Thousands of Canadians undergo bankruptcy or undertake a consumer proposal to help manage their debts every year. From 2012 to July 2021, more than one million Canadian debtors used the insolvency system. The void within Canada’s insolvency legislation is deeply lacking in terms of specific references, standards or accountability concerning the accuracy of recording and reporting of bankruptcy and consumer proposal information on consumer credit reports.
The Canadian Debtors Association is calling on all parties in the credit, debt and insolvency industry to work together to modernize Canada’s Bankruptcy and Insolvency Act (BIA) to help Canadians in financial difficulty.
A core principle of Canada’s insolvency legislation and policy is to provide a “fresh start” for people who are overwhelmed by debt. This principle is widely accepted by legislators, stakeholder groups, academics and insolvency experts. Generally, it entails obtaining relief from existing debt so that debtors can regain control of their finances.
But while the BIA intends a fresh start, debtors see this as a false start because, after undertaking a BIA-subscribed debt relief solution, debtors experience problems from inaccurate insolvency-related reporting on their credit report. This inaccurate reporting is widespread and frustrates the very underpinning of the Bankruptcy and Insolvency Act by thwarting the fresh start Canadians expect and deserve. To resolve this dilemma, new legislative measures are needed that will stipulate the correct representation of insolvency-related information on consumer credit reports.
Over the past several years, there has been explosive growth in the use of consumer credit and a massive expansion in how consumer credit reports and personal credit history are used. These monumental changes in the volume and use of credit reports touch virtually every important aspect of the daily lives of Canadians.
Explicit responsibility for the integrity and accuracy of this information does not exist. The ACT does not stipulate any regulated authority in credit reporting matters. The Office of the Superintendent of Bankruptcy (OSB) has a supervisory role in the administration of the insolvency system, including maintaining public records and statistics, but there is no direction from the OSB as to how BIA debt-relief options of bankruptcy and consumer proposal should be described or interpreted on credit reports.
Once a person files for bankruptcy or a proposal, the legislation contains a provision for stay of proceedings, which is intended to prevent creditors from either starting or continuing legal action against the debtor. The problem is that, by providing erroneous and misleading information for credit reports, creditors imply that certain debts continue as delinquent and unaddressed. Such implication circumvents the legal stay of proceedings. This non-compliance of the stay order by creditors simply should not be allowed.
Flawed insolvency information on consumer credit reports also has harsh implications for Canadians. Misappropriated delinquency ratings, bankruptcy mislabelling, and intermingled insolvency terms all represent layers of misinformation that belie the truth. Even third-party companies that buy credit reporting information from a major credit bureau like Trans Union erroneously show “bankruptcy” on reports of debtors who did not file for bankruptcy. This hurts consumers badly and causes unnecessary suffering, such as the denial of employment opportunities, denial of a lease from a landlord, increased costs for services such as insurance and delays in the rehabilitation of their credit history, to name a few examples. When debtors try to correct their credit reports, they struggle in vain with the current system.
Because credit reports wield such enormous power, with significant influence over the livelihood and well-being of individuals, ensuring accurate information is crucial. Accurate information is also imperative because a bankruptcy or a consumer proposal is a closely scrutinized part of the consumer’s credit history.
The Bankruptcy and Insolvency Act must preserve its essential integrity by introducing clear standards that address insolvency-reporting information and regulated measures that ensure the accuracy of this information on consumer credit reports. The time has come to fortify the legislation and regulations by adding provisions for insolvency reporting to ensure the standardization and accuracy of this information on consumer credit reports.
Henrietta Ross is President and CEO of the Canadian Debtors Association.