to be here today. As the executive director of the largest credit counselling service in Canada, I can assure you that, on a daily basis, we work closely with creditors, such as the Canada Revenue Agency and bankers, to try to resolve debt situations for clients. They become more and more complex, as you can imagine, when we do not have any legislative power to work with them to resolve the debt problems.

For example, we are at the mercy of the creditors to accept programs without any legislation, without any parameters in place to say that, hey, if 50 per cent of you agree, it is a go.

We do not have that privilege. We work very carefully, and with great negotiation skills, to ensure that these programs are accepted so that clients can move forward, repay their debt and not have the continual harassment from creditors that impedes them from doing so. Our relationship with creditors, government and grassroots organizations across the areas that we serve is very strong. It has to be because we do not have any legislative power.

The opportunity to have some legislation will allow us to serve more clients. It will allow us to serve them in a way that does not mean that they come in our door, have to go through all their financial details, walk out of our door and go to see a trustee. In that case, unfortunately, and as we heard this morning, they may end up bankrupt rather than having a consumer proposal.

What are we hearing? One in six Canadians will go for a consumer proposal as opposed to a bankruptcy. It is one in five in Ontario — one in three, if that person is lucky enough to go to Hoyes Michalos & Associates Inc. We see a big problem here with consistency with consumer proposals, and we want to make sure that we allow that consistency to happen.

The Chair: Can I ask you to set the tone? We have half an hour for questioning. I only have one senator on my list so far, but you talk of clients. These are people in financial difficulty that come to you. Do they pay you?

Ms. Campbell: They do not pay us for our counselling.

The Chair: With these great negotiating skills that you mentioned, do you intervene? Let us say Mr. or Ms. Consumer comes in; they have a problem, particularly with one creditor. Do you intervene and try to negotiate a settlement of that debt on their behalf?

Ms. Campbell: We work on a number of different levels; for example, we educate. An individual may come in who only needs money management and budgeting. We do a large amount of work in that area. We send them on their way with the skills they can use to move forward.

They might come in because they have a problem with one particular creditor. The other creditors are onside and seem to be working well, but one creditor will not work cooperatively with them. We do advocacy work on behalf of that individual with the creditor. They then take over the situation and handle it on their own.

Another situation may be a debt management program. In this case, we work directly with the debtor and the creditors to offer a debt repayment program, where we ask creditors to stop interest and reduce payments. In that case, we have a specific negotiation happening with creditors. There are fees for the client for those situations.

The Chair: Fees for you?

Ms. Campbell: Yes, for us.

The Chair: Let us say, it is a $100,000 mortgage with 14 per cent interest, and they cannot make the payments; you might negotiate to get the interest rate and the payments down.

Ms. Campbell: In those cases, it is a secured debt. It is almost impossible to get the creditor to agree to a 7 per cent mortgage rate and continuation of payments. Unfortunately, we are not that good.

The Chair: It is that way because they have the mortgage. However, are there not some unscrupulous ones? We have read recently about a case in the Supreme Court, concerning Household Finance.

Ms. Campbell: Yes, there are. Certainly, we work very closely with debtors in those situations, but we do not put them on repayment programs. They would have to take that negotiation that we have worked out and have a payment plan directly with the creditor.

For debt repayment programs, where we ask creditors to stop interest and reduce payments, we do negotiate with the creditors to do so. In some cases, we may be able to settle the debt at 80 per cent, but very rarely below that.

Senator Harb: I truly enjoyed your brief. You seem to have much good information. At the end of it, you asked the committee to endorse your application to be sort of an appointed administrator. I suppose then you will become the agent of the government, in essence.

Would that not take away from your ability to have the unbiased flexibility that you have now? When somebody walks in, you look at the issue with the understanding that you want to find an answer for him. It would turn you into something where suddenly you have to apply the letter of the law.

Ms. Campbell: When individuals come to us, they come with an array of problems that are always financial. As a not-for-profit charity, we look at all the options available to them. It may be they can refinance on their own or that they need something more serious, such as a bankruptcy; and everywhere in-between gets more difficult in degree.

As a not-for-profit agency, we pride ourselves — through our accreditation program and through scrutiny as a not- for-profit charitable organization — on providing unbiased counselling and options. That will not change. We do get donations right now for debt management programs; but only one in 12 to 15 people who come in to see us would qualify or would want a debt management program.

In fact, 14 of the 15 people that come to see us get free counselling, free money management skills and free consultation and mediation on behalf of the agency.

Senator Harb: Once you become the agent, that might open the door for a credit counselling organization of some sort to come in and do exactly what you do now. You are saying, in essence, that you want to go beyond what you do because you want to have the ability to negotiate a little more forcefully. You want to be able to bring the players to the table.

One could say, well, why do you not become a trustee? Why do you not also, in addition to what you do now, go and grab another hat, apply to get licensed as a trustee and have it both ways? You have the ability to go out and charge for your services, similar to Hoyes Michalos & Associates Inc. and others, but at the same time, you have the ability to provide your other services.

Why would you want to become a government agent when your whole motive is to do the negotiations, the back and forth, the vetting, the proposals and all that?

Ms. Ross: I would like to answer that, and Ms. Campbell can fill in with a further answer. That is an excellent question. Why would we want to do that? There are a number of reasons.

When clients come to us for assistance, as Ms. Campbell alluded to, there is a wider array of circumstances that they present. For some clients, there are degrees of assistance that we provide. We are not suggesting that we would not continue with debt management programs such as we have today; we would continue with that process. However, we also want to be able to be administrators of consumer proposals.

We are not asking for trustee status. We really do not want to be in that business. We do not want to be handling the deeper bankruptcies. We see consumer proposals as simply an extended option beyond what we offer today as debt management plans.

For example, with a debt management plan, typically the client is paying 100 per cent of their debt with voluntary relief of interest by creditors where we can negotiate that. We also see many clients who really want to pay their debt but cannot pay 100 per cent of it.

Typically, when that happens, we have to close the file and refer that person to a trustee in the community that then takes the file from that point on and does the paperwork under the law to make a consumer proposal happen. For us, a consumer proposal is exactly what we have been doing with debt management plans, except that it does not have the legal legs to it.

In our case, when it is appropriate for the client — when the choice for them is to go forward with a consumer proposal — we want the ability to be able to handle that for the consumer right there and then. They have already vested their trust in us. They have provided deep information. The earlier witnesses talked about how difficult it is for any one of us to talk publicly about our issues with financial problems. It takes much courage to come forward and express these concerns and look for help.

Once that door has been opened and the trust is established with one of our qualified individuals, then when the option becomes apparent that the best way for this individual to deal with the debt issue is a consumer proposal, we just want the ability to be able to carry on with that process.

Many of the mechanics are exactly the same — operating a trust account, bringing in the funds that the client provides that are then allocated out to the creditor community. It is very typical, so for us, it is not that much of a stretch. It gives us the court protection, which is tremendously valuable.

For instance, when the client realizes that they would like the consumer proposal option, that it works for them, we then want to be able to go to creditors and be supported by the laws that are affiliated with the consumer proposal.

I hope that we are not held hostage to the way consumer proposals have been deemed to be administrated in Canada up until now. We just do not believe that is appropriate when we have such a credible opportunity to help Canadians and have them continue with their debt repayment.

Senator Massicotte: You see many problem cases, individuals and so on. Are payday loan creditors a major issue with many of your clients?

Ms. Campbell: Absolutely; that is a huge problem with many clients. As you know, right now in Ontario, we are grappling with a lack of interest rate. The Criminal Code set the interest rate at 60 per cent, and it was downloaded to the provinces to deal with. Ontario has not dealt with this. Our issues with payday loans continue to be exasperated with the clients we see.

Senator Massicotte: Do a significant percentage of your clients have payday loans as a problem?

Ms. Campbell: I would say 20 to 30 per cent of the clients we see have this problem.

Senator Tkachuk: Do they have the problem because they are debtors or because they use payday loans?

Ms. Campbell: Both of those reasons apply. There is a difference; if they come to see us, they have the problem because of using payday loans and also because of the debt.

Senator Tkachuk: Is it still 30 per cent with debt to payday loans, or is that half?

Ms. Campbell: Thirty per cent of the people who come in to see us have payday loan debt. Of that amount, I would say close to 100 per cent is behind with these payday loans and use one to pay another; it is quite a mess.

The Chair: Ms. Campbell made a reference about the downloading. We passed the law here in Ottawa and had hearings, and it clearly was controversial. Ontario was against it. They did not want to have the responsibility. Other provinces did, but they did not want to pay for the infrastructure of administering the legislation.

When it left here, the members of this committee did not have a nice feeling that we had solved the problem. We had highlighted the problem, and many lobbyists came to say how great payday loans were. We were pretty convinced that there was a problem.

Can you highlight what makes it such a high percentage, even today with the law? It is usury.

Ms. Campbell: Absolutely, it is usury. The problem lies in the fact that most people that go to payday loan companies are not people that you hear about on the radio who are jetting off on a vacation a day from now and cannot get access to funds quickly. They are people who are behind in their rent, do not have grocery money, have maxed out other credit options and have nowhere else to turn for more credit. They get themselves into these payday loan situations, which is obviously a Band-Aid approach. They go from one payday loan company one week, realize they cannot pay that payday loan when it comes due on their payday, so go to another company, maybe a couple more on top of that, and then come in to see us with four or five payday loan debts. The interest rate can be as high as 1,000 per cent; it is huge.

The Chair: It is calculated on a weekly basis.

Ms. Campbell: That is exactly right. It does not seem like much, $20 here or there, but for these people, as it adds up over six to 10 months; it is a huge amount of money.

In Ontario, Minister Phillips — he was minister at the time — worked hard at soliciting public groups to give comments about how interest should work in Ontario and where it should be capped. We know in different provinces, such as Quebec, there is a 35 per cent cap, and we do not see payday loan companies. They do not exist in Quebec, and that is why.

We still have a problem in many areas in Canada with payday loans. Unless we have some specific standards in place, it will continue.

The Chair: As I understand it, the federal law that was passed delegated power of concurrent jurisdiction, in effect, to the provinces. There were conditions that were supposed to be in the act to do X, Y and Z, and you say that Ontario never did that.

Ms. Campbell: Ontario has never acted on this.

The Chair: It is status quo.

Ms. Campbell: It is absolutely status quo. We had an election. Everything fell off the map. Unfortunately, we have a new minister now. I am hopeful that he will get back on this campaign because it is an important one. Certainly, it affects many consumers, as far as I am concerned, at a level that is inappropriate for consumer protection for Canadians. It is a disgrace.

The Chair: Senator Massicotte, I am glad you raised it. It is something that we can put in our report, certainly, that this is a terrible situation out there.

Senator Goldstein: Thank you for an excellent presentation, Ms. Ross, and Ms. Campbell. It was very enlightening. We appreciate you sharing your knowledge and ideas with us.

I want to change focus just a bit. Some of us are interested in financial literacy or numeracy education. Some of the banks are doing some outreach; the Royal Bank of Canada is one. Some of us have met with the Canadian Bankers Association to encourage their members to go into high schools and to teach young people how to deal with money before they get into the crisis mode that brings them to you or to the previous witnesses.

Do you see any appropriate role for credit counselling agencies to reach out to young people to educate them about financial literacy before they get themselves into trouble?

Ms. Ross: Absolutely, I do. Our industry should spend the majority of its time in that area. In fact, today we do. Our most recent foray into the financial fitness strategy is to provide an unbiased area for Canadians to receive information and education.

We would like to see financial fitness learning take place in grade schools and up. We recently participated with Ms. Campbell's agency in an initiative called Credit Education Week, which perhaps she could speak on.

Ms. Campbell: Credit Education Week happened in November of 2007. It is something near and dear to my heart because it has been such an important issue for me and everyone who works in the credit counselling industry.

The lack of education out there on financial matters is shocking and disappointing, especially from an educational point of view. The education systems in Canada, in every province, have been lacking in this matter.

We developed Credit Education Week and geared it toward high school students. We had a high school essay writing contest on, ``How I will fund my post-secondary education.'' It was open to every grade 12 student in Canada. The response was overwhelming. The scholarships were well-received, and we will do it again in 2008. We have a full site; we were in universities, colleges and high schools on a regular basis during this time across Canada, as well as trade shows, educational forums and media — whatever we could do to get that information out there to the public.

Senator Goldstein: That is a focused one week. Is there any way to systematize it and have that type of outreach consistently available in grade schools and high schools? What would it take to get financial literacy taught by your people, if you are the appropriate people to do so, in the high schools in Ontario, which is where you are?

Ms. Campbell: We are in high schools on a daily basis across Ontario. You point to a very important question, Senator Goldstein. We are only in the schools at the mercy and request of the particular teachers in the high schools. We need a systematic approach to working with high school students and educating them on money matters and financial literacy. We need boards of education to work with us, perhaps Human Resources and Social Development Canada, HRSDC, to work with us; we need government to work with us to help this happen.

Senator Goldstein: Have you made any efforts toward lobbying governments at both levels to do that?

Ms. Campbell: In the past, we have made significant efforts in lobbying governments and local boards. We get further, we found, with the schools than we do with the boards and the government, unfortunately. It is still an ongoing battle. We will still work to do that.

Senator Goldstein: You intend to continue; that is good.

We have another few minutes,Mr. Chair. May I take some more time?

The Chair: Yes, please.

You may want to pursue that subject. We had a large amount of evidence a year ago when we did our consumer study on the impact of the financial legislation and all the consumer protection elements and how it was working. We saw all these brochures coming from FINTRAC; am I correct?

Library Researcher: It was FCAC, Financial Consumer Agency of Canada.

The Chair: Therefore, there is that. That is government and some sort of progress; is it not?

Ms. Campbell: Absolutely, it is.

The Chair: The brochure was maybe advocating the teaching. I do not know; perhaps it was supplementing what you do.

Ms. Campbell: It was offering information I believe to allow educators to pick it up and use in their own spaces.

Again, we have a wealth of literature at the OACCS and Credit Canada. Through Credit Education Week, we give out literature, so does the FCAC, the Canadian Bankers Association and Industry Canada. The list goes on and on. We need a more systematic way of getting this information to the people that need it.

The Chair: We need focus.

Ms. Ross: We touched on an important area earlier around student loans, which has a huge opportunity associated with it. When a student inquires about a student loan, we find that most often — and we see this at the tail end when the student has difficulty and then comes to us for help — the student is not educated at that time about what is involved with the borrowing of that money, the options that will be available should problems arise if he or she is unable to repay that money. A student needs to be aware of the long-term impact of that debt on their life.

In my role, I often travel throughout Canada and the United States, and I hear how other organizations have come up with innovative practices with respect to the student loan issue. One such university in the United States actually has a mandatory program when a student loan is being requested at the university level: They sit down with the student and talk about the money being borrowed and the likelihood of that student being able to repay that loan after graduation, given the course of study that the student would like to embark upon. Then they talk in real terms about what that loan repayment will be like for that individual into the future and their potential family and goals in life, et cetera.

It has worked out to be quite amazing that a broader perspective is gained by both the educating body and the individual taking out the loan.

When a loan is actually granted, there is a very clear view, from the debtor's perspective, as to the future of that loan repayment and what it will mean for him or her. It is a more educative and partnering process. I believe our credit granting community could also be involved in that to some degree.

Senator Massicotte: I have a supplementary on that.

Senator Goldstein: Which university does that, Ms. Ross?

Ms. Ross: It is in Utah.

Senator Goldstein: Is it not a generalized program?

Ms. Ross: It is the Brigham Young University. It is not a generalized program. It was an innovative practice. The university was keen to recognize that point where students are wishing to pursue higher education and need additional funds; they looked at it from a more holistic point of view. Of course, they wanted students to come in and take their programs, but they did not want to turn out poor graduates at the end. They devised this program to help broaden the knowledge around the choice that the student was making.

They incorporated a set of values into the lending and debtor situation right up front. They actually cited examples where, through frank discussion, the student decided on alternative means. Perhaps the loan is not the answer; perhaps the student needs to work in the work place a little longer to garner more financial assistance, et cetera. They are very keen on looking at the decisions of today and the impact for tomorrow.

We heard earlier about student loan numbers of $8,000 or so. We see clients with student loans far greater than that number, $25,000, $35,000, $50,000. These are not people in medical school at all. We see much of this.

The point is that there are ways to help individuals before the loan is taken out.

Ms. Campbell: I know the last witnesses were mentioning that there should be a two-year moratorium on student loan debt under the Bankruptcy and Insolvency Act. Quite frankly, if students are educated properly with the methodology that Ms. Ross is mentioning, then we would not need that two-year window, because there are interest relief programs that go up to 36 months and beyond. If these are utilized properly, then individuals that come out of school and do not get the job or the income they had hoped for, do have quite a window of time in which they can get interest relief while they get on their feet, provided that their income is not above a certain threshold.

The mere fact that these students are not financially educated and do not understand the options that HRSDC sets out for them is one of the biggest problems and one of the reasons that they get into default so quickly.

Senator Massicotte: On the Brigham Young University study, I appreciate all that. Are there any statistics on whether that full understanding of the consequence of debt discourages people from pursuing higher education?

Ms. Ross: I do not have statistics in that area. The anecdotal evidence we were given was that the students actually do come back. They may simply defer attending the university.

Senator Massicotte: Is it Ontario where they have a three-year program?

Ms. Campbell: No, not a program. Under the student loan process, there is up to 36 months interest relief availability. They have to apply for this.

Senator Massicotte: Is 36 months a reasonable time?

Ms. Campbell: Three years is a pretty reasonable time. I would like to see it extended. If it means that everyone will go bankrupt in two years because they cannot pay this, obviously I would like to see it extended. People do need time to get back on their feet.

Senator Massicotte: What is a reasonable time, four, five years?

Ms. Campbell: I would suggest up to five years. If they cannot go bankrupt until seven years, you have to have that five-year window.

Senator Massicotte: That is reasonable to expect a student who just graduated to take five years to get up to track?

Ms. Campbell: To get up to track, yes. That is only for those individuals that fall below a certain threshold of income and inability to pay.

Senator Massicotte: You do not use that argument, though. That was my line of questioning, to use that argument that it would be unreasonable to forgive students their student loans after two years. You just said that it is not unusual for students to require up to five years to get organized and start paying their debts.

Ms. Campbell: For those individuals, yes.

Senator Massicotte: Therefore, that is somewhat usual for those. It would be very unreasonable to the creditors for the debtor, after two years, to be able to go bankrupt and forget about the creditors. It may take time to make the adjustment.

Ms. Campbell: For a certain amount of individuals, they may need more time, but certainly not the majority.

Senator Massicotte: I appreciate the exception.

Ms. Campbell: The other important point to keep in mind is that a bankruptcy has a very serious impact on a person's life, and if we can help young people, especially if they are just starting out in life, to avoid that, let us do it. I feel that is important.

Senator Tkachuk: I have just one question arising from the discussion here about the people who do not pay their debts. Who does pay their debts? Do we look at the successful people in equal situations who actually pay their debts and why they pay their debts, as apart from those who do not? There is much to be said for that.

Ms. Campbell: That is a great question.

Senator Tkachuk: I always find it frustrating that we study failure and not success.

Ms. Campbell: We could learn more.

Senator Tkachuk: There are many students of equal circumstances. When we talked earlier, we talked about the people who come from poorer parents. Many people come from poorer parents, and they pay off their student loans.

Ms. Campbell: That is exactly right. There are two areas of response to that. I come back to that wonderful word, education. They might have very limited funds, but their parents probably taught them good money management skills. They follow those good money management skills and, perhaps, there was a bit of luck in not having serious personal difficulties along the way. As well, even people who do find themselves in financial difficulty can change and learn and have a successful financial future.

We offer debt management programs through credit counselling. Of those that we offer, we have a less than 1 per cent recidivism rate. People who go through a debt management program are usually successful in their futures. We hear from them, and we know they are successful because we hear all the good stories. Bankruptcy is over 10 per cent.

Ms. Ross: We know through studies that individuals who have gone through a credit counselling program, when compared with other individuals in the general population, have stronger credit bureau scores in the future.

Senator Goldstein: Ms. Campbell, you mentioned the programs administered by the CRA with respect to suspension of interest payments and interest relief programs, generally.

You are aware that there are stringent rules for admission to those programs. We will be hearing from student representatives in the next few weeks about the fact that, in some cases and in some areas of the country, it is virtually impossible to get that relief.

I raise that point because — and I do not want to testify — we will hear that from others, and it is important for you to share with us your experience, your knowledge and the fact that that is the case.

Ms. Campbell: It is the case. The rules are fairly strict. The biggest problem is that the people who come to see us — and this is where the rules become very strict — did not apply when they should have applied. The lack of knowledge and understanding about how the system works is the biggest problem. When they do want to apply, they are already three or four months behind in their payments and have to catch up on the interest owing and cannot do it.

If they were educated and understood ahead of time, they could have come in to see us sooner. However, you are right, I would love to see a more lenient system on that issue.

The Chair: We have had a terrific morning. Ladies, thank you for coming. You have been most helpful. If you have further ideas to share with us, send them in through the clerk of the committee.

The committee adjourned.