Fresh Start or False Start: Seeking Uniformity in Piekut v Canada

In April, the British Columbia Court of Appeal (the “BCCA”) provided its reasons in Piekut v Canada (Minister of National Revenue), 2023 BCCA 181 [Piekut]. The decision added another chapter to the ongoing interprovincial conflict in jurisprudence regarding the discharge of government student loans in an insolvency pursuant to s. 178(1)(g)(ii) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 [BIA].

The discharge exemptions contained in s. 178(1) of the BIA seek to balance the goal of giving an insolvent person a fresh start with countervailing policy objectives identified by Parliament. Competing interpretations of an exemption, however, pose a broader threat to fairness between debtors across provinces. They create the possibility that a fresh start in one province will be a false start in another. Further, a lack of interpretive clarity leaves trustees in the dark about how best to guide debtors towards financial rehabilitation when a large portion of their debts might survive discharge.

These twin threats emerge prominently in Piekut and its aftermath. With a leave application pending, the Supreme Court of Canada (the “SCC”, or the “Court”) should seize the opportunity to resolve the interpretive asymmetry and reassert the value of BIA uniformity.

Background

The debtor, Izabela Piekut, had been in and out of post-secondary education for over two decades.  Starting an undergraduate degree in 1987 at the University of Calgary, Piekut graduated in 1994 and obtained a teaching diploma from the same institution the next year. After a seven-year hiatus, Piekut returned to school and completed a master’s degree at the University of British Columbia (“UBC”) in 2003. After another four years elapsed, she returned to UBC and obtained another master’s degree in 2009. With the exception of this second graduate degree, Piekut had obtained government student loans to fund each course of study (Piekut, paras 4-8). 

Faced with a significant debt burden, Piekut subsequently made a consumer proposal under Part 3, Division 2 of the BIA in October 2013 (Piekut, para 9). Piekut was hardly alone—when she made her consumer proposal, almost one in eight insolvent debtors in Canada owed student debt obligations in some form.

After receiving a certificate of full performance, Piekut sought a declaration from the Supreme Court of British Columbia (the “BCSC”) that all debt and interest arising out of her government student loans, amounting to over $28,000, had been discharged via s. 178(2) of the BIA (Piekut, paras 9-11). Section 178(2) provides that an order of discharge releases the debtor from all claims provable in bankruptcy, subject to a limited class of exemptions set out in s. 178(1). 

Gascon J. noted in Alberta (Attorney General) v Moloney, 2015 SCC 51 [Moloney] that discharge is the primary tool which the BIA employs to achieve one of its fundamental objectives—granting an insolvent person a “fresh start” such that they are able to reintegrate into economic life and become a productive member of society. The exemptions provided in s. 178(1) then reflect Parliament’s intent to balance the fresh start principle with an array of competing policy objectives (Moloney, paras 36-37, 79). One of those exemptions, s. 178(1)(g)(ii), applies specifically to government student loans—placing a temporal limit on their discharge: 

178 (1) An order of discharge does not release the bankrupt from (…)

(g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred (…)

(ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student;

A Tale of Two Starts

Piekut took the position before the BCSC that she had ceased to be a full- or part-time student within the meaning of s. 178(1)(g)(ii) in 2003 when she completed her first master’s degree, the last degree for which she received government student loans. Piekut acknowledged that she returned to UBC for a second master’s degree in 2007, but argued that the seven-year period provided for in the statute should be interpreted as corresponding to particular loans—in line with the interpretation adopted by the courts of several other provinces (Piekut, para 17).

The BCSC disagreed, with reasons reported at Piekut (Re), 2021 BCSC 1883 [Piekut BCSC]. The BCSC followed its previous decision in Mallory (Re), 2015 BCSC 5 [Mallory] to the effect that the seven-year period specified by s. 178(1)(g)(ii) corresponds to all government student loans and effectively resets each time a debtor returns to school. Consequently, the clock ran from the time Piekut finished her second master’s degree in 2009, and seven years had not elapsed by the time her consumer proposal was filed. 

This conclusion was subsequently affirmed on appeal. DeWitt-Van Oosten J.A., providing oral reasons for the BCCA, concluded Mallory had been correctly decided and that s. 178(1)(g)(ii) runs from the last date on which the debtor ceased to be a full- or part-time student, “irrespective of whether the educational studies associated with that latest date were financed through a federal or provincial student loans program.” (Piekut, para 22) While the Quebec courts have also adopted this ‘single date’ approach (Piekut, paras 21-22), the courts of Ontario and Nova Scotia, among others, have embraced the ‘multiple dates’ approach which Piekut advocated for (Piekut BCSC, para 7). 

As a result, interpretations as to the meaning of s. 178(1)(g)(ii) have effectively become siloed across provinces, creating the possibility that a fresh start in one province may be a false start in another. This is not a problem that the British Columbia courts needed to concern themselves with—no court is bound to follow the decisions of another province in interpreting federal legislation. It is an issue, however, that the SCC is uniquely positioned to resolve. 

In Search of Uniformity 

On June 15, 2023, Ms. Piekut filed an application for leave to appeal to the SCC [40782], the final materials for which were recently filed on October 30, 2023. Piekut is the first appellate ruling on s. 178(1)(g)(ii)  from which a party has sought leave to appeal to the SCC.

The SCC has not directly addressed the discharge provisions in s. 178 of the BIA since their decisions in Moloney and its companion case, 407 ETR Concession Co. v Canada (Superintendent of Bankruptcy), 2015 SCC 52. Both cases concerned paramountcy doctrine and the question of whether a provincial authority could enforce regulatory penalties against a discharged bankrupt for amounts owing pursuant to provincial traffic laws pre-bankruptcy. The Court answered this question in the negative. 

The fact that bankruptcy and insolvency law is a federal responsibility reflects a commitment to the value of national uniformity, and this value would be threatened if, as in Moloney, one province effectively sought to legislate a new class of debts surviving discharge. Rather, “Parliament expressly selected which debts survive bankruptcy and which are discharged” (Moloney, para 79), and it is not open to the provinces to expand or contract that list. The balance that Parliament has struck between granting the debtor a fresh start and the other policy goals reflected in the discharge exemptions applies equally across Canada.

National uniformity, however, is not only undermined when provinces seek to create new exemptions. Where conflicting interpretations as to BIA discharge exemptions arise as between provinces, the same threat to fairness presents itself as in the paramountcy context—the risk that a debtor in one province will be entitled to a fresher start than a debtor in another. As Gascon J. wrote in Moloney, the balancing act reflected in s. 178 is a “delicate exercise” (Moloney, para 79); conflicting interpretations as to this fragile equilibrium and the policy objectives at stake can have outsize consequences for the financial rehabilitation of an insolvent person. 

For instance, if Izabela Piekut had been a resident of Nova Scotia, the prevailing ‘multiple dates’ approach to s. 178(1)(g)(ii) favoured by the courts of that province would mean that the entirety of her government student loans could be discharged through her consumer proposal. That is a $28,000 difference. The existence of conflicting interpretations as to the balance Parliament has struck is itself a source of unfairness for debtors subjected to unequal standards. 

In some cases, conflicting interpretations of BIA provisions across provinces will be justified insofar as uniformity may be subordinated to another objective. In exempting trust property from the bankrupt’s estate through s. 67(1)(a), for example, the BIA nevertheless declines to provide a definition of “property held in trust” within the statute itself. As Kasirer J.A. (as he then was) held in Groupe Sutton-Royal Inc. (Syndic de), 2015 QCCA 1069 [Sutton-Royal], this allows for provinces to use their own law of general application in defining the term, a matter which becomes significant in Quebec—where trust property has a meaning distinct from that of the common law (Sutton-Royal, paras 88-91). 

In these circumstances, the value of uniformity is eclipsed by a deeper principle of fairness. In Sutton-Royal, this was identified as “an ideal of fairness inherent in Canadian federalism”, according to which the BIA accommodates itself to the civil law tradition underpinning the substantive property rights which, as Gascon J. noted in Moloney, the existence of federal bankruptcy law depends and on which the bankrupt’s creditors would have reasonably relied (Sutton-Royal, para 89; Moloney, para 40). The SCC subsequently denied leave to appeal. 

Matters stand differently in Piekut. Here there is no principled basis as to why a fresh start in one province should be considered a false start in another. There is nothing to justify why Izabela Piekut’s province of residence should, in effect, determine whether her government student loans have been discharged. In contrast to Sutton-Royal, there is no deeper principle of fairness which justifies varying interpretations of the BIA across provinces. Piekut is therefore a case where uniformity remains a prominent objective, calling out for intervention from the SCC to provide a consistent interpretation of s. 178(1)(g)(ii) that applies across provinces. This is a problem that the SCC alone can solve. 

A uniform standard will not only promote fairness across provincial lines: it will also provide clarity for licensed insolvency trustees nationwide in guiding debtors towards fiscal rehabilitation. This is especially salient in provinces such as Manitoba and Alberta, where courts have yet to rule directly on the issue—leaving debtors in the dark regarding the possible consequences of a return to school. An individual in similar circumstances as Izabela Piekut will eventually approach a trustee in Winnipeg, Calgary or Edmonton seeking direction—only the SCC can tell that trustee what their response ought to be. 

After all, Piekut is hardly alone. The role of student debt in insolvency is increasingly an issue of public importance, as the percentage of insolvent debtors in Canada with student debt obligations has only continued to climb. By the end of 2022, almost one in four insolvent debtors in Canada now holds student debt. Plainly, the goal of debtor rehabilitation for this growing cohort is furthered by clarity in the law as to whether their government student loans will survive a bankruptcy or consumer proposal, enabling them to map out a financial future without uncertainty as to downside risk of their obligations post-discharge.

Consequently, Piekut is a case of significance for the bankruptcy and insolvency system as a whole, both in terms of fairness to debtors across provinces and in the practical realities of administration. The SCC should embrace the opportunity to provide an interpretive standard for s. 178(1)(g)(ii), clarifying a pivotal point of law in an area of growing public importance. In the interim, the inequality between government student loan debtors will persist across provinces—caught in the space between fresh start and false start.

Editor: Meredith Wilson-Smith