The purpose of this Brandon’s Blog is to explain to you the personal bankruptcy in Canada process. By doing so I hope it will be a less scary topic for you.
Are you insolvent?
The first step is meeting with the trustee to explore options. The first thing the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) needs to determine is if the person is insolvent.
Insolvent means that you cannot pay your debts as they come due and that if you liquidated all of your assets it would not be enough to repay all of your liabilities. If you’re not insolvent then you cannot take advantage of the provisions of the Bankruptcy and Insolvency Act (Canada).
What are my options?
If you’re not insolvent the options that are available to you are:
perhaps credit counselling mixed in with that to help you better understand your income and expenses; and
how to live within your means
Perhaps also there is the opportunity, if you still have a good enough credit score, to get a debt consolidation loan. This would be a loan that would be equal to the total of all your other debts but at a lower interest rate and with a smaller monthly payment than the total monthly payments you currently need to make to stay current with all your debts.
If you are insolvent then the options available to a person is either a:
The purpose and topic in this blog are bankruptcy so that is what I will focus on. There will be other videos made on the topics of a consumer proposal, budgeting, credit counselling and debt consolidation.
How does bankruptcy in Canada work?
So the personal bankruptcy in Canada process as I mentioned starts with meeting the Trustee to explore your options. Then with the Trustee, determining whether or not you are insolvent and then making the right choice. Does that mean that bankruptcy is the best process for your needs, or can you avoid bankruptcy?.
So given that we’re talking about bankruptcy in Canada, what are the steps? First, the Trustee will prepare the documentation for your review. The documentation consists mainly of the assignment in bankruptcy document, your statement of affairs and your monthly family budget.
The statement of affairs is a multi-page document that indicates what your assets are and the names and addresses and individual amounts owing to each of your creditors. Your monthly family budget shows your monthly cash in and cash out.
An important part of the bankruptcy in Canada process is rehabilitation. Financial rehabilitation. So it is expected upon entering personal bankruptcy in Canada that your monthly family budget will balance. That is your income after tax will be sufficient to pay your monthly family expenses.
What does declaring bankruptcy mean in Canada?
Once that is all prepared and you’ve sworn your statement of affairs the Trustee can begin the bankruptcy process itself. That includes e-Filing the documentation I just spoke about with the Superintendent of Bankruptcy’s local office.
The Superintendent of Bankruptcy local office representative will review it to make sure that it is all in order. Then the local office will issue a certificate confirming your bankruptcy and the appointment of the Trustee.
It is at the time when the Superintendent actually issues the certificate that the person’s bankruptcy starts.
So when bankruptcy occurs then certain things must happen. The bankruptcy administration takes place. The bankruptcy administration will include:
Providing the trustee with any non-exempt assets that you may own. The Trustee will sell those assets to raise money to be able to make a distribution of some sort to your creditors.
The next part of the bankruptcy administration is that the bankrupt person must attend 2 counselling sessions for personal bankruptcy in Canada. These two counselling sessions are meant to help the person financially rehabilitate themselves.
You will discuss with the Trustee things such as budgeting, issues that led you into bankruptcy and how you can correct that behaviour and any problems you might be experiencing during the bankruptcy process.
Finally, if all goes well there is the bankruptcy discharge. That is where the person has made it through and upon their discharge, they are discharged of all of their debts other than those that might be secured, have a trust claim status or meet the definition of those few types of debts such as court fines and penalties that cannot be discharged by way of bankruptcy.
But things like credit card debt and income tax debt are discharged through the bankruptcy process.
Personal bankruptcy Canada
So if you have debt issues meet with a Trustee. There is no charge to do so and you will walk away with a better idea of how to fix your debt issues with or without resorting to personal bankruptcy in Canada.
I hope you enjoyed the bankruptcy in Canada video. The Ira Smith team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now.
We understand your pain. We will make sure that no bill collectors call you. We will take all the headaches and stress you are experiencing off of your hands and put it onto our shoulders. We will fix things so that you can move forward in a healthy way, pain-free, guilt-free and debt-free.
It is not your fault that you are in this situation. You could not fix it yourself because you have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses new ways that will return you immediately to a stress-free life while getting rid of your debt.
So that you can immediately be well on your way to debt and stress-free life in no time, for more information on a no-cost basis, please call us now.
The Ira Smith Team comprehends just how to do a complex restructuring. However, more notably, we understand the needs of the business owner or the person that has too much personal financial debt. You are worried due to the fact that you are encountering significant economic obstacles.
It is not your mistake that you are in this scenario. You have been only shown the old ways which do not function anymore. The Ira Smith Team utilizes new contemporary ways to take you out of your financial debt problems while preventing bankruptcy. We can get you financial debt relief.
The stress and anxiety placed upon you is massive. We comprehend your discomfort factors. We look at your entire situation and also devise a technique that is as special as you and also your issues; economic as well as emotional. The methods we use takes tons off of your shoulders. We devise a financial debt negotiation strategy, we understand that we can help you.
We understand that individuals encountering monetary troubles need a reasonable lifeline. There is no “one solution fits all” method with the Ira Smith Team. That is why we can create a restructuring process as unique as the financial problems and also discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a no-cost appointment. We will certainly get you or your firm back driving to healthy stress-free operations as well as save you from the discomfort factors in your life, Starting Over, Starting Now.
If you would rather listen to an audio version of this Brandon’s Blog, please scroll to the bottom of this page and click on the podcast.
Introduction
I recently read an interesting case from the Court of Queen’s Bench of Alberta involving a court appointed receiver. To me, it highlights that sometimes the simplest of things can provide major difficulty. I will explain, but first, I will go over some basic facts that will help you understand the issue in this case better.
What is a court appointed receiver?
When a borrower defaults on its borrowing agreement, typically by non-payment, the secured creditor needs to decide if it is required to enforce against its security. The most common method for a lender to use is receivership. There are 2 types of these procedures in Canada; 1) private appointed or; 2) court appointed.
Normally, the procedure begins with the secured creditor seeking advice from its legal counsel and the receiver it is thinking of using. If it is chosen that there should be a receiver appointed, the secured creditor, normally a financial institution, then makes a selection. They can either appoint the receiver by private letter of appointment or make an application to the Court for an Order designating the receiver (court-appointed).
1305402 Alberta Inc v 0774238 B.C. Ltd, 2019 ABQB 982
This case was an application by the court appointed receiver (as a British Columbia Court designated receiver of two individuals and also several companies) to have funds in the amount of $281,711.11 paid to it in its capacity as the receiver. The application on its face seemed simple.
The British Columbia Securities Commission (the “Securities Commission”) made considerable enforcement orders versus the individuals and the companies (the “Debtors”). The total fines exceeded $9 million in total. They arose from the Debtors having gotten from various parties real estate financial investments without a prospectus and various other violations.
The Securities Commission got a receivership court order from the Supreme Court of British Columbia on October 3, 2019, appointing a receiver (the Receivership Order). The Debtors are the named parties whose assets the Receivership Order covers.
This application in the Alberta Court was made by the court appointed receiver to take possession of surplus cash paid into the Alberta Court, available from the sale of a property located in the Province of Alberta.
The Court’s problems
On the face of the Receivership Order, it was difficult to tell which parties were originally served with notice of the case. The Receivership Order indicates that a list of those served was attached as Schedule A. Yet Schedule A was not the service list. Rather, it was an example of the Receiver’s Certificate to be utilized in securing financing of the receivership. There was also a Schedule B to the Receivership Order. Unfortunately, it also was of no help. Its only purpose was to list the legal description of the subject land.
Counsel for the applicant argued that certain findings in the original receivership application would decide the outcome of this case. As a result, the Master said that it would certainly have been handy to understand whether the objecting party to this application had any type of capacity to make any kind of argument now!
For example, was the matter in this application already decided in the original motion, or, are there any estoppel issues that would stop someone with notice of the original receivership application from objecting now? In the end, the Master decided that the documents now before the Alberta Court was not adequate to figure out those problems now.
Duties of a court appointed receiver
In addition to having a general duty of care to all stakeholders, the specific duties are spelled out in the Receivership Order. Like all such orders, this one gave the receiver the duty to take possession of all of the assets of the Debtors.
The funds in Court are surplus from a sale or foreclosure in Alberta known as the “Rocky View Lands”. There was a consent order for repossession in the foreclosure action giving the mortgagee title. It was not readily evident from the material before the Master just how surplus proceeds were generated. Nevertheless, the funds were being held by the Court and the receiver was applying to take possession of the cash under its Receivership Order powers and duties.
The receiver’s problem
The proceeds were paid into Court on the application of the previous authorized owner of the Rocky View Lands. Unfortunately, that owner was not one of the Debtors! Just to make matters worse, one of the individuals who were one of the Debtors, filed an affidavit that appended a purported Trust Agreement. The Trust Agreement stated that the owner of the Rocky View Lands was holding the property in trust for 19 different named investors who were opposing this application.
The Master held that the applicant did not adequately prove its case to its entitlement to the funds paid into the Court. The owner of the lands was not one of the Debtors. It was only the property of the Debtors the court appointed receiver had authority over.
So the Master decided that the parties could come back to Court for a full trial to figure out who really had an interest in the funds. This could only be decided after full argument by both the receiver and the opposing parties. It was too early to direct that the funds be paid to the court appointed receiver now.
The devil is in the details
From the Master’s decision, it is obvious that the court appointed receiver came to Court without knowing all the details. In addition, the details that it must have known about who was served with the original receivership application were missing. I am sure this receiver was not trying to pull a fast one over anybody – they were just sloppy.
A detail like whose property was the receiver trying to take possession of is not a small thing. A detail like was any party who was opposing the receiver’s request already stopped from raising such opposition is also not such a small thing. The Master was correct in not allowing the receiver’s application to take possession of the cash sitting in the Alberta Court. This receiver will have to do its homework for when it comes back to Court when a full hearing is conducted.
Summary
I hope you have seen why details matter. Not only for a Court but for a licensed insolvency trustee also. When someone comes to consult with me about their business or personal debts and financial situation, I need details too so that I can fully understand their situation.
Do you or your company have too much debt and in need of debt restructuring? Wouldn’t it be beautiful, though, if you could do a turnaround?
The Ira Smith Team understands how to do a debt restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
Let us start with a what is a consumer proposal definition: A consumer proposal is a formal binding offer made to your creditors to settle your debt for less than the full amount owing.
To help you decide if a consumer proposal is the right option for you, I will provide answers to the most frequently asked questions I receive about what is a consumer proposal in Canada.
What is a consumer proposal?
A consumer proposal is a government-regulated debt settlement program filed with a Licensed Insolvency Trustee (Trustee). The purpose of filing one is to get rid of problem debt so that you can start the process of rebuilding your credit debt-free.
This process is a legal agreement between you and your creditors to repay part of the debt that you owe. If a simple majority, in dollars, of creditors agree to the terms you have offered, then your proposal is binding on all your unsecured debts.
What is a consumer proposal? It is a court-sanctioned process that allows you to negotiate a settlement with your unsecured creditors. This kind of arrangement does not deal with secured creditors.
What is a consumer proposal: Is it worth it?
I would say definitely yes. A successful restructuring is binding on all unsecured creditors. It is a legally binding deal between you and your creditors if the offer is accepted. A consumer proposal is the ideal debt repayment plan for individuals who are able to repay a portion of their debts, but not the full amount.
What is a consumer proposal? This consumer proposal process is a way to avoid filing bankruptcy by making a deal with your creditors to repay a portion of what you owe. If you have high or even just regular monthly income, it is a more sensible option to eliminate your debt obligation than to file for bankruptcy. This process results in a legally binding agreement between you and your creditors that allows you to settle your unsecured debts at a much lower rate, interest-free, over an extended period of time.
The Trustee’s motivation in a consumer proposal is to find a common sweet spot. A number is high enough that it is a better alternative for your creditors than your bankruptcy. A number that the creditors will likely accept yet still a number low enough that it is affordable for you to pay each month.
A consumer proposal is often the way of achieving that objective. In fact, the number one advantage is that you get to keep all assets. Such a proposal can last up to a maximum of 5 years. It is a debt relief solution that allows you to significantly reduce your debt and repay a portion without interest while keeping your assets. That is what is a consumer proposal.
What is a consumer proposal? How do you qualify for one?
A consumer proposal is for individuals who are able to make payments to creditors (either monthly or as a lump sum), but need to change the current arrangement of their payments.
You can file one if you are a person who owes $250,000 or less in unsecured debt.
The big difference between bankruptcy and this kind of restructuring plan is the monthly payment. Once the negotiation is complete and the arrangement agreed to, you make a single payment each month while the proposal is running.
The consumer proposal is one of the most frequently used options for getting out of debt in Canada. If you and your Trustee determine that a proposal is better for your financial situation than bankruptcy or any other debt relief option, you and your Trustee will begin to craft a settlement offer. Your offer will be reviewed by your creditors.
A consumer proposal is typically the preferred alternative to bankruptcy, both in terms of financial affordability and credit ratings. Part of deciding whether bankruptcy or a debt settlement is right for you is knowing what kinds of debts can be included and will be discharged when the process is successfully completed.
A consumer proposal does not deal with secured creditors. Filing one can make keeping up with your mortgage or car loan more affordable. This assumes that in your monthly budget, you can afford to keep them. If not, you will have to give them up to be able to get ones that you can afford. This process does NOT affect the mortgage on your principal residence or a secured car loan. That is what is a consumer proposal is not.
A proposal is an agreement made between the Trustee and your creditors. Through a legally-binding document, it requires you to pay off a percentage of your debts and/or extend the time you need to pay off your debts in full. For those who cannot afford to repay their debts, it is the best debt consolidation program available. If you are looking for debt relief, this is a better option.
For most people, a consumer proposal is a more attractive alternative to bankruptcy; however, it is still considered a form of the insolvency process. For Canadians seeking debt relief, it is an option for insolvent debtors that isn’t as severe as filing for bankruptcy. During your initial no-cost consultation, your Trustee will explain all your debt relief options to determine which one is the right solution for you.
The Trustee acting in your consumer proposal acts as the Administrator. Within ten days after filing with the official receiver, the Administrator will prepare a report containing the results of its investigation, the Administrator’s opinion as to whether the consumer proposal is fair and reasonable to the creditors and the debtor, and whether the consumer debtor will be able to perform it.
If the documents have been successfully filed, accepted by your creditors, court-approved, and then paid through completion, a certificate is given indicating the full performance of the proposal to you and the Official Receiver.
What is a consumer proposal? What does it do to your credit?
Getting out of debt with a consumer proposal is often the first step to rebuilding credit. As with any repayment program, including a debt management plan, this process will for a short while lower your credit score. However, most clients see an improvement in their credit scores shortly after completing the program.
For those who don’t want to go through the bankruptcy process, or want to keep more of their assets, the proposal is less invasive. A proposal is combined with mandatory credit counselling. Trustee fees come out of any monies paid to creditors. If you are unable to repay all of the unsecured debt that you owe but have a steady job and income you could find that a proposal is a viable alternative to bankruptcy.
Once your consumer proposal is completed, you are in the next phase of taking control of your finances.
A proposal is a viable alternative if you have significant surplus income or assets you want to keep. A proposal is a legal proceeding under the BIA that provides a stay of proceedings that immediately stops all creditor actions. This includes most wage garnishments and calls from creditors and collection agencies. If you are dealing with creditor calls or being threatened with legal action, this debt settlement process can help you eliminate your debts and stop dealing with those creditors again.
Payments in a consumer proposal are negotiated upfront. The duties required in a proposal are less than those in bankruptcy. A proposal has fewer required duties than bankruptcy. As you can see, it is a viable way to eliminate all your overwhelming unsecured debt and get your life back on track.
A consumer proposal is also something to consider if your debts are higher than $10,000 and your monthly payment under a debt management plan may be too high for you to afford. Your monthly payment on your consumer proposal is remitted to your creditors once all applicable fees have been paid.
A consumer proposal will eliminate income tax owing
For spouses, if your debts are generally common, you can make a joint consumer proposal. If such a joint filing is made, the unsecured debt threshold increases to $500,000.
A consumer proposal is the only method that can be used to negotiate a reduced balance owing to taxes to the Canada Revenue Agency. A consumer proposal is a safe and reliable way to get out of debt but it can also be the cheapest in terms of monthly payments. The consumer proposal will only include taxes owed from tax returns that were filed prior to the proposal date.
Because each personal situation is unique, the benefit of what is a consumer proposal is that it can be tailored specifically to meet your needs. This is the only government-approved debt settlement option for resolving your debts in Canada, besides filing an assignment in bankruptcy. A consumer proposal is an option to negotiate repayment terms with your creditors through the Trustee, for much less than what you owe today.
No matter what stage in this process you may be at (even if you are still considering one), you probably have questions about what to expect after your consumer proposal is finished. A consumer proposal is a little better than a bankruptcy with regard to your credit score. A consumer proposal is an R7 rating and a bit of an improvement in exchange for the effort of repaying a portion of what you owe. A successful consumer proposal will actually help you avoid bankruptcy.
Another advantage of an arrangement like this is that your Trustee is often able to negotiate greater principal and interest reductions than you could on your own. What sets this plan apart from paying the minimum payments to your creditors on your own is the fact that a consumer proposal includes freezing your interest payments and an agreement that your creditors will consider your debts paid in full for less than what you actually owe.
A consumer proposal is a very commonly used way to settle your debts, without declaring bankruptcy, (or filing for full bankruptcy, as it is referred to by many of our clients). The consumer proposal is a very powerful legally binding way to settle your debts, which normally puts an end to garnishments and other legal actions against you, stops collection calls, and allows you to maintain control of your assets.
Is a Consumer Proposal Right for You?
This is an exceptional program for individuals, families, and sole proprietors who are facing financial hardship and need a practical solution to their debt problems. This process has no hidden fees. While a consumer proposal often lasts longer than bankruptcy proceedings, the total cost to you may be less because you retain your assets and there are no surplus payments.
A consumer proposal is a viable option to deal with small business debts in a proprietorship if the total debts do not exceed $250,000. This program does not deal with debts owed by an incorporated business. It is one of the best, and safest, debt consolidation options available.
What is a consumer proposal good for? It is a great way to take advantage of many of the advantages of bankruptcy without the severe drawbacks such as the loss of assets you must endure during the bankruptcy process. All of your assets are protected from a seizure when your consumer proposal is accepted, and the more you can offer your creditors, the greater the likelihood that they will accept your proposal, thereby allowing you to keep all your assets.
Both bankruptcy and consumer proposals are debt relief options allowing those who are in a significant amount of debt to get out from under what they owe. However, the consumer proposal is far less disruptive to their lives.
Deciding to file a consumer proposal is about dealing with your debt, but I understand that you may be concerned about the impact a consumer proposal has on your credit report.
If your financial situation is such that budgeting or refinancing cannot resolve your ongoing financial crisis, a consumer proposal is one of the options under the BIA to resolve your debts. A consumer proposal may be the best way to help you avoid bankruptcy and achieve real relief from your outstanding debts.
Each situation is different. Each program is tailored to fit the budget and circumstances of each person. The payments you make are then divided among your unsecured creditors. As with bankruptcy, one of the immediate pros of entering such a debt settlement program is that it stops wage garnishments.
Even during the time that this debt settlement process is noted on your credit history, it may still be possible to obtain new credit, including renewal of ongoing commitments such as your mortgage, financing the purchase of a new vehicle, or even a credit card. For consumers who worked seasonally or have fluctuating income, a consumer proposal can be structured so that higher payments are made during peak earning times and lower payments are made during low earning times. Individuals who file a consumer proposal must complete two mandatory financial counselling sessions with a qualified insolvency counsellor.
What is a consumer proposal summary
I hope you found this Brandon’s Blog about what is a consumer proposal helpful. Sometimes things are too far gone and more drastic and immediate triage action is required.
Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.
We know that people facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
We have all heard the expression “third time’s a charm” or “third time lucky”. You say this when someone is successful the third time they try something after they failed the first two times. This expression is not meant to apply to the world of Canadian insolvency or a desperate financial situation. Certainly not for filing for bankruptcy in Ontario.
On December 9, 2019, the Toronto Star published an article by investigative reporters Jesse McLean and David Bruser titled “Rack up debt. Declare bankruptcy. Repeat. And repeat again. How thousands of Canadians are doing it and costing the rest of us”. The article talks about four specific people who file for bankruptcy multiple times.
In this Brandon’s Blog, I want to describe how filing for bankruptcy in Ontario works. Thankfully, the article does state that in the Toronto Bankruptcy CourtFreme, it is much tougher to get away with multiple bankruptcies, as it should be.
Filing for bankruptcy in Ontario: How do I declare bankruptcy in Canada?
Filing for bankruptcy in Ontario begins with a no-cost consultation with a licensed insolvency trustee (formerly called a bankruptcy trustee ) (Trustee). In that consultation, the Trustee will want to get a good understanding of your assets, liabilities, income and expenses. That way, the Trustee will be able to discuss with you all the available options and help you narrow them down to the most viable options to solve your debt problems.
At the end of the meeting, the Trustee will give you the standard intake form. By completing the form fully, you will provide the Trustee with the proper information needed for your filing for bankruptcy in Ontario. My Firm calls our standard intake form the Debt Relief Worksheet The information is then used in order for the Trustee to finalize his or her recommendations to you for dealing with your debt. The options available in general for dealing with personal debt are:
A consumer proposal is an insolvency process which is one of the best of all the alternatives to bankruptcy. It is much preferable than filing for bankruptcy in Ontario. In a consumer proposal, you are able to compromise your debt. You make an offer to pay less than the total you owe. You then make the monthly payment to the Trustee until you have paid the total you agreed to.
If you end up deciding on either a consumer proposal or bankruptcy, the Trustee will prepare the required documentation. This is the case for consumer proposal documents or those necessary for filing for bankruptcy in Ontario.
The Licensed Insolvency Trustee then takes the fully completed worksheet and all additional documents in support of your information. The information is then used in order to prepare the documentation necessary for filing for bankruptcy in Ontario. The documents include your Statement of Affairs and your Statement of Income and Expenses.
The Statement of Affairs used for filing is attested to by the debtor as to its accuracy. This statement includes a listing of all of the person’s assets and indicates which are exempt from seizure and which are not. The asset exemptions are guided by provincial law. As there are some variations between provinces, in this blog I will only be referring to bankruptcy process Ontario exemptions.
The assets not exempt from a seizure will be surrendered to the Trustee to be sold. The statement also lists all the names of the creditors, their respective addresses and the amount owed to each.
The Statement of Income and Expenses, as the name suggests, shows the monthly income and expenses of the household. It also shows whether or not the person will be subject to surplus income payments to the Trustee or not.
When all the documents are ready, the Trustee electronically files them with the Office of the Superintendent of Bankruptcy (OSB). The local OSB representative reviews the filing. If everything is in order, the OSB issues a Bankruptcy Certificate. The issuance of that certificate is the moment the person is now bankrupt.
Filing for bankruptcy in Ontario: How long does bankruptcy last in Ontario?
The Canadian bankruptcy system is administered under the Bankruptcy and Insolvency Act (Canada). This is a federal statute and bankruptcy is a complex legal process. Bankruptcy allows you to compromise the debts to your unsecured creditors. It does not deal with the debt owing to a secured creditor if you are able and wish to keep the asset.
So the question is not how long does bankruptcy last in Ontario? Rather, it really is how long does bankruptcy last in Canada?
The Toronto Star investigative article talks about the length of a bankruptcy. It correctly states that a first-time bankrupt, that does not need to pay surplus income, is entitled to an automatic discharge after 9 months. This assumes that they have lived up to all of their commitments as an undischarged bankrupt as well as completely cooperated with the Trustee.
If a first-time bankrupt surplus income, they must pay it for 21 months prior to qualifying for a discharge. This again assumes that they have fully cooperated with the Trustee. In both cases, if neither the Trustee nor a creditor opposes the discharge of the bankrupt, the Trustee can issue the discharge certificate.
In a second time bankruptcy, with no surplus income, the bankrupt has to wait for 24 months before being eligible for a discharge. Again, if the bankrupt has completed all duties and has cooperated fully, and no creditor opposes the discharge, the Trustee can issue the discharge certificate. If there is a surplus income requirement, then the minimum period before being eligible for a discharge is 36 months. Under the same conditions, the Trustee can issue the discharge certificate if there is no opposition.
The article highlights, correctly, that if it is the person’s third or more bankruptcy, the Trustee cannot issue a discharge certificate. The discharge hearing must be held in Court, even if the Trustee is not opposing. The reason for this is because the Canadian bankruptcy system is supposed to financially rehabilitate the honest but unfortunate debtor.
So in a third or more bankruptcy, the Court wants to review the circumstances of the person’s bankruptcy and why rehabilitation has not been accomplished yet. If there is a Trustee or creditor opposition to discharge, the hearing becomes more complicated.
I have written several blogs previously on the bankruptcy discharge process. You can search for them up above in the search function. If you wish to find out more about the bankruptcy process, you can CLICK HERE and read our filing for bankruptcy in Ontario faq.
What about my credit cards when filing for bankruptcy in Ontario?
When filing for bankruptcy in Ontario, you have to do the following:
disclose to the Trustee information regarding every one of your assets and financial debts;
disclose to the Trustee any transactions where you sold or transferred any of your property in the last 5 years;
surrender your credit cards to the Licensed Insolvency Trustee;
attend 1 credit counselling session near the beginning of the insolvency process and another 1 credit counselling session later on in the administration;
assist the Trustee whenever asked for information, documents or property
What about my credit report when filing for bankruptcy in Ontario?
The information in your credit report that affects your credit score is usually eliminated after a specific period of time. Generally, it will be removed after six or 7 years for initial bankruptcy. The time frame is a bit less in a consumer proposal.
Sometimes you may hear people say that you remain in bankruptcy for seven years. That is not true. What that time frame really is all about when filing for bankruptcy in Ontario is the amount of time it takes for the notation of your bankruptcy to affect your credit rating and to be eliminated from your credit record. However, even before you are discharged from bankruptcy, or finish your consumer proposal, there are steps you can take to begin rebuilding your credit score and credit report.
How bankruptcies work in Canada – Filing for bankruptcy in Ontario multiple times
The investigative reporting in the Toronto Star details the multiple bankruptcies of four different people. These people range from being in their third to fifth bankruptcy. The article states that the Province of Quebec has the most people who have gone bankrupt multiple times. The article, of course, and rightly so, takes a very dim view of people who “game the system” with multiple bankruptcies.
As I mentioned earlier, the article clearly states that from their research in Ontario and Quebec, the writers found that the Toronto bankruptcy court takes the dimmest view of people with multiple bankruptcies when they come up for their discharge hearing.
Being a serial bankrupt is not a good thing. The reporting is fair and balanced. It does admit that some people just get a curveball thrown at them in life and have no choice but for filing for bankruptcy in Ontario. However, there are two themes stressed in the article which I don’t think are accurate. They are:
“Unpaid taxes owed by repeat bankrupts make up a portion of the nearly $4 billion the Canada Revenue Agency (CRA) has written off since 2009 because of consumer and commercial insolvencies. In Quebec, the provincial tax agency has lost nearly $2 billion to insolvencies in the last five years alone.” While this is true, it assumes that the taxes would have been paid if the people did not file for bankruptcy multiple times.
My belief is that people who go bankrupt multiple times have their affairs arranged in such a way that they do not have much to lose in bankruptcy. If they don’t have much to lose in a bankruptcy, then there isn’t much for CRA to seize if the person is not bankrupt. So the reality is that there is a class of Canadians that will not pay their fair share no matter what. This is clearly unfair to society as a whole, but it isn’t bankruptcy that causes it.
“Meanwhile, credit card lenders absorb the cost of bankrupts who do not pay their bills by charging high-interest rates to their customers who do pay their debts.”
The fact that credit card companies charge high-interest rates is true. However, in my experience, customers who do pay their credit card debt are not incurring interest charges. They pay their credit card balance off monthly.
Those who only make the minimum payment are the ones who are incurring high-interest charges. Ultimately, those people cannot afford to make all their debt payments and they ultimately invoke an insolvency process, being either a consumer proposal or bankruptcy.
So even a one-time-only bankrupt pushes a loss onto a credit card company. Hence the high-interest rates charged. By the way, who is it that makes the credit decision to extend new credit to a multiple time bankrupt? It isn’t the bankruptcy system, it is the credit card issuer. Perhaps they should not give a credit card to someone who has demonstrated many times that they cannot handle the credit responsibly.
Filing for bankruptcy in Ontario – Rack up debt
The statistics quoted in the article shows that although there has been an increase over the years in multiple time bankrupts, this is somewhat of a self-fulfilling prophecy. By definition, if a certain segment of the Canadian population goes bankrupt multiple times, then the statistics have to show an increase.
The statistics used in the article shows the following regarding the percentage between 1st and 2nd + out of total personal bankruptcies between 2011 through 2018:
Year
Total # bankruptcies
1st time
%
2nd + time
%
2011
77,993
84.41
15.59
2012
71,495
83.83
16.17
2013
69,224
82.74
17.26
2014
64,839
81.31
18.69
2015
63,406
80.52
19.48
2016
63,372
80.10
19.90
2017
57,969
79.23
20.77
2018
55,091
78.99
21.01
My takeaways from these statistics are:
Personal bankruptcies in Canada dropped by 29.4% between 2011 and 2018. I believe there are two main reasons. First, fewer Canadians are opting for an insolvency process in an era of unprecedented low-interest rates. Second, those requiring an insolvency process, have sufficient income to perform a successful consumer proposal thereby being able to avoid bankruptcy.
The increase in second and more time bankrupts is just under 5%. I believe most of the increase is as mentioned above, somewhat self-fulfilling. Every time the same person goes bankrupt, the statistic has to increase! So, what percentage increase is because of the actual mathematical formula, and what percentage increase is because there are actually more people in raw numbers are filing for bankruptcy more than one time?
Filing for bankruptcy in Ontario – The bankruptcy discharge
A discharge from bankruptcy releases you from the legal commitment to pay off your debts you had as of the day you applied for bankruptcy, with certain exceptions. Examples of certain exceptions are alimony, child support, certain student loans (if you stopped being a student less than seven years before filing), court-ordered penalties or fines and financial debts as a result of a fraud finding against you.
Of course, the ultimate objective for those filing for bankruptcy in Ontario is to receive the most sought after discharge from bankruptcy after you have performed all of your duties. The bankruptcy discharge releases a person from the majority of his or her debts as indicated above.
While many people thinking about bankruptcy currently have a poor credit score, it’s usually not irreparable. Declaring personal bankruptcy, nevertheless, will drop it to an R9 rating. This is the worst possible score there is. Unfortunately, this rating will last for about 6 years post-discharge. As I have already mentioned, there are steps you can take to start rebuilding your credit score.
Filing for bankruptcy in Ontario summary
I hope you found this Brandon’s Blog on filing for bankruptcy in Ontario useful. Sometimes things are too far gone and more drastic and immediate triage action is required.
Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. We can help with your personal debt situation. We can also help with insolvency for business.
However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team . That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
If you would prefer to hear an audio version of this undischarged bankrupt Brandon’s Blog, please scroll down to the bottom and click on the podcast
Undischarged bankrupt introduction
I recently read a Manitoba court decision issued in late October about the position taken by a judgment creditor in an undischarged bankrupt’s hearing. The creditor holding the judgment realized that the bankrupt’s discharge would discharge that debt. So, they tried to convince the court that their debt fit into one of the limited classes of debt that is not discharged by the bankrupt discharge.
That court case reminded me that is not so unusual. Many times a creditor who holds a judgment against the undischarged bankrupt tries to bootstrap their position. One of the leading cases cited by the Manitoba court is a 2018 decision from the Court of Appeal for Ontario.
The purpose of this Brandon’s Blog is to describe the bankruptcy discharge process, the position taken by the judgment creditor and what the Court has to say about that.
How bankruptcies work in Canada
The Canadian bankruptcy legislation is open for an insolvent and not viable company, or the insolvent, honest but unfortunate person can obtain relief. Subject to trust claimants’ rights and secured creditors, the company or person is assigning all of their unencumbered assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). In return, the bankrupt person can have all of their debts discharged, subject to certain exceptions.
The bankruptcy discharge is amongst the primary advantages of relief under the Bankruptcy and Insolvency Act (Canada) (BIA). The discharge is vital to the bankruptcy procedure. Debtors, after bankruptcy, can wipe the slate tidy as well as begin over. This is a central concept under the BIA law. That is the essence of the bankruptcy discharge meaning.
A bankruptcy discharge is when the bankrupt is released under Canadian bankruptcy law from his or her financial debts as part of the bankruptcy discharge procedure. Some people think that it is the declaring for bankruptcy that releases the insolvent from obligation. This is not the case, it is the discharge that releases a bankrupt from debt.
support payments to a previous partner or children;
penalties or fines enforced by the Court;
financial debts arising from fraud or fraudulent breach of trust;
student loans if less than seven years have actually passed since the bankrupt stopped being a part-time or full-time student.
Can an undischarged bankrupt leave the country?
If you are an undischarged bankrupt, you can travel. There are no restrictions on you leaving or returning to Canada if you are travelling for work or on vacation. Just make sure that your travel plans do not interfere with your legal obligation and your duties in your personal bankruptcy case, including:
showing up for your mandatory counselling sessions;
submitting your monthly income reports to the Trustee;
remitting any surplus income payments you are required to make;
providing your financial information to the Trustee so that your pre and post-bankruptcy income tax returns can be filed;
being able to respond to any inquiries from your Trustee; and
attending in Court for your bankruptcy discharge hearing in an opposed discharge application.
undischarged bankrupt
Undischarged bankrupt: What is an undischarged debt?
When a bankrupt is discharged from bankruptcy, the individual is released from the legal obligation to repay their different types of debt that is unsecured and existed on the day that the bankruptcy was filed, except for the following types of original debt:
Alimony or support payments to a previous spouse or for the children;
Fines or monetary penalties imposed by the Court;
Financial obligations arising from fraud, misappropriation or defalcation; or
Student loans if less than seven years have actually passed since the person stopped being a full or part-time student.
So other than for the small category of debts that are not discharged, once the bankrupt is discharged from their bankruptcy, they do not have to make payments on debts that existed at the date of bankruptcy.
Undischarged bankrupt: Trustee opposed the discharge
A first-time bankrupt, who does not need to pay surplus income, is entitled to an automatic discharge after 9 months. This assumes that they have lived up to all of their obligations as an undischarged bankrupt and fully cooperated with the LIT. If this first-time bankrupt is subject to surplus income, then they must pay it for 21 months before they are entitled to a discharge. Longer timelines apply for a second or more time bankrupt.
If the Trustee has evidence that the bankrupt has not been forthright and fully cooperative, or has actually committed one or more bankruptcy offences, then the Trustee has a duty to oppose the bankrupt’s discharge.
Notice of opposition to discharge
Similarly, any unsecured creditor can oppose the bankrupt’s discharge. The grounds of opposition would likewise be evidence of lack of honesty or that one or more offences have been committed. The process for a creditor opposing the discharge of the bankrupt is by filing a notice of opposition to discharge.
In either a Trustee or creditor opposed discharge, the bankrupt’s application for discharge must be heard in Bankruptcy Court. For more on the discharge process, you can read about it in one of my previous Brandon’s Blogs.
undischarged bankrupt
The judgement creditor
Often, a judgment creditor thinks they have a higher position in the pecking order than other unsecured creditors because they have a judgment. They may have even registered the judgement against the title to real estate owned wholly or partially by the defendant. Unfortunately, upon the bankruptcy of a person, all enforcement proceedings on a judgment must stop.
The judgment for a debt, in bankruptcy, is merely a piece of paper that proves you have unsecured debt. Nothing else. Anyone who understands the litigation process knows that there is a big difference between getting a judgment and collecting on it.
Judgement creditors may take a keener interest in the bankruptcy proceedings, including opposing the discharge from bankruptcy. The reasons for this are twofold:
The judgment creditor has already spent time in court, money on legal fees and still has not collected their debt, so they are more invested in this person’s bankruptcy than someone who did not go the court route.
They are hoping that they can somehow fit their money judgment only into a position where they can claim that the debt is one not released by an order of discharge.
It is this second reason that this Manitoba court case, and the Court of Appeal for Ontario decision relied upon by the Manitoba court, revolves around.
Undischarged bankrupt: Can more evidence be introduced by a judgment creditor at the discharge hearing?
Most judgements that I see in a debt settlement program under the BIA or bankruptcy tend to fall into the same category. A service or good was supplied and not paid for. A contract was entered into and was breached. That is just normal business. There is no fraud, embezzlement, misappropriation, defalcation, fraudulent misrepresentation or fraudulent breach of trust.
It is simply someone owes money and didn’t pay. The plaintiff entered all of the evidence they thought was important, the defendant either defended or allowed for default judgment to be obtained because they did not defend. Regardless, the court ordered the defendant to pay the money.
The judgement creditor was unpaid and then one day received the Trustee’s notice of bankruptcy in the mail. The judgment creditor was incensed. The creditor took an active interest in the bankruptcy proceedings and maybe even served as a bankruptcy inspector. The bankrupt person is now entitled to apply for his or her discharge from bankruptcy.
The judgment creditor is unhappy because they now know that they are receiving either nothing or a small dividend from the Trustee compared to the debt to be written off. So they now oppose the bankrupt’s discharge and try to get new evidence submitted to the Bankruptcy Court to somehow prove that their judgment is a claim that is not extinguished by the person’s bankruptcy discharge.
This is what the Court of Appeal decision was all about. Can you introduce new evidence at a bankruptcy discharge hearing?
The case I am referring to, Lawyers’ Professional Indemnity Company v. Rodriguez, 2018 ONCA 171 (CanLII). The appeals court said that the answer is no. You can read the entire decision here if you like. The Court of Appeal essentially said that the Court is allowed to look at:
the judgment
the proof that would certainly have been entered as evidence at the time in the pleadings
as well as that evidence which has been led in the bankruptcy discharge hearing
to analyze whether the judgment debt falls within an exclusion to the general discharge rules. The Court also said that in a bankruptcy discharge hearing, the application judge was limited to looking at the judgment, the pleadings, the statement of claim and any statement of defence, to determine whether the judgment fell into the class of those debts not released by a discharge from bankruptcy. New evidence is not allowed.
This finding has been followed and further clarified. It is now apparent that the only purpose of a bankrupt’s application for discharge is to consider the bankrupt’s application. It is not a forum to attempt to advance new or amended claims.
undischarged bankrupt
Undischarged bankrupt summary
I hope you enjoyed this Brandon’s Blog on the undischarged bankrupt. Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
NOTE: On January 13, 2022, three settlement agreements were approved by the Honourable Justice Mayer of the British Columbia Supreme Court on January 29, 2021, and November 15, 2021. As a compromise of disputed claims, these settlements are not an admission or finding of liability by the settling Defendants. You can read all about the Settlement Administration Plan and how to file a claim by CLICKING HERE to read our latest 4 Pillars blog.
If you would prefer to listen to the audio version of this how does debt relief work Brandon’s Blog, please scroll to the bottom and click on the podcast.
How does debt relief work Introduction
On October 29, 2019, The Supreme Court of British Columbia, certified a class-action lawsuit in Pearce v. 4 Pillars Consulting Group Inc., 2019 BCSC 1851. At the crux of the litigation, the question of how does debt relief work legally will be answered. In Brandon’s Blog, I describe the issues raised in this class-action lawsuit.
What is a class action?
In a class action, one or more individuals called Representative Plaintiffs sue on behalf of all other individuals with similar claims. With each other, the people included in the class action are called Class Members. One court settles the concerns for all Class Members, with the exception of those that exclude themselves from the Class.
Plaintiff seeks to certify his action as class proceedings. The litigation looks to recoup damages for the costs billed by 4 Pillars as debt consultants to its clients. In the 4 Pillars litigation, Mr. Pearce is looking to recoup damages for the costs billed by 4 Pillars to all persons that paid fees to it in British Columbia in connection with: (i) a consumer proposal under the BIA; or (ii) an informal debt settlement proposal with the person’s creditors, all after April 1, 2016.
How does debt relief work: The allegations
In his litigation, Plaintiff claims that Defendant provided debt restructuring services in breach of both provincial legislation and the BIA.
4 Pillars debt consultants represent that it might hold financial liability negotiations directly with a customer’s creditors, trying to get you an informal debt settlement, although that service is hardly ever really supplied;
Their standard form agreement, which clients need to enter into with them, allows 4 Pillars to speak to the client’s creditors on their behalf;
Under their standard procedures, 4 Pillars gets in touch with the debtor’s creditors to advise them that they are acting for the debtor and they will need time to make plans for the debtor; and
They meet the debtor numerous times, collect information from the borrower, prepare a consumer proposal to provide to a Trustee and afterward meets the Trustee to administer the consumer proposal process.
Mr. Pearce goes on to state the 4 Pillars:
acts only for its clients, the borrowers;
prepares a consumer proposal for its clients and afterward represents to the Trustee why the proposal terms are reasonable;
urges the Trustee to recommend that the creditors accept the proposal on the suggested terms;
meets the Trustee and helps in answering the Trustee’s concerns; and
will, ideally, create an alternate proposal and, once more, advocate the Trustee, if their first consumer proposal is rejected by the borrower’s creditors.
The alleged cause of action under the BIA: Are the activities of a debt consulting business in breach of the BIA?
Mr. Pearce claims that contrary to the provisions of the BIA:
none of the entities or individuals offering financial debt restructuring services are Trustees;
performed various regulated activities that only Trustees are authorized to carry out;
collected financial information from their customers and prepared consumer proposals for them; required borrowers to pay fees and costs which are not allowed; and
4 Pillars has actively solicited people to file consumer proposals which is prohibited.
There are many more claims being made by Mr. Pearce, including that there is not any real debt settlement negotiation with creditors or any real debt relief management, other than the preparation of the consumer proposal. Defendant, of course, denies it all. After hearing all the evidence, the Court found that there were sufficient grounds for this litigation to go forward as a class-action lawsuit.
Are Debt Relief Programs a good idea?
Is debt settlement a good idea?
Debt relief programs are a good idea. However, as Mr. Pearce’s litigation shows, there are companies that charge high fees and really provide no value. Worse, they may actually do more harm than good.
I have previously blogged about the risks of debt settlement businesses. In 2017, I covered the study by the Office of the Superintendent of Bankruptcy (OSB) on debt negotiation companies.
The major findings of the OSB study were that in 2016:
In 17% of all consumer proposal filings, the client reported having spent initially for debt counselling from a debt settlement company before being guided to a Trustee.
57% of the consumer proposal filings for which earlier financial debt settlement advice was obtained, the Trustees had strong ties with 2 large-volume financial debt settlement companies. These 2 companies represented 64% of the total for those Trustee fees reported in 2016 for financial advice before submitting to a proceeding with a Trustee.
Thirteen Trustee firms, that included one national-level firm, were uncovered to have countless Trustees running in routine partnership with large-volume financial debt settlement firms.
For about 50 Trustees within these 13 firms, much better than 40% of their consumer filings were sourced from these debt settlement companies. For about 20 of those Trustees, more than 90% of their consumer proposal work stems from these 2 organizations.
Financial debt negotiation companies have actually long utilized scare tactics with consumers to draw in business. They tell consumers that all a Trustee intends to do is put them into bankruptcy.
The OSB concluded that customers were paying financial debt settlement companies fees with cash they could not afford to pay. Only when they could no longer pay, then the debt settlement company referred the people to their favourite Trustees! The OSB was additionally concerned about the business arrangements being made between financial debt settlement outfits and those same Trustees. The OSB is very concerned with how does debt relief work in Canada since it supervises the insolvency process in Canada.
Ever since the OSB has actually introduced modifications to methods that Trustees have to comply with for the regulation of debt counsellors and business arrangements with a view to curb these practices. For the record, I as well as my Firm have no relationship with any type of debt negotiation company
how does debt relief work
Do Debt relief companies really work?
How does debt relief work with a legitimate credit counsellor? What this says is that a legitimate credit counselling service can offer a good debt settlement program. There are community-based credit counselling agencies that do not charge fees and they really do know how does debt relief work. These organizations provide a valuable service in the areas of budgeting and debt management. They are not the kind of debt consulting services that rips off unsuspecting people and prey on their fears of going to see a Trustee.
How does a debt relief program affect your credit?
With a debt relief program run by a reputable credit counselling agency, you make one regular monthly repayment to the credit counsellor, which after that disburses repayments to your creditors. This kind of plan can have a negative influence on your credit rating. Naturally, any type of late payments or high unpaid amounts on accounts will certainly worsen your credit rating The unscrupulous debt relief companies have an additional trick up their sleeve that makes your credit score worse.
The debt restructuring businesses that actually do try to negotiate with your creditors first do not make payments to them from the funds you supply for some time. Their theory is that your account must first go into arrears. Some people speculate that the money you are paying them, while they are not passing it on to your creditors, goes to the company only. When your account is now months in default, your credit score worsens.
So, the debt settlement credit score impact is real.
Is Debt Settlement Really Worth It?
How does debt relief work with a true debt settlement program? Is it really is worth it? With real consumer debt relief you can:
get real credit counselling;
help with setting and following a family budget where you do not spend more than you earn;
receive true debt settlement where you will pay off all your debts for less than what the full amount is;
enjoy the time you need to pay this lesser amount to get rid of all your debts;
avoid interest and other high fees and charges; and
end the stress in your life and move forward without the pain, worry, and guilt that your unmanageable debts have caused you.
There is only one government-approved debt settlement program in Canada. It achieves all of the above. The only professional authorized to administer it is a Trustee. As Pearce, now class-action litigation shows, it is a consumer proposal. A consumer proposal and a Division 1 proposal are alternatives to filing for bankruptcy. As the Pearce litigation confirms, only a Trustee can administer these kinds of debt restructuring proposal.
Although they are the same in a number of ways, there are some substantial distinctions between a consumer proposal and a Division I Proposal. Consumer proposals are used for people whose financial debts aren’t greater than $250,000, not including any type of debts registered against your house. Division 1 proposals are readily available to both companies and also people whose financial obligations go beyond $250,000 (omitting mortgages signed up on their home).
A consumer proposal is an official process under the BIA. With a Trustee, you make a proposal to:
Pay your creditors a percentage of what you owe them over a particular amount of time, not greater than 5 years.
Prolong the time you need to pay back the reduced amount taking care of all of your unsecured debts.
A mix of both.
Settlements are made by the Trustee, using the monthly cash payments you make to the Trustee to make regular distributions to all your unsecured creditors.
4 Pillars lawsuit update May 24, 2021
4 Pillars appealed the decision that Mr. Pearce’s lawsuit should be converted into a class action proceeding to the Court of Appeal for British Columbia. See our updated blog describing the appeal:
I hope you enjoyed this Brandon’s Blog on how does debt relief work and the 4 Pillars lawsuit. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation, so many dollars in debt. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can develop a financial plan to get you debt relief freedom and you can stop feeling the shame of debt.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
If you would prefer to listen to the audio version of this credit counselling Canada Brandon’s Blog, please scroll down to the bottom and click on the podcast
Introduction
Like many people, I have set up various Google News alerts. Mine are mostly on the topic of insolvency. I have done this so that whenever a news article is posted on the topic, I will be alerted. One of the alerts I have set up is for the term “credit counselling Canada”. Last week I have noticed that a fair bit ofbankruptcy online chatter.
The purpose of this Brandon’s Blog is to comment and shed light on several comments in their recent busy online articles that I think are slightly misleading.
Consumer Proposal Ontario
In the Ontario consumer proposal blog, it is stated that a consumer proposal can only be arranged and administered by a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) which is true. They then go on to state what the cost of a consumer proposal is, that you need to pay an initial setup fee. They also state that the Trustee will also keep 20% of all of your consumer proposal payments.
This is misleading. The way I read it, is they claim you will have to pay a Trustee a setup fee, their fee and an additional 20%. This is not correct. In reality, the Trustee’s fee is a fixed tariff set by the Bankruptcy and Insolvency Act (Canada) (BIA). The fee and disbursements of the Trustee are set in the statute. It is illegal, for the Trustee to collect anything above and beyond the statutory tariff.
The reality is that the Trustee’s fee and disbursements, set by a tariff, come out of the person’s consumer proposal payments. The consumer proposal payments are calculated off of what your creditors can expect in that person’s bankruptcy. Whatever that amount is, the bankruptcy law says that the amount offered in the consumer proposal must be higher. Therefore, the amount a person must offer to get creditor buy-in to accept the consumer proposal has zero relationships to the Trustee’s fee and disbursements.
As the Trustee is entitled to take its capped fee and disbursements from the consumer proposal fund, rather than costing the person, the Trustee’s fee and disbursements are actually free to the insolvent debtor!
Bankruptcy Trustee, Creditor & Debtor
The blog I read on this topic discussed is pretty accurate. The only issue I take is that when describing the role of the Trustee, they pull out the old scare tactic that although the Trustee makes sure that the rights of the debtor are not abused, the Trustee acts for your creditors. This is technically true but overlooks the role of the Trustee as a credit counsellor before the debtor decides whether or not to file either a consumer proposal or for bankruptcy.
In my professional practice, before I allow anyone to file for bankruptcy, I provide an exhaustive and detailed analysis of the person’s financial situation. I first ask the person to explain the issues and financial crisis they are facing which is upending their life. We then together look at their assets, liabilities and income so that I can come up with realistic options. We then discuss the options available and I explain the advantages and disadvantages of each. Then I provide my recommendation. All of this is done in an initial consultation and is no charge to the person.
If they wish to explore the options we discussed more seriously, I then have them complete our standard intake form called the Debt Relief Worksheet. That document when fully completed and provided to me with appropriate backup, allows me to confirm my initial diagnosis and recommendations. Then it is up to the debtor to make their choice as to how they wish to proceed.
After going through this process, with everything fully explained by me, there are no surprises. If the debtor follows my advice, they will have either a successful debt settlement consumer proposal or will discharge their debts through the bankruptcy process. During and after this entire process, the debtor does not feel that I am biased against them in favour of their creditors. Although I have acted formally on behalf of their creditors, the debtor thanks me for saving them and allowing them to restart their lives.
Personal bankruptcy Toronto
The blog I read on personal bankruptcy, part of a credit counselling Canada series, said that people will tell you that bankruptcy eliminated all of their debts. They then ask the question: Did they tell you that it is not possible for everyone? The obvious answer is no because someone who eliminated all of their debts isn’t worried about someone else’s situation and distinctions.
The three types of debts given as examples that cannot be eliminated by a discharge from bankruptcy are:
Secured debts, like mortgages and car loans
Student loans where you have ceased being a full-time or part-time student less than 7 years ago
Child and alimony support payments
This is all true. When I counsel debtors during the free consultation, we review issues like this. We discuss all of the person’s debts, which can be discharged and which cannot be. Just because a certain debt on its face cannot be discharged through bankruptcy, does not mean that the person cannot properly avail themselves of an insolvency process and improve their financial position in life.
Specifically, with secured debt, I attack it from the perspective of can you afford to keep paying that debt, or should you keep paying it. If the home is fully encumbered and there is no or little equity, perhaps renting is a cheaper alternative. We go through the same analysis for a car loan.
In some cases, it might make sense for the person to give up the asset to the mortgagee/lender and allow them to make a demand on the debtor for the shortfall. A shortfall happens when the lender sells the asset but the market will only pay less than the secured debt owing. The lender’s loss is the shortfall. They can pursue the debtor for the loss.
That lender loss, or shortfall, is now an unsecured debt. The person has hopefully found a car they can afford and home, condo or apartment to rent they can afford in their budget. They have now turned the secured debt into an unsecured shortfall claim. That unsecured debt can be discharged through either a consumer proposal or bankruptcy process.
So just because a secured debt cannot be discharged in bankruptcy, it doesn’t mean the person can afford or should keep that debt and continue making payments. They may have a better way to live while then being able to discharge their debts through an insolvency process.
Bankruptcy Discharge in Canada
The blog I read on bankruptcy discharge does not say too much about the bankruptcy discharge process. Rather, they do focus on the dangers of not getting a discharge and remaining undischarged bankrupt.
Everything they say on the topic is true. However, I believe it does leave out a lot of information. In my experience, if someone follows my advice and lives up to all of their obligations during the lifetime of their bankruptcy, then they are not going to have a problem with discharge. It really is only those who try to “game” the system, do not fully cooperate and refuse to make full and transparent disclosure who have problems.
That is how the BIA is designed to work. You are asking your creditors to forgo a lot of the debt you owe them. In return, you have to be fully cooperative and make full disclosure, so that every stakeholder in the bankruptcy process knows that it has been a fair process.
In all of the personal bankruptcies I have administered, it is a very small minority who have a problem with discharge. In all cases, it is their past behaviour or their lack of full disclosure in bankruptcy that has caused the problems, not the bankruptcy process itself.
Summary
I hope you enjoyed this Brandon’s Blog on credit counselling Canada. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
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Canadian bankruptcies laws
Last week I wrote about amendments to Canadian insolvency law for intellectual property rights in my Brandon’s Blog INSOLVENCY LAW CANADA AMENDMENTS FOR INTELLECTUAL PROPERTY RIGHTS In addition to the intellectual property rights amendments, other amendments affecting how bankruptcies work in Canada. They were enacted as of November 1, 2019. They too were part of the changes announced in the Canadian 2019 Budget.
Corporate bankruptcies Canada
Most of the amendments affect not just corporate bankruptcies. Receiverships and corporate financial restructuring are likewise affected. Even the operation of solvent companies is also affected. The amendments were made to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) and the Canada Business Corporations Act (R.S.C., 1985, c. C-44). I will focus on the changes to the BIA and CCAA.
The BIA and the CCAA modifications in the Budget Implementation Act, 2019, No. 1, are planned to boost retired life protection by making the insolvency treatment fairer and much more clear. In the legislation, the amendments fall under the heading “Enhancing Retirement Security”.
This issue remained in the news over the past two years. High profile insolvency situations such as Sears Canada and U.S. Steel Canada brought this matter to the forefront. I wrote a few blogs on the topic of proposals to change the BIA and CCAA. The proposals were meant to supply protection to senior citizens. This consisted of private members’ bills introduced by Hamilton Mountain NDP MP Scott Duvall, Bloc Québécois MP Marilène Gill and Senator Art Eggleton, P. C.
None of their Bills ever came close to being enacted. Rather, the Liberal government made some changes. Only time will tell if the changes I describe below will accomplish the stated goal of enhancing retirement security.
Insolvency and bankruptcy code amendments – BIA
The BIA amendments will apply to bankruptcy, receivership and BIA financial restructurings done under the Proposal section of the BIA. The amendments are aimed at several areas. All the insolvency amendments are for insolvency proceedings beginning on or after November 1, 2019.
1. Good faith
Section 4.2 of the BIA is amended by adding a good faith provision section(4.2)(1). The new language states that any interested person in any type of process under the BIA must act in good faith relative to those proceedings. New subsection 4.2(2) codifies a power for the Court. It now states that if the court is satisfied that an interested individual fails to act in good faith, on application by any other interested party, the Court might make any kind of order that it thinks is proper in the circumstances.
I would have hoped that acting in good faith was always a given. Previously, the Court had wide discretion in insolvency proceedings to make an order that it believed to be just and appropriate. I am not sure this new language adds much to “enhancing retirement security”, but at least now it is codified.
2. Registered disability savings plan
Before Budget Canada 2019, there was a gap when it came to a registered disability savings plan (RDSP). The gap was that unlike an RRSP or RRIF, there was no exemption for an RDSP in how bankruptcies work in Canada.
Now Paragraph 67(1)(b.3) of the BIA is amended to include the same exemption for an RDSP that an RRSP and RRIF enjoy. That is, the amounts in any of these funds are now exempt from seizure in a bankruptcy apart from property added to any such plan or fund in the twelve-month period before the date of bankruptcy.
3. Director liability – Inquiry into dividends, redemption of shares or compensation
Section 101(1) of the BIA has been amended. It now deals with certain transactions that 1 year before the corporation went bankrupt. The time period is within the day that is one year prior to the date of the initial bankruptcy event and ending on the date of the bankruptcy both such dates included. If the corporation had:
paid a dividend, aside from a stock dividend;
redeemed or acquired for cancellation any one of its shares of the company’s capital stock; or
has paid termination pay, severance pay or incentive or other benefits to a director, officer or any person that manages or controls the business
the Court may, on the application of the licensed insolvency trustee (Trustee), inquire into the transaction to find out whether it took place at a time when the firm was insolvent or whether it made the firm bankrupt.
If a transaction referred to above has actually occurred, the Court can give judgment to the Trustee against the directors of the firm, jointly as well as severally, or individually as appropriate in the circumstances.
The amount of the pay or benefits, with interest on the amount, that has not been paid back to the company if the Court discovers that the payment of the pay or benefit:
occurred at a time when the company was insolvent or it made the corporation bankrupt;
was notably over the reasonable market price of the consideration gotten by the company;
was made outside the common course of business
and the directors did not have reasonable grounds to think that the payment:
took place when the firm was not insolvent or would not render the firm insolvent;
was not conspicuously over the fair market value of the consider obtained by the corporation; and
was made in the ordinary course of business.
Interestingly, the new statute also states that a judgment will not be made against or be binding on a director who had protested against the payment of the pay or benefits and had, therefore, vindicated himself or herself under the relevant corporate legislation from any kind of resulting obligation.
No doubt we will only learn how effective this additional liability of directors provision will be after several court cases. Presumably, this amendment to the statute will provide extra food for thought for the insurance companies providing director and officer liability coverage.
Insolvency proceedings under the CCAA
The CCAA covers larger company financial restructuring. In addition to amendments to the CCAA to mirror the BIA amendments discussed above, there were also a couple of other changes made.
Prior to November 1 CCAA filings, the company was given an initial stay of proceedings for 30 days. Now, for filings November 1, 2019, and after, this initial stay period has been reduced to 10 days.
5. Relief reasonably necessary
An initial order made or during the 10-day initial application stay period will be limited to alleviation that is fairly required for the continued operations of the borrower business in the regular course, but no extra relief will be granted. This narrowing of relief during the initial order period means that the Company cannot ask for all sorts of extra relief outside of the normal course of business.
In order to attempt to get extra relief, the Company will have to make a motion to the Court on notice to any affected parties. The Company will not be able to pack it into an initial order and force affected parties who did not receive notice to have to come to Court under the comeback clause. This was the case before November 1, 2019.
Most times in a CCAA restructuring, it is necessary for the Company’s survival to get debtor-in-possession financing. When such financing is available, it usually comes with very onerous terms. To avoid essentially keeping all of the Company’s assets out of reach by using such financing, the CCAA has been amended. It says that when applying for the initial order or during the initial stay period, no order shall be made unless the court is pleased that the terms of the loan are restricted to what is reasonably necessary for the continued operations of the debtor firm in the ordinary course of business during that initial stay period duration.
In this way, Parliament has tried to put the brakes on wide-sweeping initial orders that have everything including the kitchen sink in them. Parliament wants to have the initial orders contain only what is reasonably necessary to keep the Company’s operations going until everyone is back in Court all lawyered up.
It will be very interesting to see what Court decisions come from all of these new amendments to the Canadian insolvency laws.
Summary
I hope you enjoyed this how bankruptcies work in Canada Brandon’s Blog on the other BIA and CCAA insolvency amendments effective November 1, 2019. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
The Federal government published in the Canada Gazette, Part II, Volume 153, Number 18, its intention to amend Canadian insolvency law for intellectual property rights (IP). On November 1, 2019, those changes came into effect. This change was part of the Canadian 2019 Budget. In Brandon’s Blog, I will discuss what the changes are and why they were made.
Insolvency law amendments for IP in Canada
Amendments relating to how IP is treated under Canadian insolvency law were made to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) was made. The BIA controls liquidations and restructurings for people and companies, and the CCAA covers large company restructurings.
The changes are meant to shield IP user rights in cases where the IP licensor becomes insolvent.
The BIA, as well as CCAA changes in the Budget Implementation Act, 2019, No. 1, are intended to improve retired life protection by making the insolvency procedure fairer and much more clear.
Previous Canadian IP insolvency law
Previously, Canadian insolvency law only explicitly dealt with IP in restructuring proceedings. Both the BIA and the CCAA allows for a debtor to disclaim or resiliate agreements. There are certain conditions that the debtor business must meet. This essentially boils down to being able to prove that the agreement in question is either so onerous and/or costly to the debtor business, that a successful restructuring is impossible if the debtor must continue honouring that agreement.
Specifically, as it relates to IP, the BIA, and CCAA if a debtor who is a licensor under an IP agreement disclaims the agreement, the licensee has rights. The licensee can continue to use the IP and gain all benefits it had bargained for, as long as the licensee continues to perform its responsibilities under the IP agreement concerning the use of that IP.
There was no such equivalent section for the receivership or bankruptcy of the debtor. So, if there was a liquidation, the licensee was not protected the same way they would be if the licensor debtor business disclaimed the agreement in financial restructuring.
Insolvency law reform
The amendments in Budget Implementation Act, 2018, No. 2 were done to protect copyright (IP) individual rights in situations where the IP licensor comes to be insolvent.
Effective for all filings beginning on November 1, 2019, or later, there are changes to the BIA and the CCAA, Canada’s main insolvency statutes. The November 1 amendments are done so that the rights of a licensee under an IP agreement where the licensor has disclaimed the agreement will be the same in a financial restructuring or a liquidation through either receivership or bankruptcy.
The following modifications accomplish the goal of safeguarding IP customer’s rights in instances where the IP licensor ends up being insolvent:
Many times as part of a corporate restructuring, the Court authorizes the company that filed a Notice of Intention To Make a Proposal, or a Proposal, to sell assets. The new amendments now make it so that if the corporation being restructured is the licensor under an IP agreement and sells it, the licensee retains its rights to use the IP, as long as they are and stay current under the agreement.
If a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) administering the bankruptcy (or receivership) of a licensor under an IP agreement sells the agreement, the licensee retains its rights under that agreement. Again, the licensee must be current in its obligations to continue enjoying the benefit of the IP agreement.
The Trustee disclaims the debtor licensor’s interest in an IP agreement as part of a bankruptcy (or receivership) administration. The licensee will continue to enjoy the rights and benefits of the IP agreement as long as it is current in all of its responsibilities under that same agreement.
If that IP is sold in a CCAA restructuring, the CCAA legislation has now been amended, for administrations that began after October 31, 2019, offers that an IP licensee in excellent standing can continue to utilize the IP.
Proposed BIA wording for IP insolvency proceedings
These are new amendments. There have not been any court decisions on these new amendments yet. The new legislation is not available yet as far as I know. However, my understanding is that the BIA will be amended, in part, to implement the changes concerning IP agreements as I have discussed, along the following lines:
“Intellectual property — sale or disposition
246.1 (1) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property that is included in a sale or disposition by the receiver, that sale or disposition does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.
Intellectual property — disclaimer or resiliation
(2) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property, the disclaimer or resiliation of that agreement by the receiver does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.”
Summary
I hope you enjoyed this Brandon’s Blog on the insolvency amendments effective November 1, 2019. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
What happens to student loans if you declare bankruptcy?
This was an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As a whole, student loans cannot be released by a bankruptcy discharge where the date of bankruptcy took place within seven years after the day on which the bankrupt ceased to be a full time or part-time student.
However, Section 178( 1.1) of the BIA, permits after 5 years after the day on which the bankrupt, with student loan debt ceases to be a part-time or full-time student, the Court may, on an application, order that such financial debt will be released. For such Canada student loan forgiveness, the Court needs to be assured that:
the bankrupt person has really acted in good faith about their commitments under their student debt loan agreement
the bankrupt will remain to experience financial difficulty to such an extent that the bankrupt will be unable to pay that financial debt
The Registrar discovered that the timing of when Ms. Morrison filed for bankruptcy compared to the seven-year cut-off was very close. The bankrupt’s key interest and her intent at the time of meeting with the Trustee were to get a discharge from all of her creditors on equal ground. The Registrar decided that Ms. Morrison did not seek bankruptcy to avoid only her student loan debt but rather to deal with every one of her debt problems.
There was obviously miscommunication between Ms. Morrison and her Trustee. The problem was that the miscommunication aggravated her specified objective.
The federal government did not oppose the discharge. The Registrar decided that her student loan debt should be discharged. He made a conditional order of discharge taking everything, including her surplus income, into consideration.
Both Canada Student Loans (CSL), as well as Ontario Student Loans (OSL), appealed the Registrar’s decision to a Judge of the Court of Queen’s Bench of Alberta. The reason OSL was involved was that her education was in Ontario. She later moved to Alberta to pursue work opportunities.
The Commercial Court’s review of a Registrar’s decision
The Judge first considered what is the proper criteria he needs to use. He determined that when it comes to the Commercial Court’s review of a Registrar’s decision, the Judge stated that the criteria that need to be followed are:
findings of fact are deserving of deference unless there is an overriding and palpable error;
questions of the law and matters of principle are reviewed on the standard of accuracy and correctness;
concerns of mixed fact and law exist along within a range in between the above 2 requirements;
a mistake in characterizing or thinking about the correct legal examination to be used attracts accuracy; and
in order to disrupt a discretionary determination, the reviewing Court needs to discover that the Registrar erred in principle or in law or failed to think about an appropriate aspect or took into consideration an inappropriate factor, resulting in a wrong conclusion, thus allowing the assessing Court to use its discretion to replace the Registrar’s findings.
The Judge’s review of the Registrar’s decision
The provision of the BIA that Ms. Morrison applied under is Section 178(1.1) of the BIA. That section states:
“Court may order non-application of subsection (1):
(1.1) At any time after five years after the day on which a bankrupt who has a debt referred to in paragraph (1)(g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that
(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and
(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”
The Judge stated that as the legislation indicates, the determination of whether either of the called for parts of “good faith” and “financial difficulty” is established is contextual and fact-specific. It is based upon considering all aspects of the particular situation. Also if pleased that the requisite elements are present, the Court still maintains a discretion to decline the granting of such relief.
Can you put student loan on bankruptcy – Good faith
The Registrar’s finding was that Ms. Morrison’s actions evidenced an underlying behaviour of good faith but that objective was overborne by life getting in her way. The Judge accepted the part that life got in her way might be real in regard to the very early post-student years of 2008-2014. However, he decided that starting in 2014 she began to make a relatively decent living, yet made no effort to start to repay her student loan debt.
The Judge analyzed Ms. Morrison’s behaviour once she started earning a better income in 2014 and her statements concerning why she filed for bankruptcy. He also remarked that it was plain from her rancour and annoyance directed at her Trustee because her strategy to have bankruptcy free her from her student loan debt failed. She felt the Trustee did not advise her properly on the timing of the bankruptcy as related to when she ceased to be a full-time or part-time student. She was upset that she had this student loan bankruptcy discharge Canada issue.
The Judge then reviewed what are the things he must consider in trying to determine good faith. He stated that the relevant cases suggest, good faith that has to be shown in order for the application to succeed connects to the loan, not the bankrupt’s general behaviour throughout the bankruptcy. He said the things he must consider are as follows:
whether the student loan financing was used for the desired purpose;
did the person complete the financed education;
has the education obtained provide financial gain to the bankrupt;
were reasonable attempts made to clear up the student financial debts;
has the person actually used available alternatives, such as interest relief or loan remission;
the timing of the bankruptcy;
do the student loan debt comprise a considerable component of the total debt;
did the applicant get enough work and earnings to be reasonably expected to make payments on the loan;
the way of life of the applicant;
whether the applicant had adequate income for there to be surplus income under the Superintendent of Bankruptcy’s directive;
what offers the bankrupt might have made to the lending administrators and their reactions; as well as
whether the bankrupt was hampered at any time with health problems which would have either reduced the amount the person could work or entirely eliminate the possibility of working.
In weighing all these factors, the Judge was of the view that what counted against Ms. Morrison was her absence of initiative in attempting to repay the debt on some basis. The Judge also found that, notwithstanding that Ms. Morrison has struggled both personally and financially, and had a run of rotten luck, this could not excuse her from failing to make any attempt to repay the student loans.
Therefore, the Judge disagreed with the Registrar. He found that she did not meet the test of acting in good faith.
How can I get my student loans forgiven in Canada – financial difficulty
Both CSL and also OSL contended that financial difficulty, unlike the Registrar’s conclusion, has not been proven as Ms. Morrison’s own evidence shows she has the ability to make some repayment towards the debt. CSL likewise suggested that the Registrar decreased the statutory limit for financial difficulty by finding that the evidence need only show that settlement will provide a hardship to her rather than revealing the bankrupt will be unable to pay the debt.
Section 178(1.1)(b) of the BIA states regarding financial difficulty:
“the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”
The Judge took this section to indicate that, for the present as well as in the foreseeable future, the bankrupt’s financial position will not allow them to genuinely both pay their debts and subsist in an affordable method.
Therefore, in His Honour’s view, the idea of a settlement of student debt may well entail some challenges or hardship. It is just when the difficulty would deny an individual a level of practical subsistence that the “financial difficulty” aspect of this section comes into play.
Student loan debt Canada forgiveness – The decision on appeal
The Judge agreed with CSL that the Registrar had lowered the bar on the determination of financial difficulty from what is intended in the BIA. He also found that Ms. Morrison has some capacity to make some contribution towards retiring the student loan debts concerned. The evidence also showed that CSL and OSL were open to some sort of repayment offer.
Accordingly, the Judge determined that the demands of s 178( 1.1) have actually not been met by Ms. Morrison and her original application is unsuccessful. Therefore, he reversed the Registrar’s decision and allowed the appeal of CSL and OSL.
The Judge further ordered that she is, nevertheless, at liberty to make a re-application (in this bankruptcy) no earlier than one year from the date of his decision. He further stated that any re-application will need to be supported by proof of good faith in relation to any kind of settlement to either CSL or OSL as well as her full disclosure of her financial position at that time.
The Judge said he did not wish to “pile on”, so he did not order any costs to be paid.
Student loan bankruptcy discharge Canada summary
I hope that you have found this student loan bankruptcy discharge Canada information useful. Do you have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith Team.
We know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.
Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment. You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.
