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THE CANADIAN BANKRUPTCY AND INSOLVENCY ACT EASY BEGINNER’S GUIDE

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 is in the Canadian Bankruptcy and Insolvency Act?

Canada’s bankruptcy and insolvency laws are governed by two major pieces of federal legislation: the Canadian Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. Additionally, provincial legislation intersects with the Canadian Bankruptcy and Insolvency Act. During bankruptcy, a debtor can keep certain types of property based on provincial legislation. Details may differ amongst each Canadian province. Provincial governments and territories have their own laws regarding property exemptions, court orders, and debt collection.

The Canadian Bankruptcy and Insolvency Act (often referred to as the “BIA” or the “Bankruptcy Act“) is a federal government statute that sets out the rules and procedures governing insolvency proceedings in Canada. These rules and procedures will apply to all corporations, individuals and partnerships that are parties to an insolvency filing. The whole point of bankruptcy legislation is to allow the honest but unfortunate debtor to shed themselves of their debts and to allow for the sale of assets or reorganization and refinancing of insolvent persons so that there is also fairness for the different claims of creditors.

Under the Companies’ Creditors Arrangement Act (CCAA), financially troubled corporations are given the opportunity to restructure their affairs in order to avoid bankruptcy. A corporation must have debts of at least $5 million to qualify for the CCAA.

The Canadian insolvency landscape is a complex one, with many different insolvency proceedings being used to deal with many different types of debtors. In this Brandon Blog, I provide an easy beginner’s guide of the Canadian Bankruptcy and Insolvency Act, as a primer into Canadian insolvency legislation and the administration of estates.

This Brandon Blog is not about the nuts and bolts of filing for bankruptcy. Other blogs I have written cover that topic and more. You can use the search function above to search for those Brandon Blog topics.

What is the purpose of the Canadian Bankruptcy & Insolvency Act?

Everyone knows you should do your best to stay out of too much debt, but for many people, it’s an impossible feat. When you’re over your head in debt, you’re having to keep up just to pay the interest on your debt. When you are spending more than you are making, you can’t pay your bills on time, or your assets when liquidated are worth less than your total liabilities, you are insolvent. Insolvency is the main test to see if you, or insolvent companies, qualify to start a bankruptcy process or a formal restructuring process, either under the Canadian Bankruptcy and Insolvency Act or the CCAA.

The Bankruptcy Act was designed to help Canadians who find themselves in financial difficulty. It is the main piece of Canadian insolvency legislation that governs bankruptcy proceedings, receivership and personal and corporate restructuring proceedings through consumer proposals and commercial proposals. Commercial proposals are also available for those people with consumer debt levels greater than the amount allowed to qualify for a consumer proposal. All Canadian bankruptcies, proposals and receiverships are governed by the Act. It contains bankruptcy laws, rules and guidelines for all stakeholders: the Superintendent of Bankruptcy (which is part of Industry Canada) the Licensed Insolvency Trustee, the debtor, and the creditors.

canadian bankruptcy and insolvency act
canadian bankruptcy and insolvency act

What options are available under the Canadian Bankruptcy and Insolvency Act?

The Canadian Bankruptcy and Insolvency Act provides a number of ways to deal with a financially troubled company or person. Most involve a court-supervised process. The options for a person or business in financial trouble and not able to right themself or itself are:

  • Consumer proposal

It is an offer to your creditors to repay a portion of your unsecured debt obligations in exchange for their elimination (with certain limited exceptions as laid out in the Bankruptcy Act). You can qualify if you owe $250,000 or less, excluding any debts registered against your home, such as mortgage debt or secured home equity line of credit debt.

A person proposes a plan to make monthly payments to the Licensed Trustee acting as the consumer proposal Administrator. The total amount offered to your unsecured creditors must be agreed upon by them. Within 60 months, you must pay off the entire amount accepted. Creditors typically accept a total payment of 25% or less of your total unsecured debt. Individual situations vary, however.

A successfully completed consumer proposal allows the insolvent person to eliminate their debts and avoid an assignment into bankruptcy.

  • Commercial proposal

Commercial proposals are also known as Division I proposals. The reason for this is because it is provided under Canadian Bankruptcy and Insolvency Act, Part III, Division 1 (consumer proposals are found under Part III Division II). An insolvent corporation or person can use it for restructuring proceedings. When a consumer’s debt exceeds the limits of a consumer proposal, a “commercial proposal” would be filed. If a definitive commercial proposal cannot be immediately prepared but the debtor needs to file in order to invoke the stay of proceedings (discussed in the next section), they can get the immediate protection they need by first filing a Notice of Intention To Make A Proposal.

A commercial proposal works in a very similar way to a consumer proposal, except for some differences as follows:

    • A commercial proposal may have various classes of creditors. A consumer proposal normally does not.
    • Unlike for a person, there is no streamlined reorganization process for companies. Therefore, even if its debt is $250,000 or less, a company cannot file a consumer proposal.
    • A meeting of creditors must be held as part of a commercial proposal. If the Official Receiver (being a representative of the Superintendent of Bankruptcy), doesn’t wish to chair the meeting, it can be delegated to the Trustee. A creditor who has filed a valid proof of claim has voting rights. They have the right to vote ahead of the creditors’ meeting by using a voting letter or in person. An official meeting of creditors is only held in a consumer proposal if 25% of the proven creditors’ claims request one.
    • In a consumer proposal, if a meeting is not requested, the consumer proposal is deemed approved and there are no voting rights to be concerned about. If a meeting is requested, then the creditors who attend the meeting can vote by ordinary resolution for the acceptance of the consumer proposal. In a commercial proposal, it is a two-pronged test: 3/4 of the $ value voting AND a majority in the number of those voting.
    • If the commercial proposal is voted down, the person or company is immediately deemed to have filed an assignment in bankruptcy. There is no such automatic bankruptcy if a consumer proposal is not accepted.

As soon as the commercial proposal is accepted by the creditors and approved by the court, the debtor starts making the payments promised in the proposal to the Insolvency Trustee. Once full payment has been made, the trustee in bankruptcy will issue to the person or company their Certificate of Full Performance. At this point, all provable claims, regardless of whether they filed a proof of claim or not.

As part of a successful restructuring process, the Trustee will run a claims process, vet every proof of claim to ensure that they are valid and that only an allowable claim is considered for distribution purposes. The Trustee will then comprise a scheme of distribution in order to distribute the funds promised to the creditors in the commercial proposal.

Restructuring under either the Canadian Bankruptcy and Insolvency Act or CCAA becomes possible for companies with debts greater than $5 million.

  • Receivers and Secured Creditors

Receiverships are remedies for lenders who have loaned money out and taken security over the debtor’s assets. It is most common in Canada for financial institutions to be lenders to Canadian businesses. As long as their loan documents, including the security agreement, allow for it in writing, a secured creditor may appoint a receiver when a debtor defaults on secured debt. Secured creditors and receivers are subject to certain requirements under the Canadian Bankruptcy and Insolvency Act.

Receivership relies both on provincial laws and federal legislation. The Bankruptcy Act specifies several main requirements for receivership, including:

    • It is not permissible to enforce a security interest on the business assets of an insolvent person unless the secured creditor has given 10 days prior notice in the prescribed form and manner.
    • Only a Licensed Insolvency Trustees (formerly called Trustees in Bankruptcy) can act as a receiver.

The secured creditor can appoint the receiver privately or with court approval.

A private receiver’s primary responsibility is to the secured creditor who appointed it. A court-appointed receiver is an officer of the court who protects the interests of all creditors of the debtor company.

Private receivers usually have from the security documents the power to run the debtor’s business and sell the debtor’s assets through auctions, tenders or private sales.

A court appointment is also preferred over a private appointment when there are significant claims against the debtor or its property as well as litigation or a threat of litigation. It is according to the provincial rules of court and s. 243 of the BIA (National Receiver) that a court may appoint a receiver.

The receivership order normally stays proceedings (discussed below in the next section) against the receiver, the debtor, and its property. In terms of its purpose, it gives the receiver authority to manage the assets of the debtor, to borrow money against the assets to repay a loan, to sell the assets of the debtor with the approval of the court, and to commence and defend litigation on behalf of the debtor. A privately-appointed receiver does not enjoy a stay of proceedings.

  • Bankruptcy

If a personal or commercial restructuring is not possible, then the insolvent person or company has no choice but to file for bankruptcy. The first step in dealing with insolvency is to consult an insolvency trustee. You can learn about the bankruptcy administration process and your legal rights from Trustees in Bankruptcy so you can make an informed decision. A candid discussion about how much you earn, what assets you own, and what types of debts you have can help you decide if bankruptcy is the best choice for you.

Here is what the Canadian bankruptcy procedure is all about. After the bankruptcy assignment has been completed, the Trustee submits it to the Office of the Superintendent of Bankruptcy Canada. All legal obligations will be handled by the Trustee once the assignment has been filed. Your credit­ors will no longer receive payments directly from you.

The Trustee administers your bankruptcy. No more lawsuits or wage garnishments for you. Depending on your province’s law, some of your assets will certainly be exempt. The bankruptcy vests your non-exempt assets in the Trustee. The Trustee will sell them. According to the Canadian Bankruptcy and Insolvency Act, the proceeds will be for the benefit of the bankrupt estate and there could be a scheme of distribution among your preferred creditors and ordinary unsecured creditors.

In the administration of bankruptcy, the Trustee will send your creditors a notice of bankruptcy. You must attend a creditors’ meeting if one is called. Additionally, you will need to attend two counselling sessions. Canadian insolvency legislation in Canada includes rehabilitation programs to help individuals regain financial stability.

Finally, you may need to make payments toward your debt. “Surplus income payments” ensure that people who declare bankruptcy and have sufficient income contribute to paying back a portion of their debt. Your debts will eventually be discharged, relieving you from the obligation of repaying most of the debt you had on the day you filed for bankruptcy.

Despite the fact that most debts can be discharged, some cannot, namely:

  • alimony and child support;
  • court fines and penalties;
  • debts related to fraud; and some
  • student loans.

You will suffer credit damage for several years after filing for bankruptcy. After your debt is discharged, you can start rebuilding your credit. Although it’s not ideal, it will lift the burden from your shoulders and solve the debt problems you couldn’t resolve on your own.

Canadian Bankruptcy and Insolvency Act: Can bankruptcy protect you from creditors?

In addition to bankruptcy, any filing listed above under the Canadian Bankruptcy and Insolvency Act will protect you from creditors. In fairness to all stakeholders, the filing calls for a “time out” after which no claims for money, lawsuits, or collection efforts are permitted. In legal jargon, we call this a stay of proceedings.

By virtue of the individual’s bankruptcy or insolvency, you may not terminate, amend, or accelerated pay, or claim the term of any agreement. When an insolvent person files a notice of intention or a proposal, a similar provision is made.

Just like in bankruptcy, if you file a notice of intention or a Division I proposal or Division II proposal, all proceedings automatically stay and no creditor is entitled to take any action against the debtor or to pursue any execution or other proceeding for the recovery of a claim provable.

Commercial proposals are normally worded so that Directors of insolvent companies who have filed notices of intention or proposals enjoy similar protection.

canadian bankruptcy and insolvency act
canadian bankruptcy and insolvency act

A word on cross-border insolvencies

Many of the large CCAA reorganization filings in recent times have been cross-border insolvencies. Canadian courts prefer that cross-border insolvencies proceed as a single process with one jurisdiction acting as the primary entity. The Canadian court examines whether the Canadian case should be considered the main proceeding in order to determine whether it is significant and connected to Canada.

The other jurisdiction (most often the U.S.) usually recognizes the Canadian court’s authority when the court believes the insolvency action should be handled, for the most part, in Canada. Likewise, the opposite is also true.

Canadian Bankruptcy and Insolvency Act: Personal bankruptcy

canadian bankruptcy and insolvency act
canadian bankruptcy and insolvency act

Canadian Bankruptcy and Insolvency Act summary

I hope you found this Canadian Bankruptcy and Insolvency Act Brandon Blog informative. With too high household debt levels and not enough wealth, you are insolvent. You can choose from several insolvency processes to get the debt relief that you need and deserve. It may not be necessary for you to file for bankruptcy.

If you or your business are dealing with substantial debt challenges, you need debt help, and you assume bankruptcy is the only option, call me.

If you’re thinking about bankruptcy, you’re probably in a situation where you’re overwhelmed, frightened, and feel like you’re alone. That’s natural and it is not your fault.

It’s good that you’ve come to this site, where you’ll find answers to your questions, sort through your options, and discover that you can get help. You’re not alone, and the professionals at Ira Smith Trustee & Receiver Inc. are committed to helping you find a debt solution that’s best for you.

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 with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out 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 as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

canadian bankruptcy and insolvency act
canadian bankruptcy and insolvency act

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.

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Brandon Blog Post

BANKRUPTCY DISCHARGE ORDER: OBSESSED CREDITOR LOSES APPEAL OF THE DISCHARGE ORDER

bankruptcy dischargeWe 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.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

What does bankruptcy discharge mean in Canada?

A bankruptcy filing is a form of insolvency process under Canadian bankruptcy law available to individuals and businesses. Bankruptcy deals with a person’s or company’s debt load and assets. After performing a detailed initial assessment, the licensed insolvency trustee will be in a position to advise the debtor if they will be better serviced through a restructuring process as an alternative to bankruptcy (consumer proposal or Division I Proposal for individuals, Division I Proposal or Companies’ Creditors Arrangement Act bankruptcy protection for companies) with creditors, or whether the debtor will be better served filing for bankruptcy.

The final piece of any bankruptcy process for an individual is the bankruptcy discharge. Individuals who go bankrupt are entitled to a discharge from bankruptcy. Companies are only entitled to one if every bankruptcy claim filed is paid in full, with interest. Because this never happens, companies do not receive a bankruptcy discharge. It is not impossible, but for this reason, it really does not happen.

If you are thinking about filing an assignment in bankruptcy, then you may be wondering about the bankruptcy discharge process and how it will affect you. Many people think their debts are eliminated at the moment of their bankruptcy filing.

This is incorrect. It is the bankruptcy discharge that will remove all (with certain limited exceptions) of your unsecured debts from your life and will result in letting you move forward with a clean slate. In this Brandon Blog, I discuss the bankruptcy discharge process and a recent decision of the Supreme Court of British Columbia hearing an appeal to the decision of the Master sitting as bankruptcy registrar on a bankrupt’s application for discharge.bankruptcy discharge

Bankruptcy discharge and its consequences for the bankrupt

When you are granted a bankruptcy discharge, this means that those debts caught by your bankruptcy are no longer your responsibility. This means that every action from creditors or the collection agencies they have retained stops trying to collect the debt obligations.

As I previously mentioned, most almost all debts are wiped off your slate when you receive your discharge from bankruptcy. The kinds of debts that remain even after a bankruptcy discharge are:

  • spousal or child support payments;
  • fines or penalties mandated by the court;
  • claims arising from fraud or fraudulent breach of trust;
  • student loan debt if less than 7 years have passed since the bankrupt stopped being a part-time or full-time student.
  • any kind of financial debts that are secured against your assets, such as a home mortgage or automobile financing, are not discharged as a result of your bankruptcy discharge.

These sorts of financial debts endure after bankruptcy as they are not released. The individual will be required to continue paying those financial obligations according to their terms. All various other financial obligations are discharged and do not have to be paid.

What are the types of bankruptcy discharge?

If there is no Trustee opposition or creditor opposition to a bankrupt’s application for discharge, and the bankrupt has fulfilled all of their duties of a bankrupt, in most situations, the licensed insolvency trustee can issue an automatic discharge which provides the bankrupt with an absolute discharge from bankruptcy.

If there is an opposition or the bankrupt meets one of the criteria that does not allow for an automatic discharge (such as the bankruptcy process finding the bankrupt a high income tax debt situation), there must be a discharge hearing in court which is heard by a Master of the court sitting as the registrar in bankruptcy. There are 4 types of bankruptcy discharge and a 5th bankruptcy outcome is also possible. They are:

  1. absolute – an absolute discharge means the bankrupt is entitled to an immediate discharge. This can be given by the licensed insolvency trustee in the bankruptcy estate handling the bankruptcy administration if the bankrupt has fulfilled all of their duties and there is no trustee or creditor opposition;
  2. conditional discharge – can get a discharge after meeting one or more conditions. The most common type of condition of discharge involves paying a sum of money to the licensed insolvency trustee;
  3. suspended – the bankrupt’s discharge will take place at a later date and may very well be combined with either an absolute bankruptcy discharge or conditional bankruptcy discharge;
  4. refused– the court refused to grant a bankruptcy discharge probably because the bankrupt has failed to provide full disclosure or perform other bankruptcy duties; or
  5. “no order”– the Trustee advises the court that regardless of the time period that has passed, the bankrupt has actually not satisfied every one of his or her obligations and the bankrupt has actually failed to reply to the Trustee’s demands for information. In this situation, when the “no order” order is provided, the licensed insolvency trustee is at liberty to seek its discharge. Once the bankrupt person has actually fulfilled the requirements set by the court, the bankrupt can re-apply for a discharge hearing by the court.bankruptcy discharge

For a first-time bankrupt with no surplus income who fulfills of their duties, including attending the 2 mandatory credit counselling sessions, they are entitled to their bankruptcy discharge after a bankruptcy period of 9 months from the date of bankruptcy.

If this is your second bankruptcy a discharge will not be available after 9 months. A 2nd bankruptcy lasts for a minimum of 24 months if you do not have any surplus income payments to make to the Trustee. If you have surplus income, a second-time bankrupt must make those monthly payments for 36 months before they are entitled to a bankruptcy discharge.

For a 3rd or subsequent bankruptcy, the timeline is the same as the 2nd time bankrupt. However, it is much more possible that there will certainly be resistance to the discharge by the Trustee or the creditors. The court can also impose whatever conditions it sees fit.

Creditor objects to the decision of the Master on bankrupt’s application for discharge

On July 9, 2021, the decision in Hanlon (Re), 2021 BCSC 1348 in the Supreme Court of British Columbia was released. This was an appeal from an order by the bankruptcy registrar of the Supreme Court of British Columbia dated April 28, 2021 in Hanlon (Re), 2021 BCSC 800, VA B190492. This is an appeal under s. 192(4) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA), from an order of a master of that Court, sitting as a registrar in bankruptcy, granting the bankrupt, Mr. Hanlon, a bankruptcy discharge that was made conditional on his paying $7,500 to the Trustee.

The appellant, Ms. Johnson, is one of Mr. Hanlon’s creditors. She states that the registrar erred in approving the discharge on those terms. If the appeal is allowed, she looks for an order refusing Mr. Hanlon’s application for a discharge, with leave to apply again in two years, or alternatively, giving a discharge conditional on his paying $50,000. The appeal is opposed by both Mr. Hanlon the bankrupt, and the Trustee. The appeal was heard by Judge Milman, Canada’s bankruptcy legislation, the BIA states that a person dissatisfied with an order or decision of a registrar can appeal that decision to a judge of that court who in that capacity is sitting as a bankruptcy judge.

The alleged errors made by the registrar in the making of the order of conditional discharge

Ms. Johnson argued that the registrar made certain errors in granting the conditional bankruptcy discharge order. Ms. Johnson says that in granting the bankruptcy discharge on those terms, the registrar erred as follows:

  • in concluding that Mr. Hanlon had complied with the injunction resulting from Ms. Johnson’s original successful litigation against Mr. Hanlon when he had not;
  • in falling short to take into account Mr. Hanlon’s refusal to agree with the accuracy of the trial judge; and
  • in failing to consider Mr. Hanlon’s real income earning potential.bankruptcy discharge

The standard of review on such an appeal

There is a standard of review on such an appeal from an order of a bankruptcy discharge hearing. S. 192(1) of the BIA gives the bankruptcy registrar the authority to, amongst other things, grant orders of discharge. S. 192(4) of the BIA allows a party dissatisfied with an order or decision of a
registrar may appeal it to a judge.

In granting an order of discharge in the bankruptcy process, the registrar is exercising judicial discretion. If the registrar has acted reasonably, the judge should not set it aside or ignore it. Further, if an appeal from a bankruptcy discharge order is based on alleged errors in findings of fact, the court will not interfere if there is no overriding error in the findings of fact and there is evidence from which the findings of fact could be made. Discretionary decisions may, naturally, be overturned if the registrar has materially misinterpreted the law or made an error in respect of the facts underlying the use of that discretion.

When a registrar’s decision in a bankruptcy discharge hearing imposes conditions, those conditions must be realistic for the bankrupt to perform in a reasonable period of time. Where the amount ordered was unrealistic and the bankrupt’s discharge is conditional on making additional payments, the appeal court did hold that results in an error of law and the appellate judge can either substitute the conditions or refer the matter back to the registrar for reconsideration.

The judge’s decision on the appeal from the registrar’s bankruptcy discharge order

The judge dismissed the appeal finding there were no overriding errors made by the registrar. With respect to the amount of $7,500 ordered as a condition of discharge from bankruptcy, the judge found as follows:

Ms. Johnson says that the registrar did not consider Mr. Hanlon’s untapped earning capacity and instead concentrated practically completely on her arguments of his potential inheritance. She suggests that Mr. Hanlon could be earning more than he is. In her opinion, he could earn more to enable him to make a settlement of $50,000 rather than the $7,500 that was ordered.

Mr. Hanlon’s real historic earnings offered adequate assistance for the registrar’s verdict that he was incapable of paying any more than the $7,500 that she ordered for him, did not have the financial prospects himself to do so and without getting personal loans from family members to help him with that. That was properly decided by the registrar based on the evidence before her.

The judge found that there is no merit in this or any other of the grounds of appeal. He found no error in the registrar’s decision, and having found the discharge condition that she imposed to have been reasonable in the circumstances, he dismissed the appeal.

Bankruptcy discharge summary

I hope that you found this bankruptcy discharge Brandon Blog interesting and that you now have a good appreciation for the process at the end of the administration for a person who files for bankruptcy and the considerations of the court if someone appeals a bankruptcy discharge order. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, 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 with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

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 as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in 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 to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost bankruptcy consultation.bankruptcy discharge

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.

Categories
Brandon Blog Post

BANKRUPTCY DISCHARGE: MY CHEAT-SHEET OF THE TOP 8 THINGS THE BANKRUPTCY COURT CONSIDERS

Bankruptcy discharge introduction

A bankruptcy discharge is when the bankrupt is released under Canadian bankruptcy law from his or her debts as part of the bankruptcy process. Some people think that it is the act of filing bankruptcy that releases the bankrupt from liability. This is not the case. It is the discharge from bankruptcy process that “discharges” the bankrupt’s debts.

We explain in this vlog the procedure when a bankrupt’s outright discharge is opposed. We discuss the top 8 things that the Bankruptcy Court will consider in determining just what outcome the bankrupt could expect.

The primary benefit of the bankruptcy process for the insolvent person

The bankruptcy discharge is among the primary benefits of relief under the Bankruptcy and Insolvency Act (Canada) (BIA). The discharge is vital to the bankruptcy process. Debtors, after bankruptcy, can wipe the slate clean and start over, which is a central principle under the BIA statute.

Not all debts may be released

A bankruptcy discharge offers the discharge of many unsecured debts. Credit card debts, personal income tax debt, unsecured personal loans and under certain conditions, some student loan debt are all dischargeable debts. Financial debts, which will not be discharged include:

  • support payments to a previous spouse or to children;
  • fines or financial charges imposed by the Court;
  • debts emerging from fraudulent behaviour;
  • student loans if fewer than seven years have passed considering that the bankrupt quit being a full or part-time student.

    ontario bankruptcy court discharge certificate
    bankruptcy discharge

It can be opposed

An insolvent’s bankruptcy discharge application may be opposed by one or more unsecured creditors or the Licensed Insolvency Trustee (formerly called a bankruptcy trustee) (LIT). A creditor opposition is created when the creditor files the required notice of opposition, setting out the reasons for opposing.

This happens if the insolvent has not met all of his/her responsibilities under the BIA. Making full disclosure, attending the required two financial counselling sessions and making all necessary surplus income payments are all duties of the bankrupt that must be fulfilled if a discharge is to be considered.

It can also happen if the individual bankrupt has actually committed a bankruptcy offence. Those are acts listed in section 173 (1) of the BIA. In this case, there needs to be a bankruptcy discharge hearing in Court and the Court will after that evaluate the LIT or creditor opposition as well as give its decision on the discharge from personal bankruptcy.

There are four types of discharges possible

There are 4 types of discharges:

  1. Absolute discharge— The bankrupt is launched from the legal obligation to pay off financial obligations that existed on the day of bankruptcy, except for certain types of debt identified above.
  1. Conditional discharge— The bankrupt must fulfill certain conditions, additional payments into the bankruptcy estate, to get an absolute discharge. Once all conditions have been fulfilled, an absolute discharge will certainly be granted.
  1. Suspended discharge— An absolute discharge that will be granted at later on a specific date determined by the Court.
  1. Refused discharge— The Court has the right to decline a discharge.

If there is no opposition to the discharge from bankruptcy of the bankrupt by a creditor or the LIT, then the LIT is able to provide an automatic discharge by issuing the appropriate certificate. There is no need for attendance in Court.

after bankruptcy discharge canada
bankruptcy discharge

The opposition process

When a debtor’s bankruptcy discharge application is opposed by either an unsecured creditor or the LIT, the Trustee needs to secure a Court day. This will be for a Court hearing on the insolvent’s application for discharge. The LIT must then tell all creditors who have filed a proof of claim of the opposition. Details are also provided about the date, time as well as place of the Court hearing.

The Trustee needs to also file a report with the Court on the conduct of the bankrupt both prior to as well as after applying for bankruptcy. The report will as well give a summary of the financial results of the bankruptcy administration. If a creditor has opposed the bankrupt’s discharge, then that creditor likewise needed to send a notice of opposition.

Does the bankrupt need a lawyer on an opposed discharge?

When going to Court for his/her discharge application hearing, a bankrupt would be well advised to come with a skilled bankruptcy lawyer to represent his or her interests. Sometimes the discharge hearing is less formal than various other types of Court hearings.

However, the Court follows all the proper regulations of civil procedure. It is sometimes tough for nonprofessionals to put their best foot forward without an attorney’s aid.

There have been many Court cases on applications for discharge. A Court decision released recently from the Queen’s Bench of Saskatchewan supplies an exceptional walk-through of the points the Court will take into consideration. For those interested, the reference is Hertz Bankruptcy (Re), 2017 SKQB 224 (CanLII).

bankruptcy discharge 3
bankruptcy discharge

The top 8 things the Bankruptcy Court will consider

The concerns the Court thought about, in determining what type of bankruptcy discharge certificate to issue, which is the same in all bankruptcy discharge hearings, were:

  1. Do the conditions of the bankruptcy filing and the bankrupt’s conduct sustain an order discharging the Bankrupt’s unsecured debts?
  2. The Court’s problem is to make sure that within a choice the policy purposes of the BIA are fulfilled. The bankruptcy, including the insolvent’s discharge, should act as a deterrence for the person not to duplicate the very same behaviour.
  3. If the circumstances of the bankruptcy support an order discharging the bankrupt, what terms of discharge are proper under the distinct circumstances of the bankruptcy?
  4. What were the conditions of the insolvent when the debts were sustained?
  5. What efforts did the insolvent make to pay the creditors?
  6. Did the bankrupt pay in respect of certain other debts but not all of them and particularly not the debt of the opposing creditor?
  7. Exactly what are the insolvent’s monetary opportunities for the future?
  8. Is there any other conduct or reality that needs to be factored into with the regard to discharge?

The Court will take lots of variables into account. The conduct, previous income, education and age of the bankrupt are all important factors. The Court will certainly likewise trust the Trustee’s report to Court on the bankrupt’s application for discharge. The Trustee’s report assists in determining facts about the conduct of the insolvent and his or her future prospects.

bankruptcy discharge

Is the bankrupt young or old?

Prevention is always a consideration. It is however very important to remember that Courts tend to be extra conventional when dealing with older bankrupts. A more youthful bankrupt with years of income-making opportunities could be needed to make an extra significant repayment. Less respect is given to the instant ability to pay.

An older bankrupt with some surplus income but fewer working years might be needed to pay less surplus income obligations into the bankruptcy estate.

Bankruptcy discharge: Is my bankruptcy case over when I get a discharge?

You should by this point in my Brandon Blog realize that when you receive an absolute discharge from your bankruptcy, at that point, you are discharged from your unsecured debts.

A discharge shows that you have finished with your bankruptcy legal process and your personal liability for unsecured debts has ceased. It’s not a separate thing from bankruptcy; it happens either automatically or by an Order of the Court, as I have described above.

At that point, the LIT still has some duties to fulfill. They include:

  • if there is going to be a dividend paid to the creditors, making sure that all proofs of claim have been reviewed and allowed for dividend purposes;
  • resolve any uncertainties the LIT may have concerning certain filed bankruptcy claims, including the issuance of Notices of Disallowance if any;
  • preparing the bankruptcy administration Final Statement of Receipts and Disbursements;
  • getting approval from the Office of the Superintendent of Bankruptcy to the Final Statement
  • getting the Final Statement, including the LIT’s fee and disbursements, approved by the Court;
  • issuing the dividend bankruptcy payments, if any
  • getting the discharge of the LIT

It is then that your bankruptcy case is closed.

Bankruptcy discharge: Do you have too much debt and want to avoid bankruptcy?

Do you have too many debt obligations and debt payments and have no idea how to deal with them? Act before you find yourself in the throes of an emergency financial situation. Ira Smith Trustee & Receiver Inc. has assisted many Canadian businesses and people throughout the Greater Toronto Area (GTA) in dealing with debts that need a plan for Starting Over, Starting Now. Don’t postpone. Give us a call today. Financial problems can be solved while avoiding bankruptcy with timely activity as well as our excellent strategy tailored just for you.

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