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THE BANK RUPTCY RECOVERY PLAN: A COMPREHENSIVE ROADMAP TO FINANCIAL STABILITY

bank ruptcy canada
bank ruptcy

Bank ruptcy: Introduction

I know it looks weird, but I have noticed through our software that people wanting to find out more about the Canadian bankruptcy process are searching for the two-syllable phrase “bank ruptcy“. I started to investigate this phenomenon. It turns out that individuals may often search for the term “bankruptcy” by entering “bank ruptcy” due to a phenomenon known as “typo-based search behaviour.” This behaviour occurs when users inadvertently type a word incorrectly while still approaching the correct spelling closely enough that their search engine or browser can suggest the accurate term.

In this instance, individuals may intend to find information about “bankruptcy” but mistakenly type “bank ruptcy.” The search engine or browser, recognizing the intent, may then offer “bankruptcy” as a suggested correction, which users can select to access the desired information.

Moreover, some users may be utilizing mobile devices or keyboards with non-standard layouts, which can contribute to typographical errors or misspellings. In such instances, search engines or browsers often retain the capability to discern the user’s intent behind the query and provide relevant search results.

It is also important to acknowledge that search engines, such as Google, are designed to improve user experience by interpreting and correcting common typing errors, thereby facilitating more effective information retrieval without necessarily teaching the person the correct spelling.

Bank ruptcy: What is Bankruptcy and Where Did the Word Originate?

The term “bankruptcy” has its origins in ancient civilizations, notably in Greece and Rome, where debtors had avenues for seeking relief from their creditors through various forms of debt forgiveness or restructuring. However, the modern legal framework and procedures associated with bankruptcy are a more recent development, emerging in Europe during the 16th century.

The word bank ruptcy is likely derived from the Italian two-word phrase “banca rupta,” which translates to “broken bench” or “broken table.” In this context, “banca” refers to a “bench” or “table,” while “rupta” means “broken.” This term was historically employed in medieval Italy to describe a merchant or trader who was unable to meet their financial obligations. Business was conducted at the benches or tables of the various merchants. Consequently, their “bench” or “table,” representing their business, was broken and rendered inoperative if they ran out of money.

In the 14th century, the Old French term “banqueroute” evolved from the phrase “banquer ost,” which followed the Italian meaning and further contributed to the development of the modern word and concept of bankruptcy as we understand it today.

The term evolved to include the concept of a legal process by which a person or business could be declared insolvent and their assets liquidated to pay off creditors. Being insolvent is the financial condition that can lead to the legal bankruptcy process to allow the honest but unfortunate debtor to have financial recovery.

bank ruptcy canada
bank ruptcy

Bank ruptcy: Are you ready to take control of your financial life and gain peace of mind?

Are you facing overwhelming debt and experiencing persistent financial stress and uncertainty? Do you aspire to liberate yourself from the burdens of debt and emerge more resilient and financially savvy? If so, you are not alone.

Millions of individuals worldwide are navigating similar challenges, and it is common to feel isolated in your struggle with debt issues. However, there is a solution. By identifying the underlying causes of debt and formulating a tailored recovery plan, you can take significant steps toward financial stability.

If you are prepared to regain control of your finances, overcome debt, and lay the groundwork for a more secure future, you have come to the right place. Let us embark on this journey to financial freedom from debt together.

Bank ruptcy: Reasons for Filing for Bankruptcy

Common financial difficulties

Consumers

Many Canadians who are considering a consumer proposal or personal bank ruptcy filing face similar financial challenges, including:

  1. High-interest debt.
  2. Job loss or reduced income.
  3. Unexpected expenses.
  4. Divorce or separation.
  5. High credit card debt.
  6. Student loan debt.
  7. Mortgage debt.
  8. Tax debt.
  9. Overextension of credit.
  10. Lack of budgeting and financial planning.
  11. Financial stress and anxiety.

It’s essential for individuals experiencing financial difficulties to seek professional help, such as credit counselling or speaking to a licensed insolvency trustee (formerly called a bankruptcy trustee), to address their debt and develop a plan for financial recovery.

Businesses

Common financial difficulties Canadian businesses who need to file either a financial restructuring proposal or bank ruptcy often exhibit common danger signals such as:

  1. Cash flow problems.
  2. High debt levels.
  3. Declining sales or revenue.
  4. Increased competition.
  5. Regulatory changes.
  6. Supply chain disruptions.
  7. Economic downturns.
  8. Over-expansion.
  9. Poor financial planning.
  10. High operating costs.
  11. Lack of diversification.
  12. Insufficient working capital.
  13. Seasonal fluctuations.
  14. Lack of access to capital.
  15. Poor management decisions.
  16. Industry-specific challenges.
  17. Cybersecurity breaches.
  18. Environmental liabilities.
  19. Lack of succession planning.

If a business faces financial struggles, it’s important to, it’s important to consult a licensed insolvency trustee. They can advise on turnaround strategies and help create a recovery plan to tackle these challenges effectively.

Impact of debt on individuals and businesses

Debt can significantly influence both individuals and businesses in various ways. For individuals, the burden of overwhelming debts may result in considerable financial stress, which can manifest as anxiety and, in severe cases, depression. When debt becomes unmanageable, it can hinder one’s ability to meet daily expenses, potentially leading to missed monthly payments, impaired credit scores, and a pervasive sense of despair.

Additionally, consumer debts can restrict an individual’s financial flexibility, making it challenging to make substantial purchases, assume new financial responsibilities, or pursue long-term financial aspirations. Moreover, the strain of financial difficulties can impact personal relationships, as stress related to finances often leads to conflicts and tension among family and friends.

Similarly, for businesses, the implications of debt issues can be equally challenging. Elevated outstanding debt levels can create cash flow issues, complicating a company’s ability to fulfill its financial commitments, including employee salaries, supplier payments, and tax obligations.

Furthermore, substantial debt can curtail a business’s capacity to invest in new opportunities, foster innovation, or expand operations, ultimately hindering growth and sustainability. Understanding debt’s effects is crucial for individuals and businesses to navigate financial challenges effectively and maintain long-term stability.

Bank ruptcy: The Bankruptcy Process in Canada

Obtaining a Free Debt Assessment

If you’re having difficulty keeping up with your debt payments and feeling stressed about your financial situation, you might want to seek help from a licensed insolvency trustee. These professionals are qualified to guide you through the often complicated process of managing debt. One of the key services they provide is a free debt assessment.

This assessment involves a thorough look at your finances, including your income, expenses, assets, and debts. The trustee will work with you to pinpoint the main issues contributing to your debt and help create a personalized plan to get you back on your feet.

The best part is that a free debt assessment from a licensed insolvency trustee is completely free, with no obligation to proceed with any debt relief options. This means that you can get a clear understanding of your financial situation and explore your options without incurring any costs or risks.

During the assessment, the trustee will also be able to advise you on the best course of action to take, whether that’s a debt consolidation loan, a debt management plan, or even bank ruptcy. By taking advantage of a free debt assessment from a licensed insolvency trustee, you can gain the clarity and confidence you need to take control of your finances and start building a brighter financial future.

Necessary Forms to Declare Bankruptcy

The bankruptcy procedure in Canada is a complex and intimidating process, but it’s essential to understand the necessary forms and procedures to navigate it successfully. In Canada, the necessary bankruptcy paperwork is to declare bank ruptcy is prepared by a licensed insolvency trustee, who will guide you through the process and ensure that all required documents are completed accurately and on time.

More than that, the insolvency trustee must be able to explain your options to you and help you feel comfortable that the option you choose, is the best one for your circumstances. The information that the insolvency trustee uses to prepare the forms comes from the initial intake form the licensed trustee provides to you. From that form, the Trustee can then prepare the required documents.

The main documents required to file either a consumer proposal or for bank ruptcy are:

  1. Either the consumer proposal or the assignment in bankruptcy.
  2. The statement of affairs outlines the assets and liabilities of the debtor and includes other important information for both unsecured creditors and the Office of the Superintendent of Bankruptcy Canada to consider.
  3. The debtor’s statement of monthly income and expenses.
  4. The notice to the debtor outlining their responsibilities in the insolvency process chosen, be it a consumer proposal or bankruptcy.

Your licensed insolvency trustee will provide you with these forms and guide you through the process of completing them accurately and submitting them to the Office of the Superintendent of Bankruptcy Canada. By completing these forms and following the necessary procedures, you can ensure that your bankruptcy is processed efficiently and effectively and that you can start rebuilding your financial future.

Role of Licensed Insolvency Trustees

Licensed Insolvency Trustees are essential participants in the Canadian debt relief landscape. These professionals possess specialized expertise in the field of insolvency, and their work is regulated by the Canadian government, which oversees the entire insolvency process and bankruptcy laws in the country. As the only individuals authorized by the federal government, insolvency trustees play a critical role in assisting both individuals and businesses as they navigate the often complex procedures associated with debt relief, including bankruptcy, consumer proposals, and financial restructuring.

Insolvency trustees serve as neutral third parties, allowing them to offer objective advice and support to those experiencing financial challenges. They collaborate closely with creditors to negotiate settlements and develop payment plans, and they can facilitate debt restructuring efforts that lead to a more sustainable financial future.

Engaging the services of a licensed insolvency trustee can provide individuals and businesses with valuable reassurance, as they can trust in the expertise and guidance of these qualified professionals during their journey toward financial recovery.

bank ruptcy canada
bank ruptcy

Advantages of Filing for Bank ruptcy in Canada

Filing for a consumer proposal, corporate restructuring or bank ruptcy for individuals or corporate bankruptcy in Canada can provide several advantages, including:

  1. Debt Relief: It provides a fresh start by discharging most of your debts, allowing you to start over financially.
  2. Protection from Creditors: An insolvency process provides automatic protection from creditors, which means they cannot pursue you for payment or take legal action against you.
  3. Stop Wage Garnishments: A consumer proposal or bankruptcy can stop wage garnishments, which is a legal process when judgment creditors take a portion of your paycheque to pay off debts.
  4. Stop Collection Calls and legal proceedings: Upon filing, you can stop collection calls and letters from creditors by referring them to your insolvency trustee. This gives you peace of mind and reduces stress.
  5. Impact on Credit Score: It is true that an insolvency process initially worsens a person’s credit score. However, it allows you to use certain techniques that we teach you to rebuild credit and over time improve your credit rating.
  6. Protection of Assets: A consumer proposal can protect all of your assets. Bankruptcy protects your exempt property. In many cases, it stops your home or car from being seized by creditors.
  7. Simplified Financial Life: The insolvency process simplifies your financial life by eliminating debt and providing a clear plan for moving forward.
  8. Professional Guidance: Insolvency trustees provide guidance and support throughout the process.
  9. Discharge of Debts: Over time, the insolvency process allows you to discharge most debts, including credit card debt, loans, and other unsecured debts.
  10. Fresh Start Perspective: Bankruptcy, a consumer proposal and financial restructuring all provide a fresh start, allowing you to start over and make a new beginning.
  11. Reduced Stress: A successful insolvency process reduces stress and anxiety caused by debt, allowing you to focus on rebuilding your life.
  12. Protection from Tax Debt: It protects you from tax debt which can be a significant burden for many individuals.

It’s important to note that bankruptcy is a serious legal process and should only be considered as a last resort. There are various debt relief options as alternatives to bankruptcy for you to consider before resorting to bankruptcy. It’s essential to consult with a Licensed Insolvency Trustee to determine which of the many options is best for your specific situation.

Bank ruptcy: Resources for Bank ruptcy Information

There are several resources available for bankruptcy information in Canada, including:

  1. Office of the Superintendent of Bankruptcy Canada: The Office of the Superintendent of Bankruptcy Canada is the federal agency responsible for overseeing the bankruptcy and insolvency system in Canada. Their website provides information on bankruptcy, consumer proposals, and other debt-relief options.
  2. Licensed insolvency trustees: They and their websites can They and their websites can provide guidance and advice on bankruptcy and other debt-relief options.
  3. Credit Counselling Services: Legitimate non-profit c services, such as the Credit Counselling Society, provide free or low-cost advice and guidance on managing debt and avoiding bankruptcy. Financial institutions: Many banks and credit unions provide resources and information about bankruptcy and debt relief options.
  4. Government Websites: The Government of Canada’s website provides information on bankruptcy, including a guide to bankruptcy and a list of licensed insolvency trustees.

    bank ruptcy canada
    bank ruptcy

Bank ruptcy Conclusion: Moving Forward After Bank ruptcy

Here is what I tell everyone about moving forward after bank ruptcy to have a successful and stress-free life:

  1. Take responsibility: Acknowledge that you made mistakes and take responsibility for your financial decisions. This will help you to learn from your mistakes and positively move forward.
  2. Continue budgeting: Part of the personal insolvency process involves financial counselling and proper budgeting. A budget shows you what you earn each month and therefore how much you have, after tax, to spend. Allocating your earnings over your essential needs first and sticking to that plan will keep you out of debt trouble in the future.
  3. Establish an emergency fund: It is important to try to save part of your monthly income to create an emergency fund that can pay for unforeseen expenses. This will help you reduce the need for debt when unexpected financial demands arise.
  4. Focus on rebuilding credit: Rebuilding credit takes time, but it’s essential to start building a positive credit history. Make on-time payments, keep credit utilization low, and monitor your credit report regularly.
  5. Support: Finally, It’s important to reach out for support from friends, family, or even a financial advisor. Having a solid support system can keep you motivated and focused on your goals.

I hope you enjoyed this bank ruptcy Brandon’s Blog. Do you or your company have too much debt? 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 restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with 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 bank ruptcy. 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 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.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

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bank ruptcy
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BANKRUPTCY AND CRA DEBT STRATEGIES: A COMPREHENSIVE GUIDE ON NAVIGATING DEBT MANAGEMENT AND TAX RELIEF

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bankruptcy and cra debt

Bankruptcy and CRA Debt Introduction

Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the 2024 Federal Budget on April 16. During her presentation in Parliament, she advised that Budget 2024 will include that any capital gain will be taxed from the current 50% to two-thirds. April 30 was the last day for most Canadians to file their 2022 personal income tax return.

At the end of April, Ms. Freeland announced that Budget 2024 would not include the capital gains tax change. Rather, she will ask Parliament to approve a stand-alone Bill which will include the capital gains tax change, no doubt combined with other initiatives such as more Federal money for access to housing, in a crass move to try to score voter points when the Conservatives vote against the Bill because of the tax increase. So income tax owed to the Canada Revenue Agency (“CRA”) is on everyone’s mind.

Canadian entrepreneurs are up in arms over the Budget 2024 capital gains taxation change. People are concerned over the level of taxation disclosed in their personal income tax returns. Some Canadians do not have the money to pay their calculated income tax payable.

This Brandon’s Blog discusses the complex world of Canadian bankruptcy and CRA debt, along with other potential options, to achieve financial stability. I aim to equip people with the necessary knowledge and strategies to make informed choices.

Definition of Bankruptcy and CRA Debt

Bankruptcy is a legal condition where consumers or companies admit they are unable to pay their outstanding debts. The bankruptcy process is a supervision and administration process overseen by a licensed insolvency trustee and the court. Under the bankruptcy legislation, people and businesses can either: (i) restructure to eliminate their debt by only paying a percentage of the amount owing; or (ii) liquidate most of their assets for the proceeds to be paid to the creditors in priority as outlined in the legislation.

CRA debt is one kind of debt that individuals or companies may owe for unpaid taxes, penalties and interest. Understanding the workings of bankruptcy and CRA debt will help people owing taxes they cannot repay make informed decisions on how to deal with their debts to get back to a financially healthy and stress-free life.

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bankruptcy and cra debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Effective debt management and tax relief are crucial aspects of financial stability for individuals facing Canadian bankruptcy and CRA debt. By implementing sound strategies for managing debt and seeking relief from tax obligations, individuals can regain control of their finances and work towards a brighter financial future.

Debt management techniques such as budgeting, debt consolidation, and credit counselling can help individuals navigate the complexities of bankruptcy and CRA debt. Additionally, exploring tax relief solutions such as deductions, payment plans, and professional assistance can alleviate the burden of tax liabilities. Prioritizing debt management and tax relief is key to overcoming financial challenges and achieving long-term financial well-being.

Bankruptcy and CRA Debt: Understanding Bankruptcy in Canada

What is bankruptcy?

Having a solid grasp of how bankruptcy can affect a person is vital for those experiencing financial difficulties. Things such as the different types of bankruptcy, the procedure for initiating bankruptcy proceedings, and the real-life impact it has on a person’s daily life are crucial for anyone considering personal bankruptcy to understand. By examining the intricacies of bankruptcy, I hope you will gain valuable insights into how to effectively navigate this intricate legal process.

Whether contemplating personal or corporate bankruptcy, understanding critical aspects such as which assets can be liquidated by a Trustee, how your debt gets discharged, and creditor negotiations is essential. With the appropriate knowledge and assistance, people can make well-informed choices to manage their debts to head towards a new financial beginning.

Bankruptcy laws in Canada

Bankruptcy laws in Canada are a set of legislation and regulations that govern obtaining bankruptcy protection and the subsequent handling of a person or business’ financial affairs. These laws are designed to provide individuals and companies with a second chance to manage their debts and start afresh.

In Canada, the main governing legislation for bankruptcy is the Bankruptcy and Insolvency Act (BIA), which outlines the procedures and requirements for obtaining relief to restructure debts under either a consumer proposal or a Division I proposal.

If restructuring is not a possibility, the BIA also covers the procedures for what is always the last choice, a liquidating bankruptcy. The BIA also covers the rights and responsibilities of debtors, creditors and insolvency trustees. Additionally, each province has its legislation that may impact the result of bankruptcy under federal laws.

In the case of larger and more intricate corporations, the Companies’ Creditors Arrangement Act (CCAA) presents an additional federal statute to be considered. This legislative provision enables such substantial entities to effectively reorganize their operations and financial matters, thereby ensuring their sustained business activities and provision of employment opportunities for Canadians.

Individuals and businesses alike must gain comprehensive knowledge of these legal frameworks and diligently seek expert counsel before undertaking any bankruptcy-related determinations.

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bankruptcy and cra debt

Bankruptcy and CRA Debt

Overview of the CRA

The CRA is entrusted with the pivotal responsibility of overseeing the execution of tax laws and programs on behalf of the Canadian government at the federal level. From 1867 until 1999, the Department of National Revenue, commonly referred to as Revenue Canada bore the responsibility of overseeing tax services and programs. However, in 1999, a comprehensive reorganization took place, resulting in the establishment of the Canada Customs and Revenue Agency (CCRA).

Subsequently, in 2003, the CCRA underwent further transformation, giving rise to the inception of the Canada Border Services Agency (CBSA), thereby altering the agency’s core focus and subsequently prompting its name change to CRA.

The CRA’s mandate revolves around the proficient and equitable collection of taxes, diligent administration of benefits, and rigorous enforcement of tax laws. Additionally, they extend their services to taxpayers by disseminating pertinent information and offering assistance to ensure that Canadians have accurate comprehension and adherence to tax obligations.

Upholding the utmost integrity of Canada’s tax system while fostering voluntary compliance through educational outreach and enforcement measures remains at the forefront of the agency’s priorities. Backed by a devoted team of professionals and leveraging cutting-edge technology, the CRA is steadfastly committed to delivering superlative and exemplary services to the Canadian populace.

Types of debt owed to the CRA

Unpaid taxes result in individuals or businesses facing substantial CRA debt financial obligations. It is important to understand the ramifications associated with such indebtedness, given that it can give rise to severe repercussions including wage garnishment, bank account freezing, or legal repercussions. To mitigate the weight of this debt and avert penalties, it is always highly recommended to stay current in your obligations to CRA.

The Canada Revenue Agency (CRA) collects a range of debts from both individuals and businesses. Among these debts, the most prevalent is income tax owed, which represents the unpaid tax on an individual’s or business’s income. Another significant debt includes the Harmonized Sales Tax (HST) or, in provinces without sales tax, the Goods and Services Tax (GST) owed. These taxes apply to most goods and services supplied within Canada. CRA may also assess the individual Directors for GST/HST and employee source deductions not remitted by the corporation.

Furthermore, individuals and businesses may also encounter debts such as payroll remittance, excise tax, and penalties or interest charges resulting from late or erroneous filings. To ensure compliance and avoid further penalties or potential legal consequences, individuals and businesses must promptly and accurately address these debts on time.

Consequences of CRA debt

Noncompliance with the CRA and the resulting indebtedness can lead to serious problems for both individuals and businesses. Failing to pay your tax obligations to the CRA results in penalties, interest charges, and legal repercussions. These ramifications extend beyond mere financial burdens, encompassing wage garnishments, bank account seizures, seizure of amounts owing to the taxpayer from third parties, and property liens.

The CRA can freeze your assets and conduct audits to recover outstanding debts. The detrimental consequences of indebtedness to the CRA can have far-reaching implications, impairing credit ratings and impeding access to loans or mortgages. It is of utmost importance for individuals and businesses to expeditiously address and resolve any outstanding debt owed to the CRA to avert these severe consequences. Retaining a tax professional to assist in dealing with CRA is always advisable.

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

When you seek an informal debt settlement option with CRA, absent formal insolvency proceedings, you will be disappointed. Without an insolvency proceeding, the CRA representative has no authority to accept anything other than 100 cents on the dollar – payment in full of the assessed tax, penalty and interest.

You can apply for a fairness hearing to see if you can get all or a portion of the penalty and interest eliminated, but the CRA person you speak to can only talk about the full amount that shows up on their computer screen.

Debt Repayment Plans

CRA will enter into a debt repayment plan, but depending on your situation, again, you may be disappointed. Normally, CRA will only agree to have you pay the full tax debt balance, plus penalty and interest, in 12 monthly instalments over the 1 year. That means that you need to repay the full amount in one year.

If you default on even one payment, then the whole deal is off and CRA will pursue you for the full amount to be immediately repaid. For some, this may be just the breathing room they need and they will be able to repay the full amount of the CRA debt over 12 equal monthly payments. But what if you cannot afford to do that?

Bankruptcy as a Debt Relief Option

Bankruptcy presents a potential solution for individuals or businesses grappling with substantial financial difficulties, especially those brought on by owing a substantial amount to CRA. By discharging most unsecured debts and providing a shield against creditors, it offers a pathway to financial renewal.

Nonetheless, it is crucial to approach bankruptcy as a final option due to its enduring impacts on credit rating, employment in areas that require bonding, and today to a much lesser extent, personal standing. Before making a decision, it is advisable to seek guidance from a qualified licensed insolvency trustee to gain a comprehensive understanding of the ramifications and to evaluate alternative strategies such as debt consolidation, a consumer proposal or corporate financial restructuring.

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bankruptcy and cra debt

Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

The bankruptcy process involves a diverse array of stakeholders, each playing a crucial role. Among the key participants are:

  1. The insolvent individual or company, referred to as the debtor, has undergone financial failure and is now also known as the bankrupt.
  2. The licensed insolvency trustee, formerly known as a trustee in bankruptcy, is responsible for managing the bankruptcy proceedings.
  3. The creditors are owed financial obligations by the debtor.
  4. The Office of the Superintendent of Bankruptcy (OSB), holds the mandate to regulate and oversee all administrations governed by the BIA within Canada.

Preparing for Bankruptcy

To prepare for bankruptcy, the debtor, being either the individual or the Director of the company, must make full disclosure to the licensed insolvency trustee about all assets and liabilities and all other information requested by the Trustee. This allows the Trustee to provide the debtor with advice on the realistic available options for the debtor to overcome their debt challenges and hopefully find a solution other than bankruptcy.

The Trustee will want to ensure that the debtor has filed all overdue income tax returns. That way, the debtor, the Trustee and CRA will have a good estimate of all the tax the person owes, subject to review and assessment by CRA of course. At least there will not be any outstanding filings as this can slow down an insolvency process. CRA will want a pause in the insolvency proceedings until they are certain they understand the full amount owed.

If it is decided that an insolvency process is required, such as bankruptcy, then the information also allows the Trustee to prepare all the necessary filing documents.

Filing for Bankruptcy

Filing for bankruptcy is a legal process that allows individuals or businesses to seek relief from overwhelming financial obligations, including CRA debt. It involves filing an assignment in bankruptcy document which is prepared by the Trustee, and reviewed and signed by the debtor. The bankruptcy filing discloses all assets, liabilities, and income and expenses.

Personal bankruptcy can be a complex and emotional decision, but it can provide both a shield against CRA debt collection activities and seizures and simultaneously a fresh start for those individuals struggling with overwhelming debt.

It is crucial to seek the guidance of a licensed insolvency trustee to get the advice necessary to ensure a smooth and successful filing. Bankruptcy is not a decision to be taken lightly, but it can offer a solution to individuals and companies facing insurmountable financial challenges.

Duties and Responsibilities during Bankruptcy

The focus of the BIA in personal bankruptcy is for the honest but unfortunate debtor to a society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.

But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absences themself from the process once they have filed their assignment in bankruptcy? In that case, the Trustee must oppose the bankrupt’s application for discharge and bring the matter to court. With CRA debt, there are times when CRA will automatically oppose a person’s discharge from bankruptcy.

Bankruptcy and CRA Debt Discharge Considerations

Corporations do not receive a bankruptcy discharge; individuals do. When it comes to CRA debt, there are times when CRA automatically opposes a person’s discharge or when a Trustee must.

If an individual filing for bankruptcy has personal income tax debt exceeding $200,000 and if the personal income tax debt accounts for 75% or more of the total unsecured proven claims, they are not eligible for automatic discharge under section 172.1 of the BIA. GST/HST payable is not factored into the determination for high-tax debtors, but taxes on additional income resulting from shareholder loans, draws, or dividends are included in their assessment.

For high-tax debtors seeking discharge, the licensed insolvency trustee will present the bankrupt’s discharge application to the court for a hearing, which the individual must attend. The court’s considerations and the type of discharge order granted for high-tax debtors differ from those in cases of bankruptcy filed by non-high-tax debtors. To avoid this scenario, a high-tax debtor should consider filing an alternative to bankruptcy, such as a restructuring proposal.

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Unremitted Canadian tax filings mean tax returns that are either outstanding or incomplete within the specified filing deadlines for Canadian taxpayers. Such delinquent filings will incur penalties and interest charges, requiring individuals and companies to prioritize their tax responsibilities with utmost care. It becomes the duty of each taxpayer to ensure the prompt and accurate submission of their tax returns, to avoid negative repercussions.

Tax accountants and lawyers help their clients in fulfilling their tax obligations. Timely resolution of outstanding Canadian tax returns is essential to sustain compliance and avert any future complexities.

As stated above, any person or company contemplating either trying to reach an accommodation from CRA or invoking an insolvency process to deal with their CRA debt must bring all their filings up to date.

Bankruptcy and CRA Debt: Discharge in Bankruptcy

I discussed the issues for an individual high-tax debtor trying to get their discharge from bankruptcy. The Trustee must bring the application to court. At the discharge hearing, subject to any other problematic issues with the debtor’s conduct before or during the bankruptcy administration, CRA will send a lawyer from the Department of Justice to the discharge hearing to request a condition be placed on the bankrupt before they can obtain their discharge.

The condition that the CRA will request is that the debtor pay 25% of the total proven CRA debt to obtain their bankruptcy discharge. Even if the person is not a high-tax debtor, there may be other reasons why CRA will oppose the person’s discharge from bankruptcy. If the CRA file is replete with instances of failed promises, ignoring the CRA representative requests over some time and general “trouble-making” by the taxpayer, the CRA will oppose the discharge.

These are all considerations that a person must discuss with the licensed insolvency trustee up front to end up using a process that is most advantageous to the taxpayer in eliminating their CRA debt.

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Reestablishing your financial standing following a Canadian bankruptcy discharge may seem like a challenging endeavour. However, with strategic planning and commitment, it is feasible to recover from financial setbacks. The initial step involves developing a budget and adhering to it meticulously, guaranteeing that essential expenses are met while unnecessary spending is curtailed.

Next, it is important to start rebuilding credit in a few different ways:

  1. Obtain a secured credit card. Not the drug store variety, but the kind where you put down a cash security deposit and then you are given a credit card limit equal to your cash deposit. When you make your credit card payments, it gets reported to the credit bureaus. If you make your payments when due, over time, this will increase your credit score.
  2. Take out a small 1 year RRSP loan and pay it off on time. This will also improve your credit score on your credit report.
  3. The two Canadian credit bureaus, Equifax and TransUnion, are now beginning to track residential rent payments. If you are a renter and you make your rent payments on time, this too will increase your credit score.

It is also recommended to seek guidance from a financial advisor or credit counsellor to develop a solid financial plan. With patience and discipline, it is possible to rebuild your finances and secure a brighter financial future.

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bankruptcy and cra debt

Bankruptcy and CRA Debt FAQs

Here are the most frequently asked questions and the answers regarding bankruptcy and CRA debt:

  1. Is it possible to file for bankruptcy solely for CRA debt?

When initiating bankruptcy proceedings, it is imperative to include all debts owed. Notably, CRA debt related to income taxes and Director liabilities is treated comparably to other unsecured debts within the scope of bankruptcy proceedings.

  1. What happens to my CRA debt in bankruptcy?

In bankruptcy, CRA debt is included as part of your unsecured debts (the exception being a proprietorship or partnership debt for unremitted HST or employee source deductions). Keep in mind that the CRA may oppose your discharge and the court may make a condition of you paying a portion of the CRA debt to obtain your discharge from bankruptcy.

  1. How does bankruptcy affect my tax refunds?

Tax refunds may be affected in bankruptcy. It’s important to consult with a professional to understand the specific impact on your tax refunds.

  1. Can I include tax debt in a consumer proposal?

Yes, tax debt can be included in a consumer proposal. A consumer proposal offers a structured repayment plan to creditors, including the CRA. It can be a more favourable option than bankruptcy for negotiating repayment terms with the CRA.

  1. What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Individuals with personal tax debt exceeding $200,000, constituting over 75% of their total unsecured debts, may not qualify for automatic discharge in bankruptcy proceedings. In such instances, a bankruptcy court hearing will be convened, and potential conditions for discharge may be mandated, such as contributing a specified amount to the bankruptcy estate.

Bankruptcy and CRA Debt Conclusion

I hope you have enjoyed this bankruptcy and CRA debt Brandon’s Blog. Hopefully, you have better insight now into the ways of dealing with CRA debt and what some viable options are.

Do you or your company have too much debt? 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 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 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.

An image of a woman holding her head in her hands with an image of a building with a Canadian flag behind her to represent a woman worrying about her bankruptcy and CRA debt.
bankruptcy and cra debt
Categories
Brandon Blog Post

UNVEILING THE RUDY GIULIANI LEGAL PUZZLE: A MASSIVE RUDY GIULIANI-STYLE DEBT CHALLENGE IN CANADIAN BANKRUPTCY LAWS!

A picture of Donald Trump's former lawyer, Rudy Giuliani after he filed for Chapter 11 bankruptcy protection
Rudy Giuliani

Rudy Giuliani: Introduction

Rudolph Giuliani, formerly revered as a prominent figure in American governance for his commendable response during the September 11th attacks, has encountered a series of legal predicaments in recent times. Notably, his entanglement in the Ukraine scandal on behalf of Donald Trump to discredit Hunter Biden and his father Joe Biden, which led to the first impeachment of President Trump. From there, Rudy Giuliani, on behalf of Donald Trump, embraced all the conspiracy theories with his active role in disseminating baseless election claims and election-denier allegations of electoral malpractice during the 2020 Presidential election because of Trump’s election loss. These have significantly marred Giuliani’s once esteemed standing.

Rudy Giuliani’s post-election activities following Donald Trump’s loss in the 2020 election have stirred significant controversy. The actions taken by Giuliani against individuals such as Freeman and Moss have led to legal repercussions and personal ramifications. Understanding the sequence of events provides insight into the aftermath of the false allegations and subsequent legal proceedings.

Now, given the multiple lawsuits and legal challenges, Giuliani has filed for bankruptcy to escape accountability for his actions. However, it is important to note that his US Chapter 11 bankruptcy is not a foolproof method to avoid legal consequences.

In this Brandon’s Blog, I will also look at this from the perspective of what would be the case if Rudy Giuliani was Canadian.

Rudy Giuliani’s False Allegations

After the contentious 2020 election, 79-year-old Giuliani, a prominent figure in Trump’s legal team, made false claims and damaging statements about two Georgia election workers, Ruby Freeman and Shaye Moss. These unfounded allegations attacked their character and integrity, creating controversy and misinformation. The impact of Giuliani’s words reverberated through the media and public consciousness, tarnishing the reputation and physical safety of Freeman and Moss.

In response to the baseless claims made by Giuliani, Ruby Freeman and Wandrea’ ArShaye (“Shaye”) Moss took legal action by filing a defamation lawsuit. The lawsuit aimed to hold Giuliani accountable for his reckless statements and the resulting harm caused to their reputation.

A picture of Donald Trump's former lawyer, Rudy Giuliani after he filed for Chapter 11 bankruptcy protection
Rudy Giuliani

After the due legal process in the defamation trial, a default judgment was issued in favour of Freeman and Moss, highlighting the severity of Giuliani’s bad faith actions and the court’s acknowledgment of the harm inflicted. A jury awarded Freeman and Moss over $148M in damages from Rudy Giuliani, including $75M in punitive damages, $33,169,000 in defamation damages, and $40M in total damages for infliction of emotional distress. The defamation lawsuit sought to restore the damaged reputation of Freeman and Moss. The default judgment and jury award underscored the gravity of Giuliani’s false allegations. Legal recourse was instrumental in addressing the defamation and seeking justice for the impacted parties.

Explanation of why Rudy Giuliani filed for bankruptcy

Following the issuance of the default judgment and the jury award in favour of Freeman and Moss, Rudy Giuliani’s legal troubles escalated. Just three days after the final judgment was entered, Giuliani unexpectedly decided to file for Chapter 11 bankruptcy protection.

Giuliani’s bankruptcy filing added another layer of complexity to the already tumultuous legal saga. The decision to file for bankruptcy so soon after the judgment raised eyebrows and sparked speculation about Giuliani’s financial state and made many suspect that he was in a state of financial ruin.

The timing of Giuliani’s bankruptcy filing about the legal ruling underscored the interconnected web of consequences resulting from his false allegations. The filing hinted at potential financial repercussions for Giuliani and opened avenues for further examination of his actions.

Definition of bankruptcy protection and how it can help individuals in financial distress

A picture of Donald Trump's former lawyer, Rudy Giuliani after he filed for Chapter 11 bankruptcy protection
Rudy Giuliani

Bankruptcy is a legal process that allows individuals or businesses to seek relief from their debts and reorganize their finances. While filing for bankruptcy can provide temporary protection from creditors and halt legal actions, it does not erase all obligations or shield individuals from all types of legal liabilities. Bankruptcy allows honest but unfortunate debtors to discharge themselves of their debts in return for surrendering most of their assets to the Trustee.

The Rudy Giuliani Bankruptcy Protection and its Limitations

In Giuliani’s case, bankruptcy may not protect him from lawsuits related to his alleged involvement in various illegal activities. If he is found guilty of misconduct, bankruptcy will not absolve him of criminal or civil penalties. Additionally, bankruptcy courts have the authority to reject deemed abusive or fraudulent filings.

Moreover, Giuliani’s reputation and standing in the legal community, whatever is left of it, may suffer further by his using his Chapter 11 bankruptcy to evade accountability. Ultimately, using bankruptcy as a strategy to escape legal accountability is not a guaranteed solution. Giuliani must face the consequences of his actions and address the legal challenges against him transparently and responsibly. Only by taking accountability for his actions can he begin to rebuild his reputation and credibility in the eyes of the public and the legal system.

The Allegations Against Rudy Giuliani

Giuliani’s purported defamation campaign has garnered widespread attention and scrutiny, leading to a legal showdown that could reshape the contours of US bankruptcy law. The lawsuit argues that the damage inflicted by Giuliani was not incidental but calculated, seeking to tarnish the reputation and livelihood of the plaintiff.

The allegations against Giuliani paint a compelling narrative of deliberate harm and a blatant disregard for the consequences of his actions. Such intentional and malicious conduct, if proven, could have significant ramifications on the dischargeability of debts incurred as a result. In essence, the lawsuit thrusts the spotlight on the intersection of personal liability and financial obligations in a high-stakes legal arena.

A significant legal battle unfolded in the U.S. Bankruptcy Court, revolving around the dischargeability of debt in a high-profile case involving former New York City mayor, Rudy Giuliani. The lawsuit focuses on the implications of Giuliani’s alleged defamation campaign and raises crucial questions about the nature of the debts incurred. Let’s delve deeper into the details of this complex legal dispute.

A picture of Donald Trump's former lawyer, Rudy Giuliani after he filed for Chapter 11 bankruptcy protection
Rudy Giuliani

The core of the lawsuit lies in the determination of whether the debts stemming from Giuliani’s actions are dischargeable under U.S. bankruptcy law. The plaintiff has taken the stance that Giuliani’s defamation campaign was not just a casual misstep but a willful and malicious injury, causing severe harm and repercussions. Giuliani has stated that he intends to appeal the defamation verdict, to get the relief granted to Freeman and Moss substantially lowered.

The Unforgiving Nature of U.S. Bankruptcy Law

Under U.S. bankruptcy law, debts arising from willful and malicious injuries are subject to special treatment, reflecting the seriousness with which such actions are viewed. The rationale behind this provision is to prevent wrongdoers from evading accountability through the shelter of bankruptcy, ensuring that victims are not deprived of recourse and justice.

Debts stemming from intentional torts, such as defamation, fall within this category of nondischargeable obligations, highlighting the stringent standards applied in such cases. The law recognizes the inherent harm caused by deliberate misconduct and aims to uphold the principles of fairness and justice in the realm of debt resolution.

The lawsuit represents a crucial juncture in the legal landscape, setting a precedent for similar cases in the future. It underscores the importance of accountability and responsibility in the realm of public statements and actions. The outcome of this case could have far-reaching implications for how defamation and intentional harm are treated in bankruptcy proceedings.

Giuliani’s debt represents more than a financial obligation; it is a tangible symbol of the repercussions he must bear for his intentional and malicious conduct. The pursuit of non-dischargeability underscores the gravity of his actions and the commitment to holding him answerable for the harm caused. It serves as a potent reminder that accountability transcends monetary concerns, encompassing the broader spectrum of ethical and moral responsibilities.

Rudy Giuliani’s Bankruptcy Implications and Beyond

The outcome of this lawsuit has the potential to shape the legal landscape surrounding the dischargeability of debts in cases involving intentional harm. It raises fundamental questions about the boundaries of free speech, the responsibilities of public figures, and the consequences of malign actions.

A picture of Donald Trump's former lawyer, Rudy Giuliani after he filed for Chapter 11 bankruptcy protection
Rudy Giuliani

As the legal proceedings unfold, the intricacies of the case will be scrutinized, setting a precedent that could reverberate across similar disputes. Ultimately, the lawsuit encapsulates the inherent tension between individual rights and societal interests, underscoring the complexities of balancing personal freedoms with the consequences of one’s actions. Stay tuned as this legal saga unfolds and sheds light on the intricate tapestry of law, ethics, and justice.

Rudy Giuliani Bankruptcy: What If Rudy Giuliani Was a Canadian Living In Toronto, Ontario Canada

What is defamation in Canada?

In Canada, defamation is any intentional or negligent false communication, whether written or spoken, that harms a person’s reputation or exposes them to ridicule, belittling, or contempt. The concept of defamation can have two possible parts; libel and slander. There is a distinction between libel and slander.

Libel is defamation either in writing or some other permanent form, while slander is defamation that is not left permanently. Section 298(1) of the Canadian Criminal Code (R.S.C., 1985, c. C-46) defines a defamatory libel as any published material that is likely to injure someone’s reputation or make them the object of hatred, contempt, or ridicule, without lawful justification or excuse. Slander is more commonly associated with an oral statement. With slander, there generally will always be a fight waged between slander and freedom of speech.

Defamation is an act of harming the reputation of another person through a false statement or many of them. In the real world, defamation can lead to severe consequences, including damages to one’s reputation and livelihood. The criminal code and being found guilty of the criminal offence of criminal defamation is one thing. But in the real world, the possibility of imprisonment is not going to provide any real satisfaction to the wronged party. The way to get compensated for the suffered damages because of the defamation of character is to start a civil suit action for a defamation claim.

Are All Debts Discharged Through A Canadian Bankruptcy

To see if all potential debts can be discharged through bankruptcy, we need to look at section 178(1) of the BIA. This section enumerates the debts that are not released by an order of discharge from bankruptcy. As you may recall from earlier Brandon’s Blogs, I have explained that it is not the bankruptcy itself that clears a person’s debts, it is the discharge from bankruptcy.

Notwithstanding that a discharge from bankruptcy is what clears out a person’s debts, the BIA lists several specific debts that cannot be released by an order of discharge. I looked at the list contained in section 178(1) and there is only 1 item that relates to judgment debts. That is section 178(1)(a.1) which reads as follows:

(a.1) any award of damages by a court in civil proceedings in respect of

    • (i) bodily harm intentionally inflicted, or sexual assault, or
    • (ii) wrongful death resulting therefrom;

A person’s bankruptcy discharge releases them from all claims provable in bankruptcy that are not listed in section 178(1). The question is, does a Rudy Giuliani-type judgment award for damages in defamation cases survive the bankruptcy of the party against whom the judgment is?

For that claim to survive the person’s bankruptcy, the judgment creditor offended party would have to show that:

  1. the award of damages is for bodily harm; and
  2. was intentionally inflicted.

When it comes to the tort of intentional infliction of bodily harm, the law does not recognize any mental states that fall short of a provable injury. The requirements for this tort are:

  • The defendant’s conduct must have been extreme and outrageous.
  • The defendant must have intentionally or recklessly caused the plaintiff emotional distress.
  • The plaintiff must have suffered a visible and provable injury as a result of the defendant’s conduct.

Therefore, it is not a clear-cut answer if the Freeman and Moss judgment award would survive a Canadian bankruptcy protection filing. They would have to prove having suffered a visible and provable injury. Cleary being scared to step outside your home and being unable to work could very well be the kind of injury that would make the debt for such an award not dischargeable in a Canadian bankruptcy protection filing. An award for infliction of emotional distress and loss of reputation could very well be discharged through a Canadian bankruptcy protection filing.

Rudy Giuliani: Conclusion

I will be watching closely the ongoing case of Rudy Giuliani and his U.S. Bankruptcy filing. As individuals navigating the complex world of personal finances, it is crucial to be aware of the legal framework surrounding Canadian bankruptcy protection. Understanding the Canadian bankruptcy legislation and the authority and discretion of the courts empowers us to make informed financial decisions and ensures the integrity of the bankruptcy system.

Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.

A picture of Donald Trump's former lawyer, Rudy Giuliani after he filed for Chapter 11 bankruptcy protection
Rudy Giuliani

 

Categories
Brandon Blog Post

WHEN TO FILE BANKRUPTCY: OUR COMPREHENSIVE GUIDE ON WHEN IS THE RIGHT TIME TO FILE FOR BANKRUPTCY

when to file bankruptcy
when to file bankruptcy

When to file bankruptcy to get a fresh start

Definition of Bankruptcy

Are you feeling overwhelmed by unmanageable debt? Then bankruptcy might be the perfect solution
for you. Bankruptcy can be defined as a legal process that can help people and businesses get out of their financial binds.

Though the thought of filing for bankruptcy may be daunting, it can be the best option when you’re facing unexpected expenses or other emergency situations.

To make sure you’re making the right decision, it’s important to understand when to file bankruptcy and what you can expect. Bankruptcy allows a person to get back on top of their finances and start fresh. Weighing the pros and cons of filing for bankruptcy can be an alarming task, but it can ultimately be the best when your back is against the wall with debt. This Brandon’s Blog lets you find out when to file bankruptcy, what you should expect and what the bankruptcy alternatives are.

What is Bankruptcy and How Does it Work?

Bankruptcy in Canada is a liberating process for those who have found themselves under a burden of debt. The Bankruptcy and Insolvency Act (Canada) (BIA) provides debtors with a discharge from most debts, allowing them to have a fresh start in their financial lives. The process is designed to help those who cannot pay their bills as they come due, and have no way of paying back their debt load. By taking advantage of the bankruptcy discharge, individuals can find themselves free from the chains of debt and start anew. On the other hand, unlike a person, a company that files for bankruptcy will not survive in the long run, and thus, there is no discharge process for a company.

when to file bankruptcy
when to file bankruptcy

When to File Bankruptcy?

Don’t let debt take the life out of you! Bankruptcy law can give you the fresh start you need. Although not to be taken lightly, a bankruptcy filing can be an absolute lifesaver when the debt becomes too much to bear.

Filing for bankruptcy is no small decision and has the potential to drastically alter your financial future. It’s essential to be informed on when to file bankruptcy and the process involved to ensure that your credit and ability to access money in the future are not adversely affected.

Start the legal process off right by filing for bankruptcy with the help of a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT or Trustee). The LIT will submit all the documents at once and get the ball rolling.

When an individual has too much consumer debt and files for bankruptcy, the LIT takes possession of their property and assets (subject to provincial government exemptions). The Trustee is the appointed authority in charge of liquidating the assets and depositing the proceeds into a trust account that will eventually be distributed among the creditors in the priority laid out in the BIA.

It is crucial to understand when to file bankruptcy and the process involved to make informed decisions about one’s financial future.

When to file bankruptcy: Identifying signs of financial distress

Here are 5 common signs of financial distress:

  1. Consistent inability to pay bills – Consistent inability to pay bills can be a difficult and stressful situation for individuals and companies. There are various options for managing late bill payments, however, missing bill payments can have negative financial impacts. It is important to be proactive in finding a solution, as missing bill payments may result in consequences such as eviction, cutting off of necessary supplies and financial penalties. Options for managing late bill payments vary, depending on the type of bill, such as rent or mortgages as opposed to suppliers of goods or services.
  2. Increased collection activity and legal threats – Balances in collections are the result of outstanding debts that have not been paid. The collection process and the behaviour of debt collection agencies and debt collectors are stressful. Provincial law dictates the rights of consumers when it comes to debt collection and debt collectors.The statute of limitations to collect a debt is also a matter of provincial jurisdiction. Debts are statute-barred after the period prescribed by the law for bringing legal action against the consumer to collect a debt. A debt is considered time-barred if the applicable statute of limitations has expired.
  3. Are you buried in debt and feeling overwhelmed? A hefty burden of financial obligations without a plan of attack can lead to a seemingly never-ending cycle of debt, with high-interest payments and a lack of hope. Alternatively, an overly ambitious plan can leave you feeling like freedom from debt is unattainable. The stress of debt can have a major toll on your mental health. It’s time to take control and devise a sensible debt repayment strategy to ultimately become debt-free and reduce the interest you pay.
  4. Tempted to use a credit card for all your needs? Be careful; it can be easy to go overboard and put yourself into financial hardship. When you use credit cards, you risk overspending, inflating your credit utilization ratio, and even opening yourself up to identity theft and credit card fraud. Don’t take the chance – think twice before swiping!
  5. Increasingly relying on personal loans from friends and family – The dangers of relying on loans from friends and family include broken promises or agreements. There may be confused assumptions about the loan, which can lead to misunderstandings.Additionally, not setting up clear and defined terms for repayment could lead to problematic personal relationships. A loan from friends and family could also provide tax problems depending on how it is set up and how interest payments, principal repayments and/or loan forgiveness are treated on tax returns, or not, as the case may be.

    when to file bankruptcy
    when to file bankruptcy

When to file bankruptcy: The process of filing for bankruptcy

The process of filing for bankruptcy in Canada is handled by a Trustee under the supervision of the Office of the Superintendent of Bankruptcy Canada (OSB) under the BIA. The time to complete the bankruptcy process for a 1st time bankrupt with no surplus income, where neither the Trustee nor any creditor opposes the individual bankrupt’s discharge is 9 months. If a first-time bankrupt gets a discharge at the 9-month point, then they have received an automatic discharge from the LIT. During bankruptcy, the creditors can no longer harass the bankrupt person or carry out legal proceedings or wage garnishments.

The LIT provides an information form for the person to complete, and uses that information to prepare and then file the bankruptcy paperwork. The LIT needs personal information (name, address, birth date), a list of creditors and a list of assets. The LIT then files the bankruptcy documents electronically with the OSB and then they will issue a Certificate confirming the acceptance of the bankruptcy filing. It is the day and time of the issuance of the OSB’s certificate that marks the beginning of the bankruptcy process.

When to file bankruptcy: What is the impact of filing for bankruptcy?

Once your bankruptcy is filed, there is an immediate stay of proceedings. This means that unsecured creditors cannot begin or continue lawsuits, wage garnishees, or even contact you to request payment. Within five days of the bankruptcy starting, the LIT will send a copy of the bankruptcy paperwork to creditors so they can file a claim.

Overview of the bankruptcy process

Can I keep my assets when I file for bankruptcy? In most cases, yes. However, the trustee may sell some assets to pay off your creditors. The assets you can keep will depend on your province’s exemptions. The Trustee’s job is to manage the sale of the bankrupt’s assets and place the proceeds into a trust, safeguarding them for the creditors. In other words, the Trustee is a guardian of funds, making sure everything is handled properly.

Are you worried that filing for bankruptcy will destroy your credit? Don’t fret – while bankruptcy will certainly leave its mark on your credit report, it’s far from a death sentence. Once your bankruptcy is approved, you can start taking steps toward restoring your financial health. A fresh start is waiting – be smart and make decisions that will get you back on the right track!

Wondering just how long you’ll be in bankruptcy? That all depends! If it’s your first-time bankruptcy filing with no surplus income, it should only last nine months. But if you’ve filed for bankruptcy more than once and don’t have surplus income, it will take 21 months. For those who have surplus income, this process will take longer.

2 financial counselling sessions. In a consumer restructuring or bankruptcy administration under the BIA, the debtor is required to go through two financial counselling sessions with the LIT. The reason is that one of the objectives of the BIA is financial rehabilitation. Financial education and teaching financial literacy tips are important parts of that rehabilitation.

Requirements for filing bankruptcy

To be eligible to file for bankruptcy in Canada, you must meet certain requirements. You must owe at least $1,000 in unsecured debt and be unable to pay your debts as they come due. You must also be insolvent, meaning you owe more than the value of the assets you own. Additionally, you must either reside, do business or have property in Canada. There are other acts of bankruptcy contained in the BIA, but the normal requirement is as I just described.

Role of Trustees in the bankruptcy process

The role of a LIT in Canada is to assist individuals or companies in the bankruptcy process as laid out by the BIA. They help to explain to the debtor the various options in dealing with their debt and provide advice on the best course of action. The Trustee also prepares the necessary paperwork, including reviewing the debt and completes the process from start to finish. One of the key responsibilities of the Trustee is to take possession of the property not exempt under provincial law, or subject to a trust or secured claim. The LIT then does this by selling the available assets and depositing the funds in trust for the creditors in the bankruptcy administration.

when to file bankruptcy
when to file bankruptcy

When to file bankruptcy: Alternatives to Bankruptcy

There are several alternative solutions that a LIT can recommend to a debtor in solving their debt problems. Bankruptcy is always the last resort and is to be avoided if at all possible. The main alternative solutions are:

Debt consolidation and debt management plans

In Canada, consolidation loans are available to assist individuals in reducing their high-cost debt payments. If you qualify for such a loan, it is an advantageous solution. These debts may include credit cards, payday loans, and unpaid tax obligations. By consolidating higher-interest-rate debts into one lower-interest-rate loan, it is possible to make affordable monthly payments and work toward eliminating debt.

If you’re in need of financial help, a Debt Management Plan (DMP) may be the answer. A DMP is an effective way to repay credit card debt, and with the help of a non-profit, no-cost credit counselling agency, you can get the support to make it work. The agency will assess your situation to ensure that a DMP is the best option for you. Put your debt worries to rest and take the first step towards a sound financial future with a DMP.

Both debt consolidation and debt management plans aim to help individuals in Canada manage their debt effectively.

Credit counselling and financial planning

Credit counselling and financial planning can help someone who has many debts. The services are provided by accredited credit counsellors working for non-profit credit counselling organizations. A credit counsellor will assess the financial situation of an individual and provide tips on dealing with debt. Financial planning and budgeting will be an important part of the process.

If the individual decides to sign up for a DMP, the counsellor will contact creditors on their behalf to request reducing or eliminating the interest rate or fees on their debts. In some cases, the creditors may agree to these requests.

Debt settlement, restructuring and negotiation with creditors

Debt restructuring, also known as debt negotiation, is the process of negotiating the terms and conditions of debt repayment with creditors. This process can be carried out by the consumer or company themselves seeking alternative repayment options. The goal is to reach a mutually agreed-upon arrangement that is more manageable for the consumer or company to repay their debt. It can involve the forgiveness of interest, stopping the interest clock and even the forgiveness of principal. If the company or consumer handles the discussions themselves, or with the help of their accountant, it is called an informal restructuring.

When a consumer or company restructures their debt with the help of a LIT under the BIA, they would file either a consumer proposal or a Division I proposal restructuring. A large company could also restructure under the Companies’ Creditors Arrangement Act.

When to file bankruptcy: Conclusion

Personal bankruptcy or corporate bankruptcy, and when to file bankruptcy, is a big decision, but it can be the right one when you’re overwhelmed with debt. You can make an informed decision by understanding the basics of bankruptcy, including when to file and what to expect. If you’re struggling with debt and considering bankruptcy, it’s important to speak with a professional who can help you assess your options. Bankruptcy can be a fresh start for your financial future, but it’s important to understand the consequences and work with a professional to determine if it’s the right choice for you.

I hope you enjoyed this when to file bankruptcy Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

when to file bankruptcy
when to file bankruptcy
Categories
Brandon Blog Post

PROS AND CONS OF BANKRUPTCIES CANADA: A HEALTHY FRESH START OR THE LAST RESORT?

pros and cons of bankruptcies canada
pros and cons of bankruptcies canada

Evaluating the pros and cons of bankruptcies Canada: Introduction

When you are in debt, it can feel like you are stuck in quicksand – the more you struggle, the deeper you sink. If you are considering bankruptcy, you are not alone. According to the Office of the Superintendent of Bankruptcy (OSB), almost 100,000 Canadians filed either a consumer proposal or for bankruptcy in 2021. The numbers for 2022 are rising above the 2021 level.

Before you make a decision, it is crucial to weigh the pros and cons of filing for bankruptcy in Canada. On the positive side, bankruptcy can give you a fresh start. It can discharge your debts and give you a chance to rebuild your finances. On the negative side, bankruptcy can damage your credit score more than one of the bankruptcy alternatives.

If you are struggling with debt, there are other options to consider before bankruptcy. You may be able to negotiate with your creditors and set up a payment plan. You can also improve your financial situation by cutting expenses and increasing your income. If you decide that you do need an insolvency process, a consumer proposal or a Division I Proposal may be better for you.

In this Brandon’s Blog post, I wish to aid you in gaining a better understanding of the pros and cons of bankruptcies Canada. Then you can make a much more educated choice about your financial debt issues.

What are the pros and cons of bankruptcies Canada?

When it comes to making the decision to file for bankruptcy, it is important to understand all of the implications that this will have on your life. In Canada, bankruptcy is a legal process that allows individuals to discharge all of their debts if they are unable to repay them. This process is overseen by the OSB, and there are certain requirements that must be met in order to be eligible for bankruptcy.

While bankruptcy can provide relief from debt, it is not without its drawbacks. Once you have been declared bankrupt, your credit rating will be significantly damaged, which can make it difficult to obtain new lines of credit in the future. Additionally, your assets may be seized in order to repay your creditors.

Before making the decision to file for bankruptcy, it is important to weigh the pros and cons carefully. Speak with a financial professional to get advice that is specific to your situation. Now for a more detailed discussion on the pros and cons of bankruptcies Canada.

pros and cons of bankruptcies canada
pros and cons of bankruptcies canada

The pros of bankruptcies Canada

A fresh start

If you’re sick of being in debt, bankruptcy might be a good option for you. It can be a fresh start, and it’ll get creditors off your back. You can move on with your life without all that stress.

Rebuild your credit

As stated above, bankruptcy will cause some damage to your credit. However, it can stop the continuous damage you may be facing now. You can begin rebuilding your credit rating, rather than having to face extra charges from missed payments as well as receiving those pesky telephone calls from bill collectors.

Get rid of most if not all of your debts

In most cases, all of your obligations will be cleared by your bankruptcy discharge. Normally cleared debts are your unsecured debts like credit card debt, lines of credit, personal loans, payday loans, and income tax debts. A bankruptcy filing will let you not worry about a ton of bills but will force you to focus on balancing your budget.

There are some obligations that bankruptcy cannot clear, like child or spousal support payments, or payments for fines or penalties awarded by a court. You can get your student loans discharged too as long as you’ve been out of school for 7 years or even more.

Stop debt collectors cold

Creditors and their debt collectors making their collection calls can be pretty aggressive when they’re trying to get paid. Bill collectors demand and try to scare you as to what will happen if you do not pay up. Answering your phone or checking your VM becomes terrifying. You might also have a ton of mail from them stacking up in your mailbox, inbox, and so on.

If you’re losing the battle of staying up to date with your bill payments, personal bankruptcy might be a good option for you. Declaring bankruptcy stops all collection efforts, including calls as well as letters from your creditors. This is called the “automatic stay of proceedings”. When you’ve filed an assignment in bankruptcy, the automatic stay goes on and offers you some breathing space.

Get rid of any wage garnishment

If you file for bankruptcy, you don’t need to worry about wage garnishment or legal action anymore. The stay of proceedings also prevents any further attempts at collection, including wage garnishment. Creditors and collectors also won’t be able to take you to court.

Bankruptcy is not forever

So, if you’re thinking about filing for the bankruptcy process, know that it usually takes about nine months to go through the process for a first-time bankrupt who does not have any surplus income payments to make to your Trustee. And, if the Licensed Insolvency Trustee handling your case finds that you have surplus income, you won’t be able to get a discharge for 21 months.

If this is your second bankruptcy, it will take longer. If you don’t have surplus income payments to make, it will take 24 months. If you do need to make surplus income payments, it will take 36 months.

These are the pros when considering the pros and cons of bankruptcies Canada. Now for the cons!

pros and cons of bankruptcies canada
pros and cons of bankruptcies canada

The cons of bankruptcy

There are many cons of filing bankruptcy, including:

Your credit rating

If you file for bankruptcy, it’ll rank you as an R9 on your credit report, which is pretty bad news for your credit score. The damages to your credit rating will not last forever. Your very first personal bankruptcy will be noted on your credit record for 6 years after the day of your bankruptcy discharge. A second bankruptcy will certainly harm your credit score for a lot longer.

At the outset of your bankruptcy journey, you cannot see the light at the end of the tunnel. At least you now have a roadmap to restoring your credit and have a date when your credit will be cleared of any damage. You can start to rebuild your credit even before you are discharged from bankruptcy.

Your assets may be liquidated

This doesn’t mean that you’ll lose everything. Your personal belongings – like clothes, household items, work tools, and even a car under a certain value – usually can’t be taken away from you in bankruptcy. This means that the proceeds from the sale of your other non-exempt assets will be used to repay your creditors.

RRSP contributions in the past 12 months are not exempt

Your retirement savings are protected, but any contributions you made in the past 12 months to your RRSP are not exempt.

Surplus income and the cost of bankruptcy

If you’re making more money than the surplus income threshold, you’ll also have to make surplus income payments to your Licensed Insolvency Trustee. If you don’t have any assets and don’t have to pay the surplus income requirement, you or a relative will have to pay your Trustee’s fee.

Complete financial disclosure

You will need to make full financial disclosure to your Trustee. Your Licensed Insolvency Trustee will use that information to help you complete a Statement of Affairs. This disclosure details your financial position and will even potentially highlight certain financial transactions. Essentially your Trustee and the court will know everything about your finances and your creditors will get a peek too.

When you’re going through bankruptcy, you’ll need to hand over your tax docs and pay stubs to show how much you’re earning. This is how the Trustee decides if you’ve gone over the surplus income threshold.

A lasting record

Once you file for bankruptcy, the paperwork will become part of the public record in Canada. To start your bankruptcy, your Licensed Insolvency Trustee files your bankruptcy documents with the OSB. It then becomes part of the public record.

Most people who file for bankruptcy will only have their Trustee, the OSB, the court, their creditors and the two Canadian credit bureaus know about it.

pros and cons of bankruptcies canada
pros and cons of bankruptcies canada

Bankruptcy alternatives from pros and cons of bankruptcies Canada

Now that you understand the pros and cons of Canadian bankruptcies, you must just consider this option as a last choice. If you can solve your financial problems without experiencing the unfavourable elements of personal bankruptcy, that is the most effective way to go.

During your initial no-cost consultation, the Licensed Insolvency Trustee will help you should explore all the bankruptcy alternatives. I have written before in more detail about each of the bankruptcy alternatives listed below. I have included a link to each of those more detailed blogs. The main alternatives to bankruptcy are:

Debt consolidation

If you’re aiming to leave financial debt behind, debt consolidation could be a good alternative for you. By rolling all your financial obligations into one financing with a lower rate of interest, you will save money from the lower rate of interest on the new consolidation loan and leave your debt behind much faster.

Just make sure that you understand the current interest rates you are being charged, the total of your monthly payments that you currently may or may not be able to afford, the interest rate being offered to you on a debt consolidation loan, what your new monthly payment will be and make sure that you have a realistic budget of your monthly income and monthly expenses that shows that you can afford the new payments on a monthly basis.

Credit counselling

Credit counselling is a process whereby a person in debt meets with a credit counsellor to discuss their options for dealing with their debt. The credit counsellor will assess the person’s financial situation and provide advice on how to best deal with the debt. This may include negotiating with creditors to reduce interest rates or monthly payments and setting up a debt management plan.

As I have written many times before, you should only go to a community-based non-profit credit counselling agency that does not charge any fees. If the credit counsellor you choose wants to charge you fees, get out of there. It is not the best choice for you.

Debt settlement

Debt settlement is a process in which you can negotiate with your creditors to pay less than the full amount you owe. This can be a good option if you are not able to pay your debts in full and you are willing to negotiate with your creditors.

Debt settlement works well if you only have 1 or a few creditors. If you have many creditors, debt settlement is much more difficult in making sure that everyone remains on board with the negotiated settlement and that you will have enough money to pay the lower settled amounts you promised.

Many times with a multitude of creditors, either a consumer proposal or a Division I Proposal is the most effective way to bind everyone in a debt settlement process.

Like in credit counselling, I urge you to stay away from debt settlement companies that charge fees. What they do is charge you unnecessary fees, try to sell you products you don’t need and then when they cannot sell you any more products and their debt settlement techniques do not work, they then walk you to their favourite Licensed Insolvency Trustee for an insolvency process, which might just be a bankruptcy.

I would rather see you use your accountant or lawyer if you do not feel comfortable negotiating yourself. Those professionals will have your best interests at heart in return for their fee. They also won’t try to sell you more products.

Consumer proposals

When it comes to debt of $250,000 or less (other than for secured debts registered against your home), there are a number of options available to help you get back on track. One option is a consumer proposal.

A consumer proposal is a formal debt relief and debt-settlement option available in Canada. It is a legally binding agreement between you and your creditors. Under a consumer proposal, you agree to repay a portion of your debts, and your creditors agree to forgive the rest.

A consumer proposal can be an attractive option for many reasons. First, it can help you get out of debt without having to declare bankruptcy. Second, it can help you keep your assets, such as your home or car. Third, it can give you a fresh start by wiping away most, if not all, of your unsecured debts.

If you’re considering a consumer proposal, it is necessary to obtain assistance from a qualified expert. A Licensed Insolvency Trustee, who is also a consumer proposal administrator in Canada, can walk you through the process and answer your questions. This will allow you to see if it’s the right choice for you.

Division I Proposal

If you owe more than $250,000, a Division I Proposal is a great option to settle your debts. It’s not as streamlined as a consumer proposal, but it’s still a great way to get out of debt.

Other than these technical differences, it has the same aim as a consumer proposal: to provide a debt settlement option that will bind all unsecured creditors and get the person back onto their feet free of the stress and burden of their unmanageable debts.

Either a consumer proposal or a Division I Proposal are excellent debt relief options approved by the Canadian government. One of the other benefits of either of these two debt settlement options is that the person will also receive two mandatory financial counselling sessions. Getting this education will help put the person on the right track for the rest of their life.

Understanding the advantages of bankruptcy and also the disadvantages of bankruptcy for companies

When a company faces overwhelming debt, bankruptcy may seem like the only way out. However, there is only one advantage and one disadvantage to bankruptcy for a company.

One advantage of this situation is that the Trustee may be able to sell the assets to a purchaser who will then be able to use those assets to continue the former business of the company in a profitable way. This could potentially save some jobs, at least for the key employees of the old business.

The one disadvantage is that unlike a person, when a company goes bankrupt, the corporate legal entity is now dead.

Before the Directors of a company decide to bankrupt the company, they should determine if certain divisions or parts of the business can be saved and operate profitably if the unprofitable part(s) could be eliminated. If so, a financial restructuring can be done to turn this unprofitable company into a viable and profitable one and save some jobs in the process.

pros and cons of bankruptcies canada
pros and cons of bankruptcies canada

Pros and cons of bankruptcies Canada: Summary

I hope you enjoyed this Brandon’s Blog on the pros and cons of bankruptcies Canada.

People are falling behind with stagnant wages or tiny wage increases while there is runaway inflation and they are falling deeper and deeper into debt. Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now, while explaining the pros and cons of bankruptcies Canada or any other of our recommendations.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you. There are many pros and cons of bankruptcies Canada. Whatever process we recommend for you will, we will do so in order to minimize any cons you may experience.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your financial life, Starting Over, Starting Now.

 

 

pros and cons of bankruptcies canada
pros and cons of bankruptcies Canada pros and cons of bankruptcies canada
Categories
Brandon Blog Post

DISCHARGE FROM BANKRUPTCY CANADA: OUR DETAILED STEP-BY-STEP GUIDE

discharge from bankruptcy canada
discharge from bankruptcy canada

What are the implications of discharge from bankruptcy Canada?

If you are experiencing financial troubles and can’t pay your debts, you can file for bankruptcy in Canada. This legal process lets you off the hook for your debts and start fresh. Once you’re discharged from bankruptcy, you’re no longer responsible for those debts (other than for a few exceptions noted below). Filing for bankruptcy is stressful. We understand how difficult and stressful the bankruptcy process can be, so we hope that this will be a helpful resource for you.

Once the Trustee has completed their duties under the Bankruptcy and Insolvency Act (Canada) with respect to the administration of your property and the bankruptcy estate, the next step in the bankruptcy process is they must apply for a discharge. This will occur after the Trustee has applied for your discharge from bankruptcy Canada, even if you did not get an absolute discharge.

This Brandon’s Blog is for people who have made a bankruptcy filing but have not yet been discharged. If your Licensed Insolvency Trustee has been discharged or is otherwise unable to help you with a second discharge application, this blog will provide you with the information you need to get through the process on your own.

Discharge from bankruptcy Canada: What are the implications if you are not discharged from bankruptcy?

If your previous application for discharge was unsuccessful, you remain an undischarged bankrupt and your Trustee is not obliged to make another application on your behalf. However, you should check with your Trustee first as they may or may not be prepared to do so.

We often receive calls from individuals who claim that their Trustee has been discharged, but they have not been. They express confusion as to why their Licensed Insolvency Trustee will not make an application for their discharge from bankruptcy. A quick search reveals that in these cases, the individual received a conditional discharge, but has not yet fulfilled all of their conditions to get a bankruptcy discharge. That is why their conditional discharge has not yet been converted into an absolute discharge.

If you filed an assignment in bankruptcy and are still an undischarged bankrupt, you may be able to apply for discharge from bankruptcy. An insolvency Trustee only needs to make one application on your behalf. Once the Trustee obtains their discharge, they do not need to make your application for discharge on your behalf again.

The Licensed Trustee cannot be discharged until all bankruptcy administration requirements have been met, including making the first discharge application on behalf of the bankrupt person.

discharge from bankruptcy canada
discharge from bankruptcy canada

Discharge from bankruptcy Canada: How do you obtain a bankruptcy discharge in Canada?

Automatic discharge from bankruptcy is typically granted unless there are exceptional circumstances. If there is opposition to the automatic discharge, the discharge application must be brought before the court for a hearing.

If you did not complete all of your bankruptcy duties as the bankrupt person, such as providing income and expense statements, attending required financial counselling sessions, and/or paying surplus income, your Trustee had reasons to oppose your automatic discharge and scheduled a hearing with the court.

The Report of Trustee on Bankrupt’s Application for Discharge sets out the reasons for the insolvency Trustee’s opposition to a bankrupt’s application for discharge. This document is on file with the court.

If a bankrupt does not receive a discharge at the time of the court application, it is usually because they have not yet done what is required. The associate justice/registrar who heard the application at court may have therefore adjourned the application (i.e. stated it was to be heard at a later date, which may or may not have been set).

The court may have adjourned your discharge application or imposed conditions that must be met before you are entitled to a discharge. The disposition sheet from the hearing will state what the court decided in this regard.

Discharge from bankruptcy Canada: What are the steps to clear my bankruptcy?

It’s not unusual for people who didn’t do what they were supposed to at first to try and get back on track and do what’s required to get their discharge. You must comply with your duties during bankruptcy to the best of your ability and be prepared to explain to the court any deficiency in doing so.

For example, to get your discharge, you must be able to provide details and evidence of your income and expenses during bankruptcy. You probably recall that you were required to provide the Trustee with your monthly income and expense reports. If you’re unable to provide the court with those details, the court may want to review your income tax returns for that period. If you want the court to rescind or vary the conditions imposed, you must show that you complied with the conditions to the best of your ability.

There are many examples of trying your best to meet the conditions but maybe not perfectly. If the court orders you to pay a certain sum of money to the Trustee by a certain date, you can make the court-ordered additional payment but not by the specified date. If you were required to make surplus income monthly payments but didn’t make them all, that’s one reason there were conditions attached to your discharge. You can apply to the court to change the date and get your discharge.

Another one is that you didn’t finish all your required credit counselling sessions. You could finish them and then provide proof of completion to the court.

discharge from bankruptcy canada
discharge from bankruptcy canada

Completing your own application for discharge from bankruptcy Canada

Making your own application to be discharged from bankruptcy can be a bit daunting, but don’t worry—just follow a few simple steps and you’ll be all set. Here are some tips to help you get your application ready and submitted without the help of a bankruptcy trustee or a bankruptcy lawyer.

To begin, you’ll want to locate your bankruptcy file at the court office. Once you have your file, be sure to look through it thoroughly to find:

  • your bankruptcy court file number;
  • the Report of Trustee on the Bankrupt’s Application for Discharge under section 170 of the BIA;
  • any order issued by the bankruptcy court at the original discharge hearing; and
  • the court’s disposition sheet from any previous discharge hearing identifies what the court previously ordered or decided.

You will need copies of these documents. You can ask the court office to make copies for you. They will charge you a fee for photocopying. You should check the Report of the Trustee, the court’s disposition sheet, and any court order to see what you failed to do and what conditions the court has imposed. Also, it is not a bad idea to find out who attended your last application for discharge.

You should check the Report of the Trustee, the court’s disposition sheet, and any court order(s) in the file to see what you didn’t do and what conditions (if any) the court has imposed. Lastly, you need to schedule a date for your discharge hearing with the bankruptcy court.

You will be required to prepare the following documents and file them with the court:

  • a notice of hearing for a bankrupt person’s application for discharge;
  • your affidavit explaining why you believe you are entitled to the discharge order sought;
  • an affidavit of service; and
  • a draft of the order sought.

The Associate Justice/Registrar in Bankruptcy hearing your application for discharge may make any order he or she sees fit. If the order you are seeking is made, he or she may accept and sign it in court on the day you appear, which may save you a period of time later on.

Requisition – Notice of hearing for bankrupt’s discharge from bankruptcy Canada hearing for discharge

The first step in obtaining a discharge in bankruptcy is to file a Notice of Hearing for Bankrupt’s Application for Discharge with the court. That document would have first been filed by the Trustee when the Application for discharge is first scheduled. If you have a copy of it, it will be a good precedent for you to follow.

A requisition must be filed again by you in order to have the matter brought back before the court.

discharge from bankruptcy canada
discharge from bankruptcy canada

Discharge from bankruptcy Canada:The Affidavit

An affidavit is a formal, written statement that provides key information in your legal case. Any evidence you want the court to consider in your application must be submitted in an affidavit. Your affidavit should describe the events leading up to your bankruptcy, and your current financial situation.

You must swear or affirm your affidavit before a notary public or commissioner of oaths. Make sure that your affidavit only includes evidence that is relevant to your application for discharge.

The court is familiar with a standard form of affidavit for discharge applications. You should familiarize yourself with that normal format. You should also include:

  • additional information about why you did not seek a bankruptcy discharge earlier;
  • is this a 1st-time bankruptcy, 2nd-time bankruptcy or more;
  • why you have not been able to comply with the bankrupt’s duties or the requirements of an earlier court order; and
  • state the reasons you are wanting to be discharged now.

You will need to attach any relevant documents to your affidavit in support of your application, including a statement of your current income, expenses, assets, liabilities and any previous bankruptcy information.

Discharge from bankruptcy Canada:Affidavit of Service

To serve documents, you must provide a written copy to the party to be served. You need to obtain a signature or other confirmation, such as an email, to confirm that the document was properly served. You will need to serve the filed Requisition and all filed Affidavits and documents on:

These parties may attend your hearing and make submissions.

In order to provide proper service within the required time period before your discharge hearing, you must familiarize yourself with the rules. You must also provide proof of service at the hearing, especially if no one else attends. This proof of service can be the signature of everyone served to show the date they were served.

An Affidavit of Service can also be filed with the court. This Affidavit of Service is separate from the Affidavit filed with the court regarding your reasons for entitlement to anabsolute bankruptcy discharge certificate.

discharge from bankruptcy canada
discharge from bankruptcy canada

At the discharge from bankruptcy Canada hearing

When you appear in court for your discharge hearing, you will be able to present your case to either an Associate Justice or Registrar in Bankruptcy. If your application is being opposed, the creditors opposing your discharge need to file a notice of opposition. In this case, the hearing will be in front of a bankruptcy Judge. This is the normal process followed:

  1. You explain why you believe you are entitled to the order you are seeking, for example, an absolute discharge from bankruptcy.
  2. Anyone opposing your application explains his or her position.
  3. The Judge or Registrar may ask questions relating to the affidavits and documents you have filed and make suggestions or give directions.

When presenting your position at the hearing, remember to:

  1. Clearly state what order you are seeking from the Registrar in Bankruptcy or Judge.
  2. Outline the facts supporting your application in a concise manner.
  3. Explain the law on the subject and how it applies to the facts of your case.

Your conduct before and during bankruptcy will be taken into consideration when making a decision on your application for discharge. The Trustee’s report will provide information on your conduct before and during bankruptcy, which will be taken into account. if you did not attend the required financial counselling
sessions, did not file required statements of income and expense, and/or did not make the required surplus income payments to the Trustee for the benefit of your creditors.

The court will consider the relevant factors and make the appropriate order, or it may adjourn the hearing for further information or conditions to be met. Some of the types of orders the court may make are:

  • An order of discharge that is absolute and therefore you are immediately discharged from bankruptcy.
  • A conditional discharge may be granted. Examples of conditions are:
    • if the debtor pays any unpaid surplus income,
    • the debtor pays the outstanding balance for any asset that was agreed to be paid for; or
    • if the debtor pays a sum of money to the Trustee toward their debt obligations, as decided by the court.
  • A discharge that has been suspended.
  • The court may refuse to issue a discharge order if it is not satisfied that you have made full and adequate disclosure, or if there are issues with your conduct.

Discharge from bankruptcy Canada: Order for discharge

The Judge or Registrar in Bankruptcy will grant a discharge order at the end of the hearing. The type of discharge will be one of the kinds indicated above. If you prepared a draft order and the Registrar in Bankruptcy or Judge finds it acceptable, they will sign it and you can then have it filed with the court. However, if your application was opposed, keep in mind that one of the opposing parties may choose to appeal the discharge order.

If you have not prepared your order before the hearing, you should do so after the hearing and submit the order in duplicate to the court. The court office will then send the order to the Registrar in Bankruptcy or Judge who heard your application for signing. Once you receive your copy of the signed order, your discharge will be official.

When you receive a copy of the signed order, you must provide a copy to the Office of the Superintendent of Bankruptcy. They will in turn notify the credit bureaus and Canada Revenue Agency of your discharge.

When you have received your absolute discharge, you are no longer legally responsible for repaying debts that you incurred before your assignment in bankruptcy. You will get rid of debt with some exceptions set out in Section 178 of the Bankruptcy and Insolvency Act. They are:

  • payment of child support or alimony;
  • student loans, if you have not been a full-time or part-time student for less than 7 years;
  • a fine or penalty imposed by the court; or
  • debt resulting from fraud.

    discharge from bankruptcy canada
    discharge from bankruptcy canada

Discharge from bankruptcy Canada: Are you tired of being in debt?

Bankruptcy law and the bankruptcy process can be complex, so it may be worth retaining a bankruptcy lawyer to help you apply for your discharge. Ultimately, it is up to you, but hopefully, this guide to discharge from bankruptcy Canada will lay out the steps you need to take if you wish to apply for a discharge yourself.

I hope that you found this discharge from bankruptcy Canada Brandon’s Blog informative. If you’re sick and tired of carrying the burden of debt and ready to live a much better life, we can assist. We know exactly how it really feels to be in debt as well as feel like you’re never going to get ahead. We have actually helped lots of people and businesses that were in your position reach financial stability, so we understand it’s feasible for you to prosper in your objective of ending up being debt-free. Nevertheless, it will certainly require some work on your part. We’ll be right here to assist you with every action necessary.

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 many personal unsecured debts, Credit card debt, income tax debt liability, unsecured loans or personal obligations from the running of your company or from being a business owner. These are all types of debt we can help you eliminate. We are aware of your financial difficulties and understand your concerns. Filing bankruptcy is the last option we explore only after we have exhausted all other options to avoid bankruptcy, such as financial restructuring through a debt repayment plan.

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 give you the best management advice to get you out of your outstanding 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 are sympathetic to the financial difficulties you are experiencing and would like to help alleviate your concerns. We want to lighten your load by coming up with a debt settlement plan crafted just for you.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We would be happy to give you a no-cost initial consultation. We can find you the perfect solution to tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. We provide a full range of services to people and companies. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.

Call us now for a no-cost initial consultation. We are licensed professionals.

discharge from bankruptcy canada
discharge from bankruptcy canada
Categories
Brandon Blog Post

HOW TO FILE BANKRUPTCY ONLINE: OUR KNOCKOUT STEP-BY-STEP GUIDE

file bankruptcy online
file bankruptcy online

File bankruptcy online: You can file bankruptcy online in Canada!

Can I file bankruptcy online in Canada? This is a question we’ve been getting a lot lately. And the answer is yes, you can file bankruptcy online in Canada; just not by yourself.

The only ones the federal government authorizes in Canada to do bankruptcy filings are licensed insolvency trustees. Since March 2020, the process for meeting with a bankruptcy trustee to discuss bankruptcy has changed and can be done online. This may be helpful if you’re considering bankruptcy for your individual situation.

In this Brandon’s Blog, I explain how, with the help of a licensed insolvency trustee, you can meet all the legal requirements and file bankruptcy online for the Canadian bankruptcy process.

Why you can file bankruptcy online in Canada

There’s virtually nothing you can’t do online these days. The lockdowns increased our reliance on online shopping for things like groceries, clothes, office supplies, and even toilet paper.

The internet also includes a wealth of knowledge on any subject you can think of, including financial topics. I find that anyone contacting me who is struggling with their, or their company’s financial problems, has already looked into the various options available to them in dealing with debts like income taxes and credit cards.

Although people may not be familiar from their online research with all the ins and outs of insolvency and bankruptcy, this is to be expected. However, callers are generally well-informed about different options for dealing with secured creditors and unsecured creditors.

Nowadays, people expect to be able to do everything online – including filing for bankruptcy in Canada. Those who think bankruptcy might be a solution for them, are curious to understand if they can declare bankruptcy online. Thanks to the COVID-19 pandemic, online everything is a way of life.

file bankruptcy online
file bankruptcy online

Why you should file bankruptcy online

The Canadian government oversees the administration of the insolvency process in Canada through the Office of the Superintendent of Bankruptcy Canada (OSB). The OSB is part of Innovation, Science and Economic Development Canada (Industry Canada). They ensure that consumer proposals, corporate financial restructuring and bankruptcies are handled in accordance with federal law. This process protects the rights of both debtors and creditors and helps to ensure a fair and orderly resolution to financial difficulties.

The OSB is responsible for administering Canadian bankruptcy law under the Bankruptcy and Insolvency Act (BIA), as well as certain duties under the Companies’ Creditors Arrangement Act (CCAA). They license and regulate the insolvency profession, ensure an efficient and effective regulatory framework, and supervise stakeholders. The OSB is independent of the Government of Canada in carrying out its regulatory, administrative, and supervisory duties.

As a result of the outbreak of COVID-19, the OSB issued guidance to Trustees on how certain aspects of the Canadian bankruptcy and insolvency process have changed. This document, entitled Temporary Guidance for LITS During the COVID-19 Pandemic, provides direction on how to navigate these changes.

As concerns about COVID-19 grew in Canada, licensed insolvency trustees took action to reduce in-person meetings. The OSB supported the Trustee community in these initiatives while maintaining the stability of Canada’s insolvency system.

Many of the same temporary measures remain in place today. Most clients find it more convenient and less stressful to continue filing for bankruptcy online. So how do we file bankruptcy online in Canada?

Assessing your financial situation and considering bankruptcy alternatives

No matter what form of insolvency process we are discussing to deal with a specific debt situation calling for either financial restructuring with a debt settlement payment plan through a consumer proposal or Division I Proposal, or personal bankruptcy, the process always starts in the same way. It’s not important what type of bankruptcy or insolvency process we’re talking about if we are dealing with a limited liability company or with someone considering bankruptcy for individuals.

When it comes to corporate insolvency, it’s important to have a clear understanding of the company’s current financial position and what its chances are for a successful financial restructuring. In consumer insolvency cases, the first step is to assess the debtor’s individual situation.

When a person contacts me to discuss their personal financial situation, we would have our initial chat. If the person wished to explore their available options in more detail, I would need to collect additional information from them to enable a proper assessment. Before we discuss which actual filing may be appropriate, it is important for me to know things like their assets and liabilities, their monthly income, and their household size.

If they would like me to continue our no-cost consultation and provide them with a proper assessment, I email them our standard intake form called the Debt Relief Worksheet. I ask them to please make sure to fully complete it and include any backup documents that are requested.

The backup documents we typically request are quite standard – a copy of their most recent bank statement, their last filed tax return, and the notice of assessment. Once I have a chance to review everything and ask any follow-up questions, I’ll be able to provide tailored advice based on their unique situation.

The counseling before filing bankruptcy that we give is perhaps even more important than any counselling sessions after filing. So far, we’ve been able to do everything over the telephone and online.

file bankruptcy online
file bankruptcy online

Is filing bankruptcy online an option for getting rid of debt?

Now that I have all the necessary information, I can perform the rest of the initial assessment. There could be several options available for those struggling with debt, and filing for bankruptcy may be an option for some. However, it’s important to understand the process and what it entails before making a decision.

Continuing with the online model, I meet with the person and do the rest of the assessment by phone or video meeting. I explain what I see as the realistic debt relief options for the person, explain why and discuss what is involved with each option and answer any questions they may have.

At the end of the meeting, I provide the person with a list of resources that can help them make their decision. I’m always available to answer any questions they may have throughout the process. Filing for online bankruptcy may very well be an option for getting rid of debt, but it should be the last option.

Something else to remember is that an insolvency proceeding will lower your credit score as it appears on your credit report. Declaring bankruptcy will have a worse effect than a debt management plan through a BIA-approved financial debt restructuring program repayment plan.

What documents do you need in order to file bankruptcy online?

To discuss what documents you need for a bankruptcy application in order to file bankruptcy online in Canada, we will assume that the person chose the bankruptcy option. By now, I have enough financial information to prepare all the necessary bankruptcy documents.

Examples of statutory bankruptcy forms which are part of the bankruptcy paperwork include the:

  • statement of affairs, indicating both the person’s eligible assets and those exempt from seizure under provincial law with related bankruptcy schedules;
  • list of creditors that is used for the creditor mailing list to send out the notice to creditors;
  • person’s statement of monthly income and expenses;
  • bankruptcy assignment
  • notice to bankrupt of their bankruptcy duties; and
  • estate information summary.

We schedule a video meeting with the debtor once all the statutory and financial documents are ready for signing. We can either email the documents or upload them to our secure signing portal and provide the debtor with a private, secure link. We’re happy to use online technology to have our meeting and explain all the documents, witness their signing, and get the signed documents from them.

We take the signed documents and file them in the Industry Canada OSB electronic online filing system. The OSB issues the bankruptcy certificate once the electronic filing is accepted. The day and time of the certificate is the exact moment the person is officially bankrupt.

file bankruptcy online
file bankruptcy online

Duties during bankruptcy include credit counselling sessions

The duties of a bankrupt person are set out in section 158 of the BIA. They include:

  • to identify all of their property and allow the Trustee or anyone authorized by the Trustee to take possession of all the debtor’s property;
  • to give the Trustee all books, records, documents and papers related to their property or affairs, including, but not limited to, title papers, insurance policies, and tax records and returns;
  • providing full disclosure of all assets and liabilities;
  • helping the trustee when required with assistance from time to time;
  • if one or more creditor meetings are required, you must attend; and
  • attending the two mandatory bankruptcy credit counseling sessions run by the Trustee.

We can meet with the bankrupt person over video meetings to provide counselling sessions and help them to fulfil their online bankruptcy duties.

Is it always going to be possible to file bankruptcy online in Canada?

The OSB has extended the option to conduct online service delivery of the Canadian insolvency options available under the BIA. Licensed insolvency trustees can continue to use online methods. It has provided some peace of mind for many people.

The OSB has been consulting with the insolvency community on potential amendments to relevant directives, with the goal of implementing an online alternative to meeting in person. While allowing flexibility, the changes they are contemplating would emphasize that while trying to be flexible, the changes being contemplated would emphasize that debtors will have the choice to either meet in person or online.

It looks like the OSB is warming up to the idea that remote filing through online resources, whether we are talking about BIA-approved debt repayment plans or bankruptcy may very well be here to stay. The OSB is trying to balance the benefit to debtors as well as the bankruptcy process continuing to be for the benefit of creditors. Can it all continue to be accomplished by online resources and technology? So far the average person, be they Canadian debtors or Canadian creditors, seem to want to continue with the choice of having insolvency administration online.

file bankruptcy online
file bankruptcy online

Are you deep in debt? We can help!

I hope you enjoyed this Brandon’s Blog on how to file bankruptcy online. Are you or your company in need of financial restructuring? Are you or your company unable to survive the COVID pandemic and its aftermath? 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 realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost initial consultation.

file bankruptcy online
file bankruptcy online

 

 

Categories
Brandon Blog Post

LIQUIDATION OF COMPANY ASSETS: WHEN SHAREHOLDERS ARE INTENT ON CRUSHING EACH OTHER WHAT CAN A VOLUNTARY LIQUIDATOR DO?

liquidation of company
liquidation of company

Liquidation of company assets: What is the liquidation of a company?

In business and the law, liquidation is the process of bringing a company to an end and distributing its assets to creditors. This usually happens when a company is financially solvent and can pay all of its debts after all its assets are sold or collected.

When a product is not selling well, retailers may choose to liquidate it by selling it at a discounted price. This process called a liquidation sale can help them clear out slow-moving inventory. This is not the process I am talking about today.

If you want to learn more about the types of liquidation in Canada, then you’ve come to the right place. In this Brandon’s Blog, I will explain everything about the liquidation of company assets and give you a real-life example that my Firm is currently involved in. This real case is an example of what can be done when shareholders who originally agreed to a voluntary liquidation (defined below) can no longer agree on the liquidation of company assets or anything else, even how to pay them the cash the shareholders are entitled to receive!

Why would a company want to have liquidation of company assets?

There are a few reasons why companies pick a liquidation process, including:

The business is solvent yet no longer practical to operate

Possibly time has actually passed the business by. Technological adjustments have made the products or services the limited company offers unneeded as well as no longer relevant. The shareholders want to call it quits now, sell off the corporate assets and properties, repay creditors and also distribute the leftover funds to the shareholders.

The shareholders do not intend to or think it is possible to convert the business to make it viable again. They do not feel it deserves the investment of time and resources, as well as to endure ongoing losses in turning the business around so that it ends up being pertinent again.

Shareholder disputes

The shareholders in a private entrepreneurial company no longer get along. The dissident shareholder(s) cannot or refuse to buy out the remaining shareholders or vice versa. Alternatively, certain shareholders are willing to do a buy-out but either cannot agree on the price or balk at paying the amount calculated under the formula prescribed in the shareholder agreement.

The company is not saleable

The limited company’s business is not viable anymore. Nobody wants the company’s products or services and the company never moved forward with new product offerings that are in demand. Therefore, nobody wants to buy the company or its assets. So while it is still solvent, the shareholders decided to realize all the assets, distribute the cash first to pay off all of the company’s debts in full, make a distribution to shareholders for what is left over and formally dissolve the corporation.

To avoid bankruptcy

If the company is not wound up, it will eventually become an insolvent corporation. The shareholders realize that it is much better to now agree to a voluntary liquidation while there still can be a distribution to the shareholders after all the business assets are sold or collected and all creditors are paid in full. The shareholders wish to get this value and avoid a corporate bankruptcy filing.

liquidation of company
liquidation of company

How a liquidation of company assets begins

If shareholders wish to have a dissolution process for a corporation, they may do so by passing a special resolution to begin the liquidation process. In such cases, the company would call a meeting of shareholders in accordance with the corporate bylaws. Shareholders must be given notice of the meeting in advance. Alternatively, a court may make an order for the liquidation of company assets and the winding-up of the corporation. More on this below. This is how the liquidation of company assets and the winding-up of the company begins.

Shareholders will be given notice of the meeting where the special resolution authorizing the dissolution process will be considered. At the meeting, shareholders can vote to approve or disapprove of the special resolution for the dissolution of the company by special resolution.

Liquidation of company assets: What are the 2 types of liquidation in Canada?

When a company is struggling, it’s common to see a sale take place. When this happens, all of the assets of the company may be sold to pay off creditors. This process of selling off the company’s assets is known as “liquidation.” In Canada, there are two main types of liquidation: “compulsory liquidation” and “voluntary liquidation”.

Voluntary liquidation or voluntary dissolution begins with the shareholders agreeing to a special resolution for the liquidation of company assets, the distribution of the cash first to all creditors and then to the shareholders. When the liquidation is completed, the company is then would up.

Compulsory liquidation is when a court order is made directing the liquidation of company assets and the winding-up of the company.

In Canada, the laws under which a solvent company is liquidated depend on the laws under which the company was incorporated. If federally incorporated, then the Canada Business Corporations Act (CBCA) is the relevant statute. If provincially incorporated, then it would be the law of that particular province. In Ontario, it is the Ontario Business Corporations Act (OBCA). This is the statute that I will focus on in this Brandon’s Blog.

liquidation of company
liquidation of company

Liquidation of company assets: What is the OBCA process for liquidation?

The Ontario Business Corporations Act is a piece of provincial legislation that is designed to govern the formation, administration, and dissolution of corporations in Ontario. In reality, most liquidations filed in Ontario are voluntary. This means that the company shareholders decide to seek liquidation.

Part XVI of the OBCA sets out the process for the liquidation of company assets in Ontario. The OBCA provides a comprehensive framework for the voluntary winding up of corporations. Sections 193 to 205 of the OBCA set out the procedures and requirements for the voluntary winding up of corporations.

As I have previously stated, the OBCA requires shareholders of a corporation to vote for a voluntary winding up of the company as the first step in liquidation of company assets and ceasing business. The shareholders’ requirement is evidenced by a special resolution made at a properly convened meeting of shareholders.

At the meeting, shareholders will appoint one or more people as liquidators of the company. These people may be directors, officers, or employees of the company. Their job will be to wind up the company’s affairs and distribute its property. Shareholders may also provide other instructions at that meeting or at any subsequent meeting.

It’s also common for shareholders to appoint a third party experienced in winding up corporations, like a licensed insolvency trustee. Even though the company isn’t insolvent, shareholders see the advantages of keeping a professional experienced in liquidating assets on board.

A corporation voluntarily winding down will cease carrying out business operations, except where doing so would be beneficial for the winding down process. All transfers of shares, except those made with the approval of the liquidator, taking place after the commencement of the winding down are void.

The OBCA provides for a stay of proceedings when an Ontario company is being liquidated and wound up. After a voluntary winding up has begun,:

  • no legal action can be taken against the corporation; and
  • no seizure, sequestration, distress or execution can be carried out against the corporation’s assets or property.

You will need the court’s permission before taking any action. The court will then decide what terms to set.

Liquidation of company assets: Special considerations in a compulsory or court-supervised liquidation

The court may dissolve the corporation if:

  • If the court finds that the actions or inaction of a corporation or any of its affiliates has resulted in or will result in an outcome that does not consider the interests of any security holder, creditor, director, or officer fairly, it may order the dissolution of the corporation.
  • All shareholders agree that dissolution should occur after a specific event, and that event has occurred.
  • Proceedings have begun to wind up the corporation voluntarily.
  • The court finds that if the actions or inaction of a corporation or any of its affiliates has resulted in or will result in an outcome that does not consider the interests of any security holder, creditor, director, or officer fairly, it may order the dissolution of the corporation.
  • It is best for those who would have to contribute to a company’s assets in the event of its dissolution, and for those who are owed by the corporation, that the court supervises the dissolution process.
  • The corporation cannot continue its business because of its debts and it is advisable to end its operations other than by bankruptcy.
  • The shareholders vote by special resolution to wind up the corporation through a court-supervised process.

Who can apply to the court for a court-supervised liquidation of company assets and the winding-up of the corporation? If you want to dissolve a corporation through a court-supervised process, you can do so by filing an application with the court. Shareholders, a contributory or creditor having a claim of $2,500 or more, or a voluntary liquidator can all apply to have the corporation wound up.

In the section below titled “Liquidation of company assets: Real-life example when voluntary had to become court-supervised” I describe a file that my Firm is involved in the liquidation of two companies, and we were forced to use the right of a voluntary liquidator to apply to the court to turn the voluntary liquidation into compulsory liquidation.

liquidation of company
liquidation of company

Liquidation of company assets: How does the distribution of assets during liquidation work?

When a company is liquidated, its assets are sold off and the proceeds are distributed to creditors. The distribution of assets is first used to pay off secured creditors, then unsecured creditors, and finally shareholders.

The liquidator first needs to gain an understanding of all of the company’s assets and liabilities. The financial statements and the books and records of the company are a good place to start. The liquidator will put together a plan to collect and sell the assets of the company.

The liquidator then needs to put together a list of all creditors, and identify if they are secured creditors or unsecured creditors. This is necessary because the creditors need to be paid in order of priority. Any remaining funds will then be distributed to the shareholders.

The liquidator will keep company management and shareholders informed every step of the way. The liquidator would be very wise to get management and shareholder approval for all of the liquidator’s decisions. The liquidator will also need to make sure that the preparation of the company’s financial statements and income tax returns are kept current and that all government filings and payments are made on time.

The fee of the liquidator must be agreed to by the shareholders. The OBCA also provides for the court to be able to assess the fee charged by the liquidator. In doing so, the court will no doubt look at the steps and acts of the liquidator that were taken.

These are the main steps that every liquidator must carry out. Even in a compulsory liquidation done by court order, the practical steps involved in the liquidation of company assets are the same.

Liquidation of company assets: Real-life example when voluntary had to become court-supervised

The shareholders of two affiliated companies, each one a private company, passed special resolutions in August 2021 for both companies to begin liquidating their assets, winding up the corporations, and appointing Ira Smith Trustee & Receiver Inc. as the liquidator of both corporations. The desire to wind up both companies came from the very acrimonious litigation between family members.

We were very successful in helping the warring factions, through their respective legal representatives, make adequate provisions so that agreements could be reached in each crucial step of the liquidation process from August 2021 through April 2022. Unfortunately, we hit a snag in May 2022. The shareholders were unable to resolve their impasse due to the pertinent issues regarding the liquidation of both companies. Without court intervention, the stalemate would never end.

We knew that we could still provide value in helping these shareholders, but given their bitter disagreements, it could only be done under a court-supervised compulsory dissolution. Therefore, we prepared a report for the court and first circulated a draft to the stakeholders and their lawyers. We did so for two reasons:

  1. we wanted to make sure that we did not make any factual errors; and
  2. by circulating a draft in advance, we gave everyone the chance to consider consenting to our application to turn the voluntary liquidation into a compulsory dissolution.

We then had our legal counsel set up a court date, which they were thankfully able to get for mid-July. All stakeholders consented to the court-supervised liquidation of one of the two companies. One side also consented for the other company to enter a court-supervised process, but the other side opposed it.

The court made an order to convert the voluntary liquidation into a compulsory liquidation for the one private company that all shareholders consented to. It also set a hearing for mid-September, which will allow the opposing party to present their case, and for the consenting party and the liquidator to do the same. This provision in the OBCA allowing a voluntary liquidator to make the court application definitely prevented a less favourable outcome.

liquidation of company
liquidation of company

Liquidation of company assets: Difference between insolvency and liquidation

There is a big difference between insolvency and liquidation, just as there is a difference between insolvency and bankruptcy. Being insolvent is a very difficult financial condition to be in. When a company or individual cannot pay their bills, debts, or liabilities, it is insolvency. This often leads to either restructuring or bankruptcy.

The liquidation of a corporation under the CBCA, OBCA or respective provincial legislation is a legal process that can be undertaken when the company is not insolvent but the shareholders wish to end the life of the company for other reasons.

In a liquidation, the company’s assets are sold and the proceeds are used to pay off creditors. The remaining funds are distributed to shareholders. This is not the case for an insolvent company, which may be forced to close its doors through an insolvency process such as bankruptcy.

The first step in determining the solvency of a company is to look at its most recent set of financial statements.

Key point takeaways on the liquidation of company assets

I hope you found this liquidation of company assets Brandon’s Blog interesting. The key takeaways from this blog, in my view, are:

  • Liquidation and winding-up of a company must be considered when a company is still solvent but is facing insurmountable problems such as its business is no longer viable or internal fighting makes its survival doomed.
  • While value still remains in the company, it is in the best interests of all stakeholders to get that value for everyone.
  • A liquidator can be very helpful to shareholders in a private company who no longer can effectively manage the companies on their own and there is value to be obtained for them.
  • A voluntary liquidator can apply on its own to court to turn a voluntary liquidation into a court-supervised compulsory liquidation.

Among the many problems that can arise from having too much debt, you may also find yourself in a situation where bankruptcy seems like a realistic option.

If you are dealing with substantial debt challenges and are concerned that bankruptcy may be your only option, call me. I can provide you with debt help.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost consultation.

liquidation of company
liquidation of company
Categories
Brandon Blog Post

LICENSED INSOLVENCY TRUSTEE FEES: WHAT UNDENIABLE EVIDENCE IS NEEDED FOR COURT APPROVAL OF INSOLVENCY TRUSTEE FEES?

Licensed insolvency trustee fees: How is a licensed insolvency trustee paid?

Are your debts or your company’s debts and financial situation causing you so much stress that you are considering speaking to a licensed insolvency trustee (formerly called a bankruptcy trustee or trustees in bankruptcy), but you are worried about the licensed insolvency trustee fees? Are you concerned about the professional fees to be paid because you think that businesses with debt problems already cannot afford to hire professionals? Your concerns are valid and relevant but you should not let that stop you from your initial inquiry. An insolvency trustee will always provide you with a no-cost initial consultation, discuss realistic options and explain the cost of each option to you.

Licensed insolvency trustee fees are set by bankruptcy laws and rules contained in the Bankruptcy and Insolvency Act (Canada) (BIA). They are reviewed by the Office of the Superintendent of Bankruptcy and must be approved by the bankruptcy court. Fees are either drawn from the funds accumulated in the insolvency file from the sale of assets in the receivership or bankruptcy administration or the monthly payment funding of the restructuring proposal. If there are insufficient assets in the insolvency file, then the insolvency trustee gets its fee from a third-party retainer.

In this Brandon’s Blog, I describe how licensed insolvency trustee fees are calculated. Then, I review a recent Ontario court decision to show what kind of evidence the Trustee needs to provide the court in order for its fees to be approved.

Licensed insolvency trustee fees: Disbursements included in a streamlined personal insolvency process

Licensed insolvency trustees offer a range of services for both individuals and businesses. For individuals, there are two streamlined insolvency processes:

  • summary administration personal bankruptcy; and
  • consumer proposals.

    licensed insolvency trustee fees
    licensed insolvency trustee fees

Licensed insolvency trustee fees in a summary administration personal bankruptcy

The summary administration personal bankruptcy process applies when the assets of the bankrupt person to be sold are expected to sell for $15,000 or less. Licensed insolvency trustee fees for a summary administration personal bankruptcy are set by a formula called a tariff.

In a summary administration bankruptcy, the fees that insolvency trustees are entitled to are calculated as follows:

  • 100 percent on the first $975 or less of receipts;
  • 35 percent on the portion of the receipts exceeding $975 but not exceeding $2,000;
  • 50% of receipts exceeding $2,000;
  • for counselling fees of $75 per session, totalling $150; and
  • an allowance for administrative disbursements of $100.

The reason the formula refers to receipts (of cash) rather than net proceeds from asset sales is that, in any personal bankruptcy, there are two types of cash receipts: 1. from the sale of assets; and 2. surplus income payments made by the bankrupt person, if any.

Licensed insolvency trustee fees: How much will it cost me to file a consumer proposal?

The calculation of the amount you need to offer your creditors in your consumer proposal has no relation to what the licensed insolvency trustee fees will be. Licensed insolvency trustee fees for a licensed trustee acting as the Administrator in the consumer proposal process is also governed by a tariff. It is calculated as follows:

  • $750 on the filing of the proposal with the official receiver;
  • $750 on the approval or deemed approval by the court;
  • 20% of moneys distributed payable on distribution; and
  • counselling fee of $75 for each counselling session for a total of $150.

In a consumer proposal, administrative disbursements are paid out of the above fee calculation.

In both summary administrations and consumer proposals where the licensed insolvency trustee fees are only the tariff, there is no need for court approval.

licensed insolvency trustee fees
licensed insolvency trustee fees

What factors influence licensed insolvency trustee fees in other administrations?

There are no streamlined provisions for any corporate insolvency administration. In addition to administering summary administration bankruptcies and consumer proposals, licensed insolvency trustees also can provide the following services:

  • business review of a company to identify its solvency and future prospects so that financial advice can be given
  • ordinary administration personal bankruptcy
  • commercial bankruptcy
  • personal Division I restructuring proposal to creditors (for consumers who cannot qualify for a consumer proposal)
  • corporate Division I restructuring proposal
  • private corporate receivership
  • court-appointed corporate receivership
  • winding-up corporate liquidation, either voluntary or court-supervised
  • corporate restructuring under the Companies’ Creditors Arrangement Act

In all of the above government-regulated insolvency proceedings/insolvency procedures, there are only two factors that influence the licensed insolvency trustee fees. They are:

  1. Hours spent by the level of staff working.
  2. The professional hourly rate of the staff.

Licensed insolvency trustee fees: How does an insolvency practitioner receive compensation?

In all of the non-streamlined insolvency processes, I just described, how the licensed trustee gets the fees it is charging requires approval. In private appointments, the licensed trustee needs the approval of the client. In a court appointment or administration for bankruptcy services or any other mandate under the BIA, the licensed trustee needs court approval.

What evidence do licensed insolvency trustees need to provide to prove the time that was spent doing the work? The documentation expected of a licensed trustee is the same that is expected from an insolvency lawyer or any other kind of lawyer. What is expected are detailed time dockets, so that everyone can see who spent what time, on what day on what activity.

But what if proper dockets are not kept? Well, that is exactly what the court case I want to describe to you is all about.

licensed insolvency trustee fees
licensed insolvency trustee fees

Licensed insolvency trustee fees: How do practitioners of insolvency get compensated – it takes a Final Statement of Receipts and Disbursements

I am writing this Brandon’s Blog to be informative, not to embarrass anyone. So I will not be providing the case reference of the case I am now going to describe. This is actually the second such case in Ontario that I am aware of in the last 12 months.

The case deals with a bankruptcy trustee who submitted its final statement of receipts and disbursements (SRD) to the court for approval. Contained in this final statement is amongst other things, the line item for the fee and disbursements the Trustee is seeking court approval for. The court expects to see a sworn affidavit from someone on the insolvency trustee’s staff who has knowledge of the time spent and the fee charged outlining what was done and why it was necessary. The court also expects to see detailed time dockets.

In this case, and the very similar one that came before it, the insolvency trustee’s material did not include detailed time dockets. Both Trustees applied for taxation of their SRD in an individual debtor’s Division I Proposal. In both cases, the Office of the Superintendent of Bankruptcy issued clean letters of comment. The primary issue raised on this taxation is whether the insolvency trustee’s fees are to be approved. In the ordinary course, the debtor and the creditors have not been given notice of the taxation but it would appear that there is unlikely to be any objection.

The taxation raises the question of how the Trustee is supposed to establish its entitlement to fees when there is no time dockets kept or otherwise available to support the trustee’s claim. In this case (and the one before it), the Trustee is relying solely on the terms of the proposal. The proposal contains the methodology for calculating the fees to be taken by the Trustee in administering the proposal. The Trustee is relying on the fact that a Proposal is a contract between the debtor and its creditors, the court has already approved the Proposal and the Proposal includes the Trustee’s remuneration.

Licensed insolvency trustee fees: Bankruptcy trustees – why not keep accurate time records?

The Trustee requested fees (plus HST) based on the formula set out in the debtor’s proposal. While the Trustee provided an affidavit in support of its taxation, the Trustee did not provide any evidence of actual time spent at each staff level. The taxation came before the Associate Justice on September 1, 2021. She adjourned the taxation and requested time dockets.

The Trustee filed a report in response to the September 1, 2021 endorsement and request for time dockets, supporting the taxation and approval of the fees claimed, but no time dockets were included. In its report, the Trustee noted that it did not keep formal, detailed time records, as the terms of the Trustee’s fees and expenses are set forth in the Proposal as a “fixed fee” formula. This fee formula was accepted by creditors and approved by the Court. Therefore, the Trustee is relying upon that in not keeping time dockets.

The Trustee advised that its rationale for the development of a fixed fee formula to be charged by the Trustee, and for its decision to eliminate time docketing in such Division I proposals containing a formula for fixing a fee, were as follows:

  1. The fixed fee formula was designed by the Trustee to provide more certainty about the costs of administration for the Division I proposal. This formula also takes into account contingencies such as the time needed to negotiate the terms of the proposal and to verify the debtor’s financial information.
  2. The fixed fee formula was designed to make billing and accounting more efficient by eliminating the need to track chargeable time.
  3. The fixed fee formula was based on the consumer proposal tariff, to a certain extent.
  4. The fixed fee formula’s structure helped the Trustee keep initial costs low, so creditors could start getting dividends from the debtor’s monthly payments sooner.
  5. The fixed fee formula was designed to minimize unexpected increases in costs of administration and a resulting decrease in dividends.
  6. Not once has a creditor balked at the Trustee’s fixed fee.
  7. The court approved the proposal with the fixed fee formula, so the Trustee did not keep time dockets.
  8. There are many proposals whose administration is underway or completed that the Trustee has relied upon the fixed fee formula, and therefore has not maintained time dockets.
  9. The trustee’s fees, as claimed under the fixed fee formula, have not been objected to by the Office of the Superintendent of Bankruptcy Canada.

    licensed insolvency trustee fees
    licensed insolvency trustee fees

Licensed insolvency trustee fees: The court’s analysis and decision

The BIA provides for the determination of a Trustee’s remuneration in section 39. The Associate Justice said that s. 39(5) of the BIA provides the jurisdiction to increase or reduce the remuneration claimed by a Trustee. Further, the court was not a “rubber stamp” obliged to approve the fees claimed by the Trustee merely because they were in the Proposal. The court noted that it is common for Trustees to request remuneration based on the time spent and hourly rates charged. The burden is on the Trustee to convince the court that the amount claimed for remuneration is warranted.

The Associate Justice listed the following principles that must be considered when it comes to taxation:

  • Trustees should be given proper compensation for their services.
  • Prevent unjustifiable payments for Trustee fees that harm the insolvent estate and its unsecured creditors.
  • The efficient and conscientious administration of an estate for the benefit of creditors and, to the extent that the public is concerned, in the interests of the proper carrying-out of the objectives of the BIA, should be encouraged.

This Associate Justice also dealt with the previous case I mentioned above, which involved the taxation of a statement of receipts and disbursements in a Division I proposal where no time dockets were kept. In that case, she held that the lack of time dockets was not fatal to the approval of fees. She said the court is in a difficult position when there is no corroborative evidence as to the time and effort spent in the administration of the proposal.

So due to the lack of evidence justifying the time spent by the various staff members of the Trustee firm at their normal hourly rates, the Associate Justice was forced to look at the entirety of the Trustee’s administration. She found issues with it and therefore concluded that the Trustee was not entitled to the full fee being requested, based on the formula contained in the Division I Proposal. The Associate Justice determined, with the benefit of hindsight as to how the Division I Proposal turned out, that the debtor could have filed a consumer proposal and the creditors would have then been better off with a higher dividend distribution.

The Associate Justice ruled that, in this case, fees and disbursements will be set on a consumer proposal tariff basis. The proposal fund totalled $31,500. Using the formula for a consumer proposal, the Trustee was therefore entitled to fee and disbursements of $7,620 (plus HST) and not the $9,973.46 fee and $14,252.01 of disbursements (plus HST) formula amount.

The Associate Justice was also very critical of the Trustee’s administration and she had strong words overall for Trustees coming to court without proper evidence of the time spent when requesting approval for fees and disbursements at taxation. Her warning was that she did not accept the Trustee’s submissions that:

  • The court’s jurisdiction over approving the SRD and the fees to be claimed by the Trustee is replaced by the approval of the creditors and the OSB. Creditor and OSB approval are not determinative when it comes to taxation, but their approval is still relevant.
  • The appropriateness of the Trustee’s fees is not considered in an application for court approval of a Division I proposal. The court is not prevented from taxing the Trustee’s fee and disbursements upon the taxation of the SRD.
  • Any benefits to having a set fee remove the court’s jurisdiction to approve the Trustee’s fees. If the Trustee decides to save time by not documenting their hours worked, they do so at their own risk. The responsibility is always on the Trustee to justify their fees.
  • Creditors who want to know how much the Trustee’s fee will be cannot override the Trustee’s responsibility to explain to the court why the fee is fair and reasonable.

The court directed the Trustee to redo its SRD on the basis decided by the court, resubmit it to the Office of the Superintendent of Bankruptcy for its comment letter and then resubmit the entire package to the court for the taxation order.

A tough day in court to be sure.

Licensed insolvency trustee fees: Call us for debt-free solutions

I hope you found this licensed insolvency trustee fees Brandon’s Blog interesting. Among the many problems that can arise from having too much debt, you may also find yourself in a situation where bankruptcy seems like a realistic option.

If you or your business are dealing with substantial debt challenges and are concerned that bankruptcy may be your only option, call me. I can provide you with debt relief advice in setting up one of various possible debt management plans using debt relief options for you or your company.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective. We are debt professionals who know how to use the new innovative tools to solving debt problems while avoiding a bankruptcy filing.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution and improving your financial future, let us know. Starting Over, Starting Now.

Call us now for a no-cost consultation to find out what your debt relief options are.

licensed insolvency trustee fees
licensed insolvency trustee fees
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Brandon Blog Post

WHAT DOES BANKRUPTCY DISCHARGED MEAN FOR 1 BANKRUPTCY TRUSTEE AND SOMEONE WHO IS SERIOUSLY BANKRUPT?

 

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

What does bankruptcy discharged mean: Restrictions placed on undischarged bankrupts

By enabling debtors to file an assignment in bankruptcy or consumer proposal, the Bankruptcy and Insolvency Act (BIA) provides relief to an honest but unfortunate debtor. Garnishment of wages (other than marital support) ceases, legal actions and collection calls cease, and the debtor receives some breathing space. If a bankrupt fails to fulfill his or her obligations, what happens? Can they receive a discharge from bankruptcy?

This Brandon Blog examines a recent case from Nova Scotia dealing with what does bankruptcy discharged mean for both a bankrupt person and for the licensed insolvency trustee. I also describe what does it mean for an undischarged bankrupt if the bankruptcy trustee gets its discharge when the bankrupt person does not have their bankruptcy discharge.

I will eventually get to the Court case, but there is first some background information that I will provide which sets the stage for a better understanding of the Court decision.

What does it mean to be an undischarged bankrupt?

In the event, you were unable to fulfill your obligations under your personal bankruptcy proceedings, your Trustee, and maybe a creditor or two would have opposed your discharge from bankruptcy. A bankrupt who has not been discharged poses many potential problems. Therefore, if you are an undischarged bankrupt, it is because you have failed to fulfill one or more of your obligations as a bankrupt.

what does bankruptcy discharged mean
what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts eliminated by bankruptcy discharge

A bankruptcy discharge means that you have completed your personal bankruptcy process and are no longer legally liable for any outstanding debt you included in the bankruptcy filing (with the exception of a few which I will describe soon). Upon receiving an absolute discharge from bankruptcy (we’ll get to that shortly), you are no longer responsible for any discharged debts.

The discharge in bankruptcy eliminates most of your debts, including unsecured debts such as credit card bills, medical bills, and payday loans. When you are discharged from bankruptcy, not the fact that you filed for bankruptcy, is what eliminates your debts. You need your discharge to get rid of your debts, which explains why it’s so important. That is what does bankruptcy discharged mean, really means.

What does bankruptcy discharged mean: Bankruptcy law can resolve tax debts

As well as the usual unsecured debts mentioned above, if you owe Canada Revenue Agency (CRA) money because you were not able to pay your whole personal income tax obligation when you filed your taxes, then a payment arrangement makes sense.

Collections officers from the CRA contact taxpayers regarding outstanding income tax debt arising from their tax filings and notices of assessment. They attempt to collect from delinquent taxpayers. When you say that you cannot pay the full amount at that time, they will offer you the option of a payment arrangement. The interviewer will ask you about your financial situation and may ask you to submit documents to support your income and expense claims.

They recommend a settlement plan after evaluating the information. Only if all attempts at collection have failed will legal action be taken. You must send the CRA postdated cheques to cover the agreed-upon monthly payment to participate in such a plan. Additional payments can be made if you have money to spare. The interest clock does not stop with a CRA payment plan. Be certain that all your cheques clear the bank as well. The entire payment plan can be cancelled if only one is returned NSF.

Should you enter into a payment plan? Yes. You should demonstrate to CRA that you want to work with them, and avoid tax debt collection activities that will disrupt your life. The most common enforcement activity involves freezing and taking money from your bank accounts, as well as garnishing your salary or wages if you’re employed. If you are a proprietor, they can notify your customers and claim your receivables. Furthermore, a federal judgment can be obtained without your knowledge to place a lien on your home.

You do not need to experience CRA’s more drastic collection methods. Be sure to pay your obligations on time. A tax garnishment, third-party assessment, or an asset lien is never pleasant. The consequences are severe and disruptive. In most cases, CRA only takes this step if you fail to comply with their efforts to enter into and maintain a CRA payment arrangement.

CRA tax debts can be discharged under bankruptcy law if no payment plan can be arranged. If bankruptcy is successfully discharged or a consumer proposal is fully completed, the income tax debt can be eliminated. We assume that CRA hasn’t already obtained a judgment against your interest in your home and registered it against it. Upon doing so, the CRA has successfully turned an unsecured debt into secured debt, and bankruptcy law no longer applies.

Several other things to keep in mind are:

  • A bankrupt who owes more than $200,000 in personal income taxes and whose personal income tax debt represents at least 75% of their total unsecured proven claims is considered a high-tax debtor. In this situation, you cannot be automatically discharged. It is unavoidable that the Trustee will object to your discharge and there will be a discharge hearing before the Bankruptcy Registrar in the Bankruptcy Courts. Additionally, the CRA will oppose your discharge and will make submissions at your hearing. I am certain you will receive a conditional discharge, at least with the condition that you pay a portion of your income tax debt to the Trustee for distribution among your creditors.
  • Unremitted employee source deductions owed by a proprietor or partner of an unincorporated business will not be helped by bankruptcy law. Generally, bankruptcy will eliminate HST obligations. For now, CRA ranks the debt as unsecured in a consumer proposal, but as CRA provides the accommodation, it is not a part of bankruptcy law. If the outstanding HST is extremely large, the CRA may argue that since you held the HST in trust for them, it still remains a claim even if you declare bankruptcy. Under Canadian bankruptcy law, they can do this, but I have not seen them do it yet.
  • Director liability for unremitted employee source deductions or HST is an unsecured claim against you for your personal liability as a Director. Bankruptcy and a properly worded Proposal will both eliminate that debt.

    what does bankruptcy discharged mean
    what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts never discharged in bankruptcy

In personal bankruptcy, there are certain types of debts that are not discharged. Section 178(1) of the BIA outlines the following debts that are nondischargeable debt:

  • Any type of fine, penalty, restitution order, or other order similar to a fine, penalty or restitution order, imposed by a court for an offence, or any kind of debt arising from a recognizance or bond;
  • Damages awarded by a court in a civil case for:
    • bodily injury intentionally caused, or sexual assault, or
    • wrongful death as a result of these acts;
  • the payment of spousal support or an alimentary pension;
  • any financial obligation or liability arising under a judgment establishing an association or regarding support, maintenance, or an agreement for maintenance and support of a spouse, former spouse, previous common-law partner, or child who is not living with the bankrupt;
  • a financial obligation or liability that results from fraud, embezzlement, misappropriation or defalcation in a fiduciary capacity or, in the Province of Quebec, while acting as a trustee or administrator;
  • apart from debts and responsibilities arising from equity claims, any debt or liability resulting from getting property or services by false pretenses or fraudulent misrepresentation;
  • unless a creditor had notification or understanding of the bankruptcy and didn’t take reasonable action to prove a claim, the liability for the dividend that a creditor would have received on any provable claim not disclosed to the trustee; or
  • student loans if the bankruptcy occurred before the bankrupt stopped being a full- or part-time student or within seven years of the date the bankrupt stopped being a full- or part-time student.

What does bankruptcy discharged mean: Absolute discharge vs. conditional discharge and so on and so forth

In order to obtain a discharge, a bankrupt person must have fulfilled all of their bankruptcy duties. These personal bankruptcy duties include:

  • providing all books, records or documents to the Trustee that identify the assets and liabilities of the debtor;
  • prepare and submit to the Trustee within 5 days after filing for personal bankruptcy, unless the Office of the Superintendent of Bankruptcy Canada extends the time, a sworn statement of affairs detailing the person’s assets and liabilities, and for each of the bankrupt’s creditors, their respective names, addresses and the amount owing;
  • disclose to the Trustee complete details of all dispositions of property within 1 year before the date of the bankruptcy;
  • make a disclosure to the Trustee of all the details of property disposed of by gift or settlement without adequate valuable consideration within a 5 year time period before the date of bankruptcy;
  • if a creditors’ meeting is called, attending it;
  • making any required surplus income payments to the Trustee;
  • participating in two mandatory financial counselling sessions; and
  • offering whatever assistance is requested by the Trustee.

If the bankrupt fulfill all of their duties, then the Trustee will not have a reason to oppose the discharge. If no creditor opposes, then the bankrupt is entitled to an absolute discharge. As already stated, the discharge is what eliminates unsecured debts.

In addition to an absolute discharge, there are other types of discharge under bankruptcy law available to a bankrupt person upon having a discharge hearing:

  • conditional discharge;
  • suspended discharge; and
  • refused discharge.

To read more on the different kinds of discharges available to be applied to a bankrupt person, and for what does bankruptcy discharged mean, take a look at my August 2021 Brandon Blog “A BANKRUPTCY DISCHARGED IS THE KEY TO HEARTWARMING DEBT ELIMINAT1ON“.

what does bankruptcy discharged mean
what does bankruptcy discharged mean

What does bankruptcy discharged mean: At long last, the Nova Scotia case

The Nova Scotia bankruptcy case deals with the discharge of the Trustee in a personal bankruptcy matter. Once the Trustee brings on the bankrupt’s application for discharge and a discharge Order is made by the Court, and the Trustee completes the rest of the administration of the bankruptcy estate, the Trustee is entitled to a discharge. If the bankrupt did not receive an absolute discharge and has not completed his or her duties, including complying with a conditional discharge order, eventually, the Trustee can still apply for its discharge. Upon the Trustee’s discharge two things occur:

The bankrupt goes into bankruptcy purgatory. No discharge occurs. The Trustee has fulfilled its obligation to present the bankrupt’s discharge request to the court and the court has issued an Order. Whenever the bankrupt wants to prove they have fulfilled all their obligations, obeyed the discharge order, and now deserve an absolute discharge, he or she will need to retain a bankruptcy lawyer and apply to the Bankruptcy Courts.

On the day the Trustee is discharged, the stay of proceedings that had protected the bankrupt from any enforcement action by creditors whose debts were owed at the date of bankruptcy no longer applies. As a result, creditors can now pursue the bankrupt person since the debts have not been eliminated and the stay of proceedings is no longer in place.

It is interesting to examine how far the Registrar in Bankruptcy directed the Trustee in this Nova Scotia bankruptcy case to ensure that all creditors understood that they still had the right to pursue the bankrupt.

The decision in Frost (Re), 2021 NSSC 296 can be boiled down to the following facts:

  • Mr. Frost went bankrupt.
  • He failed to fulfill his duties and moved to the UK permanently.
  • He didn’t inform the Trustee of his new address and telephone number.
  • His actions left his Trustee and other stakeholders to fend for themselves, explicitly telling the Trustee he wasn’t going to fulfill those duties and didn’t intend to do so.
  • A hearing was held for the bankrupt’s discharge and Mr. Frost was refused discharge.
  • The Court previously directed the Trustee to appear before it to be heard on the Trustee’s application for discharge.

The Court concluded that the Trustee completed the administration of the bankruptcy estate and gave the Trustee its discharge. However, the reason why the Registrar in Bankruptcy wanted the Trustee to attend such a hearing was so the Registrar could take things one step further. In the normal course, the Trustee sends out a notice to all those whose proof of claim was admitted of the results of the bankruptcy administration and of the Trustee’s discharge. However, the Registrar wanted to make sure that it was crystal clear to all creditors.

The Registrar wrote a cover letter for the Trustee and directed the Trustee to send it along with the normal statutory notice to creditors (or their debt collectors of record). Here is a copy of that letter:

what does bankruptcy discharged mean
what does bankruptcy discharged mean

What does bankruptcy discharged mean summary

I hope you found this what does bankruptcy discharged mean Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

what does bankruptcy discharged mean
what does bankruptcy discharged mean
Call a Trustee Now!