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STUDENT LOAN BANKRUPTCY DISCHARGE CANADA: REGISTRAR STRONG DECISION REVERSED

Introduction

Last month, I wrote about the decision in the decision of the Registrar in Bankruptcy sitting in the Court of Queen’s Bench of Alberta in Edmonton. The case, Morrison (Re), 2019 ABQB 521, dealt with the issue of student loan bankruptcy discharge Canada.

What happens to student loans if you declare bankruptcy?

This was an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As a whole, student loans cannot be released by a bankruptcy discharge where the date of bankruptcy took place within seven years after the day on which the bankrupt ceased to be a full time or part-time student.

However, Section 178( 1.1) of the BIA, permits after 5 years after the day on which the bankrupt, with student loan debt ceases to be a part-time or full-time student, the Court may, on an application, order that such financial debt will be released. For such Canada student loan forgiveness, the Court needs to be assured that:

  • the bankrupt person has really acted in good faith about their commitments under their student debt loan agreement
  • the bankrupt will remain to experience financial difficulty to such an extent that the bankrupt will be unable to pay that financial debt

The appeal of the Registrar’s decision

I won’t go into all of the details leading up to Ms. Morrison’s bankruptcy. If you want to read about it, check out my September 4, 2019, Brandon’s Blog, CANADA STUDENT LOAN FORGIVENESS: BANKRUPTCY TREATS STUDENT LOANS FAIRLY.

The Registrar discovered that the timing of when Ms. Morrison filed for bankruptcy compared to the seven-year cut-off was very close. The bankrupt’s key interest and her intent at the time of meeting with the Trustee were to get a discharge from all of her creditors on equal ground. The Registrar decided that Ms. Morrison did not seek bankruptcy to avoid only her student loan debt but rather to deal with every one of her debt problems.

There was obviously miscommunication between Ms. Morrison and her Trustee. The problem was that the miscommunication aggravated her specified objective.

The federal government did not oppose the discharge. The Registrar decided that her student loan debt should be discharged. He made a conditional order of discharge taking everything, including her surplus income, into consideration.

Both Canada Student Loans (CSL), as well as Ontario Student Loans (OSL), appealed the Registrar’s decision to a Judge of the Court of Queen’s Bench of Alberta. The reason OSL was involved was that her education was in Ontario. She later moved to Alberta to pursue work opportunities.

The Commercial Court’s review of a Registrar’s decision

The Judge first considered what is the proper criteria he needs to use. He determined that when it comes to the Commercial Court’s review of a Registrar’s decision, the Judge stated that the criteria that need to be followed are:

  • findings of fact are deserving of deference unless there is an overriding and palpable error;
  • questions of the law and matters of principle are reviewed on the standard of accuracy and correctness;
  • concerns of mixed fact and law exist along within a range in between the above 2 requirements;
  • a mistake in characterizing or thinking about the correct legal examination to be used attracts accuracy; and
  • in order to disrupt a discretionary determination, the reviewing Court needs to discover that the Registrar erred in principle or in law or failed to think about an appropriate aspect or took into consideration an inappropriate factor, resulting in a wrong conclusion, thus allowing the assessing Court to use its discretion to replace the Registrar’s findings.

The Judge’s review of the Registrar’s decision

The provision of the BIA that Ms. Morrison applied under is Section 178(1.1) of the BIA. That section states:

“Court may order non-application of subsection (1):

(1.1) At any time after five years after the day on which a bankrupt who has a debt referred to in paragraph (1)(g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and

(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”

The Judge stated that as the legislation indicates, the determination of whether either of the called for parts of “good faith” and “financial difficulty” is established is contextual and fact-specific. It is based upon considering all aspects of the particular situation. Also if pleased that the requisite elements are present, the Court still maintains a discretion to decline the granting of such relief.

Can you put student loan on bankruptcy – Good faith

The Registrar’s finding was that Ms. Morrison’s actions evidenced an underlying behaviour of good faith but that objective was overborne by life getting in her way. The Judge accepted the part that life got in her way might be real in regard to the very early post-student years of 2008-2014. However, he decided that starting in 2014 she began to make a relatively decent living, yet made no effort to start to repay her student loan debt.

The Judge analyzed Ms. Morrison’s behaviour once she started earning a better income in 2014 and her statements concerning why she filed for bankruptcy. He also remarked that it was plain from her rancour and annoyance directed at her Trustee because her strategy to have bankruptcy free her from her student loan debt failed. She felt the Trustee did not advise her properly on the timing of the bankruptcy as related to when she ceased to be a full-time or part-time student. She was upset that she had this student loan bankruptcy discharge Canada issue.

The Judge then reviewed what are the things he must consider in trying to determine good faith. He stated that the relevant cases suggest, good faith that has to be shown in order for the application to succeed connects to the loan, not the bankrupt’s general behaviour throughout the bankruptcy. He said the things he must consider are as follows:

  • whether the student loan financing was used for the desired purpose;
  • did the person complete the financed education;
  • has the education obtained provide financial gain to the bankrupt;
  • were reasonable attempts made to clear up the student financial debts;
  • has the person actually used available alternatives, such as interest relief or loan remission;
  • the timing of the bankruptcy;
  • do the student loan debt comprise a considerable component of the total debt;
  • did the applicant get enough work and earnings to be reasonably expected to make payments on the loan;
  • the way of life of the applicant;
  • whether the applicant had adequate income for there to be surplus income under the Superintendent of Bankruptcy’s directive;
  • what offers the bankrupt might have made to the lending administrators and their reactions; as well as
  • whether the bankrupt was hampered at any time with health problems which would have either reduced the amount the person could work or entirely eliminate the possibility of working.

In weighing all these factors, the Judge was of the view that what counted against Ms. Morrison was her absence of initiative in attempting to repay the debt on some basis. The Judge also found that, notwithstanding that Ms. Morrison has struggled both personally and financially, and had a run of rotten luck, this could not excuse her from failing to make any attempt to repay the student loans.

Therefore, the Judge disagreed with the Registrar. He found that she did not meet the test of acting in good faith.

How can I get my student loans forgiven in Canada – financial difficulty

Both CSL and also OSL contended that financial difficulty, unlike the Registrar’s conclusion, has not been proven as Ms. Morrison’s own evidence shows she has the ability to make some repayment towards the debt. CSL likewise suggested that the Registrar decreased the statutory limit for financial difficulty by finding that the evidence need only show that settlement will provide a hardship to her rather than revealing the bankrupt will be unable to pay the debt.

Section 178(1.1)(b) of the BIA states regarding financial difficulty:

“the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”

The Judge took this section to indicate that, for the present as well as in the foreseeable future, the bankrupt’s financial position will not allow them to genuinely both pay their debts and subsist in an affordable method.

Therefore, in His Honour’s view, the idea of a settlement of student debt may well entail some challenges or hardship. It is just when the difficulty would deny an individual a level of practical subsistence that the “financial difficulty” aspect of this section comes into play.

Student loan debt Canada forgiveness – The decision on appeal

The Judge agreed with CSL that the Registrar had lowered the bar on the determination of financial difficulty from what is intended in the BIA. He also found that Ms. Morrison has some capacity to make some contribution towards retiring the student loan debts concerned. The evidence also showed that CSL and OSL were open to some sort of repayment offer.

Accordingly, the Judge determined that the demands of s 178( 1.1) have actually not been met by Ms. Morrison and her original application is unsuccessful. Therefore, he reversed the Registrar’s decision and allowed the appeal of CSL and OSL.

The Judge further ordered that she is, nevertheless, at liberty to make a re-application (in this bankruptcy) no earlier than one year from the date of his decision. He further stated that any re-application will need to be supported by proof of good faith in relation to any kind of settlement to either CSL or OSL as well as her full disclosure of her financial position at that time.

The Judge said he did not wish to “pile on”, so he did not order any costs to be paid.

Student loan bankruptcy discharge Canada summary

I hope that you have found this student loan bankruptcy discharge Canada information useful. Do you have way too much debt? Before you reach the phase where you can’t stay afloat and where financial restructuring is no longer a viable alternative, contact the Ira Smith Team.

We know full well the discomfort and tension excessive debt can create. We can help you to eliminate that pain and address your financial issues supplying timely, realistic and easy to implement action steps in finding the optimal strategy created just for you.

Call Ira Smith Trustee & Receiver Inc. today. Make a free appointment to visit with one of the Ira Smith Team for a totally free, no-obligation assessment. You can be on your path to a carefree life Starting Over, Starting Now. Give us a call today so that we can help you return to an anxiety-free and pain-free life, Starting Over, Starting Now.student loan bankruptcy discharge canada

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Brandon Blog Post

GAMBLING DEBTS HELP

Gambling debts: Introduction

The Canadian insolvency process is geared to deal with gambling debts or any debt resulting from addiction. It does not only deal with the debts caused by borrowing money to feed an addiction. The insolvency process is uniquely positioned to deal with the person’s total rehabilitation. When the person hits rock bottom with debts they cannot repay and no more credit to keep borrowing to feed the addiction, a licensed insolvency trustee (LIT or Trustee) (formerly called a bankruptcy trustee) is positioned to help not only with the debt issues but also the rehabilitation issues. Let me explain.

My firm has been involved in helping people out of their debt problems arising from addiction issues. The most common are gambling, alcohol and drug addictions. Professionals have referred us their family members suffering because of an addiction. In my January 31, 2018 blog, GAMBLING DEBT BANKRUPTCY: CAN GAMBLING DEBT BE DISCHARGED IN BANKRUPTCY?, I discussed from a procedural view the issue of gambling debts and bankruptcy. In this blog, I want to focus on how the insolvency process, especially bankruptcy, can deal with overall rehabilitation.

I will draw on my own personal case studies and specifically refer to a recent decision of the Supreme Court of Nova Scotia in Bankruptcy and Insolvency in Donaldson (Re), 2019 NSSC 33.

Gambling debts: What the LIT is expected to do

The free consultation provided by a LIT to an insolvent person pre-filing is where a LIT would find the addiction issues. It will also be noted on the person’s initial filing documents in filing either a consumer proposal or for bankruptcy. The Canadian insolvency system is geared towards giving the honest but unfortunate consumer a fresh start.

In cases of addiction, the LIT must also point the person to community resources to aid in healing the person with the addiction to lead a sober life. This must be a pre-condition for any LIT to support the addicted person’s consumer proposal or discharge from bankruptcy. This is how my practice works. It is also the view of the Court in the Donaldson case.

Gambling debts: The Donaldson facts

Gloria Donaldson and Wayne Donaldson are fourth-time bankrupts. This is their 5th experience with the Canadian insolvency process as one of their filings was a consumer proposal. They made separate filings. The Court found that it really should have been a joint filing.

Gloria and Wayne were 65 and 73, respectively. The Court holding their discharge hearing found both Gloria and Wayne to be forthright, honest and trustworthy. Yet, this is the 4th bankruptcy and the 5th use the Bankruptcy and Insolvency Act, RSC 1985, c. B-3, as modified (BIA).

They declared the source of this bankruptcy as an overextension of credit on real house improvements. They did not list gambling. However, Registrar Balmanoukian found that there is no doubt on the evidence before him that gambling was a significant factor to at least speed up driving the Donaldson’s to this 5th insolvency filing.

The Donaldson’s filings spanned a duration of nearly 40 years. They are seniors. Their future income is restricted, by age and health.

Gambling debts: The bankruptcy discharge will not be easy

A 4th bankruptcy is a really major issue. Without a doubt, also for applications including third-time bankrupts the Courts have revealed an unwillingness in providing the bankrupt’s discharge. At the very least not without an extensive suspension or similar burdensome terms.

Coming to Court for a discharge as a 3rd-time bankrupt is a serious matter. The Court must be satisfied that the insolvent understands and has made enough adjustments in his/her life. The Court wants to know it won’t be possible that an additional bankruptcy will take place.

By the time a person has actually gotten in a 3rd bankruptcy, the objective, as well as the intent of the Act, changes from its restorative function of helping sympathetic yet unfortunate debtors to a shielding culture, and protecting innocent possible creditors. The most effective intents and hopes of such bankrupts is no longer the main issue. The main issue is that creditors be shielded from the insolvent’s shown economic inexperience, carelessness and negligence.

In a 4th bankruptcy, the Court has to pay cautious interest in creating a suitable yet custom treatment when determining what is right in the bankrupt’s application for discharge. The Bankruptcy Court is not just there to be a financial car wash. The truth is that these bankrupts are not rogues. That, however, is not enough of a reason to approve a discharge.

A 4th bankruptcy is a clarion call to the Court and its officers that these people should never come before the Bankruptcy Court again. The issues need to be fixed.

Gambling debts: The bankruptcy discharge must serve a purpose

The proof is clear that Mr. and Mrs. Donaldson did not have the possibility of having sources with which to pay any kind of meaningful amount on their much debt. The passage of time and their health and wellness have actually prevented this. Nevertheless, that does not imply that the Court can only enforce a token wag of the finger and a reprimand “do not do it ever again”.

What the Registrar decided is frankly, something that the LIT should have already done. When I am faced with potential bankrupts whose debt has arisen as a result of spending money they did not have on their addiction, this is what I tell them. I say that if they wish to have any chance of having a discharge from bankruptcy, then they need to get themselves into a rehab program immediately. Gamblers Anonymous and AA are two that we regularly refer clients to. We also tell them that for discharge purposes, they will need to have their sponsor verify to us, in writing, that they have regularly attended and continue to attend meetings to help themselves.

This way, by the time we come to Court, we can prove rehabilitation has already begun. Real rehabilitation helps the person get back on to a clean, healthy life. We have many examples of people we have helped overcome drug, alcohol and gambling addictions, as part of cleaning up their financial debts. In some cases, these people have even become leaders and sponsors themselves in the rehabilitation program that helped them so much. I have great pride in hearing years later from such former addicts I have helped when they tell me that they have saved up enough to buy a home, now have a better job and their family is in a better place because of my help.

The Donaldsons need to get themselves resolved to live within their earnings. They also must learn to stop gambling if they wish to have a chance of surviving this bankruptcy.

Gambling debts: The Registrar’s decision

So the Registrar ordered that the Donaldsons:

  • Shall attend such counselling for gambling abuse and/or addiction for such period as is necessary to get an opinion from a qualified counsellor or medical professional that both of the Donaldson’s are able to conduct themselves without going back to gambling in any way.
  • Refrain from gambling in any form, and further that they enrol and stay enrolled in the voluntary exclusion program with Casino Nova Scotia;
  • Absolutely stop obtaining credit from any lender in any form, except as approved in advance and in writing by the Trustee.
  • Disclose and subject to any provincial exemptions, turn over to the Trustee any property of either or both that comprises “property of the bankrupt” within the meaning of the BIA between the date of the Donaldson’s’ bankruptcies and their discharge.
  • Upon compliance with the foregoing for a period of at least five years from the date of the decision, the Donaldson’s may make a further application for discharge.

The Registrar’s decision is right. The Donaldsons will finally get the help they need to fight their gambling addiction. They will come clean with their LIT about handing over any non-exempt assets. They will not be able to borrow money for gambling again. Once they have been “clean” for 5 years, they may reapply to their discharge from bankruptcy. Hopefully, by then, they will be able to live a healthier life without the stress of gambling debts.

Gambling debts: Do you have too much debt?

Do you have too much debt because of an addiction or otherwise? Are you worried that the future interest rate hikes will make presently affordable commitments entirely unmanageable? Is the discomfort, tension and anxiousness presently detrimentally affecting your health and wellness as well as health?

If so, speak to the Ira Smith Team today. We have decades and generations of helping people and companies looking for financial restructuring. As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only experts licensed and supervised by the Federal government to provide insolvency services.

Call the Ira Smith Team today for your free consultation and to make sure that we can begin assisting you to return right into a healthy, balanced, hassle-free life.

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CANADIAN BANKRUPTCY DISCHARGE: CRITICAL ILLNESS INSURANCE IN A BANKRUPTCY

Canadian bankruptcy discharge: Introduction

Many times during the administration of a Canadian bankruptcy, the licensed insolvency Trustee (formerly called a bankruptcy trustee) (Trustee) comes across a novel issue. The decision of A.R. Robertson, a Registrar in Bankruptcy in Calgary, Alberta in the bankruptcy discharge application of Shirley Rose Cooke has such an issue within it.

The case is Cooke (Re), 2018 ABQB 628 (CanLII). The issue that came before the Court was, what happens to a critical illness benefit payment for the undischarged bankrupt? Does it go to the Trustee or is the undischarged bankrupt debtor able to keep it? This topic should be of interest to accountants, lawyers, insurance agents and financial planners, in addition to Trustees.

Canadian bankruptcy discharge: The issue

Registrar Robertson described this case as an “interesting application” for bankruptcy discharge. The matter was heard on July 9, 2018. Ms. Cooke is 62 years old. She filed for bankruptcy on April 12, 2016. The issue to be decided is whether a critical illness benefit payment she obtained in the amount of $25,000, forms part of her assets which fall to the Trustee. The Trustee’s position was that it is an asset of the bankruptcy Estate and Ms. Cooke’s creditors are entitled to it.

Canadian bankruptcy discharge: The facts

In March 2016, Ms. Cooke was diagnosed with breast cancer. She went through surgery and had radiation treatments until July 2016. Prior to her medical diagnosis, she worked full time as a healthcare worker. She stopped working in March 2016 as a result of her diagnosis and need to undergo surgery and radiation. She returned to part-time work at her former employer, in about August 2016.


Her evidence was that at the time that she left her full-time work, her employer informed her she had the critical illness benefit policy and that she should apply under it. Apparently, she was unaware of this policy as being part of her benefits package. She applied for the benefit payment.

When she made her assignment in bankruptcy, she did not divulge the critical illness benefit application to the Trustee. She advised the Court that she did not have any type of certainty that she would receive the benefit. Eventually, she did, in January 2017. When she did, she advised her Trustee.

Canadian bankruptcy discharge: The Trustee’s position


The Trustee took the view that the critical illness benefit payment was a component of the insolvent person’s income under s. 67 of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). S. 67 of the BIA deals with property of the bankrupt, while s. 68 of the BIA deals with surplus income. However, s. 67 of the BIA does cover certain exclusions of types of payments a bankrupt may receive. The kinds of payments carved out are normally government type payments that have an overarching social aim, such as GST/HST tax credit payments.

It was very clear from the evidence that had she known she was going to get a $25,000 insurance payment from the insurance company, she would likely not have entered bankruptcy. Had she divulged the benefit application to the Trustee, the Trustee may very well have recommended she not go bankrupt.

The Trustee desires that Ms. Cooke pay the amount of $20,000 as a condition of her discharge. The Trustee states that in dealing with this critical illness benefit issue, including research, its fee now approximates that amount. I find it interesting that the Trustee is requesting the majority of her critical illness benefit payment as a discharge condition.

If the Trustee truly believes that the benefit payment should be considered as income under s. 67 of the BIA, then the correct treatment would be for the Trustee to redo its surplus income calculation under s. 68 of the BIA for Ms. Cooke. Then see what her surplus income obligation would be. If the Trustee is really trying to say the benefit payment is an asset that should come to the Trustee, then they should be asking for the entire $25,000. From my reading of the Registrar’s decision, it appears that the Trustee did neither but merely is asking for an amount to cover its costs!

Canadian bankruptcy discharge: The Registrar’s analysis


The Registrar indicated that in order to determine what is the appropriate condition if anything, he would have to assess the fees charged by the Trustee. If the Registrar really meant that he would have to tax the Trustee’s fee and costs, that makes sense. Otherwise, I am not sure what the connection is between the Trustee’s fee and costs, and whether a conditional discharge should be granted.

Ms. Cooke’s legal counsel referred to the Registrar the facts under s.173 of the BIA that could lead to an absolute discharge from bankruptcy not being granted. Her legal counsel indicated that none of the factors that would allow for a conditional, suspended or refused discharge apply in this matter.

The Registrar encouraged both parties to provide him with whatever additional information or authorities they thought appropriate by Tuesday, August 7, 2018.

The Trustee provided the Court with additional material. One such item was a copy of a letter sent by the Trustee to Ms. Cooke advising that, in the Trustee’s view, the critical illness benefit is a survivor benefit and not a wage or wage substitute. So much for it being part of surplus income!

The Registrar correctly pointed out that none of the exemptions in s. 67 of the BIA mention a critical illness benefit payment. The Registrar could also not find a precedent exactly on point.


The closest cases the Registrar could find were those of when the undischarged bankrupt suffered an injury in a motor vehicle accident and had a claim for pain and suffering. In that case, the action is personal to the injured person, and therefore that claim does not fall under the definition of property of the bankrupt available to the Trustee.

The Registrar stated that he sees no sensible distinction why a tort-based damages insurance claim for pain and suffering would be dealt with in a different way than a contract-based insurance policy for the pain and suffering Ms. Cooke had from her illness.

Accordingly, the Registrar decided that the critical illness benefit payment did not create a component of property designated to the Trustee. He also stated that Ms. Cooke did not have to pay any amount, to the Trustee. The Registrar went on to say that the Trustee should have brought on an application to have this matter determined much earlier in the bankruptcy proceedings so that the Trustee would not have incurred as many costs as it had.

The Registrar directed that:

  1. Although the Registrar did not explicitly state it in his judgment, the implication certainly is that Ms. Cooke received an absolute discharge from bankruptcy.
  2. Moreover, the Trustee should bring on the application for the Trustee’s discharge.
  3. Similarly, the Trustee should keep the Registrar’s comments as to the Trustee should have brought on a motion on the critical illness benefit issue earlier when submitting its dockets to have its fee and costs taxed by the Court.

Canadian bankruptcy discharge: Do you have too much debt?

I hope that none of us ever suffer from such a critical illness. However, it is good that Ms. Cooke had that insurance coverage. Do you have too much debt, or debt that you can’t repay because life got in your way? Illness and job loss are two prime factors in reducing someone’s income and increasing their expenses. It could force people to have to live off of credit cards until there is no credit room left, and no ability to ever repay the debt.

If you have too much debt, contact the Ira Smith Team. We have years of experience in helping those people and companies where life got in the way. Perhaps you need a debt settlement plan. Alternatively, if bankruptcy is the only real answer, we can help ease the stress and pain of bankruptcy for you.

Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life. Call us today for your free consultation.canadian bankruptcy

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DEBT RELIEF IN CANADA: BANKRUPTCY COURT SALUTES CANADIAN MILITARY VETERAN

automatic discharge

Debt relief in Canada: Introduction

I recently read a decision of the Bankruptcy Registrar of the Supreme Court of Nova Scotia in Bankruptcy and Insolvency that really inspired me. It got me thinking about the sacrifices our men and women in the military make for all Canadians. This particular Court decision, also made me think of sometimes they need our help for debt relief in Canada.

Debt relief in Canada: The case

The case I refer to is Durdle (re), 2018 NSSC 206, released August 31, 2018. The first two paragraphs of the Registrar’s decision, I found especially poignant:

“[1] This Court routinely considers situations in which the Bankrupt is indebted to the people of Canada, through tax or other liabilities to the State. As a matter of general policy, these obligations have a higher moral and sometimes legal priority than to private creditors as they are borne by all of us, as citizens and fellows of Society; and because the public generally must bear the share not paid by someone else. The collective public is an involuntary creditor in the result.

[2] What, then, is the situation when that is reversed – when it is the people of Canada who are indebted to the individual? Should compensation paid out as a consequence be considered divisible among creditors in an insolvency?”

Debt relief in Canada: The facts

Master Corporal Durdle was a career soldier. He spent 24 years in the military, retiring at the age of 45 years old. Master Corporal is now 49 years old and suffers from military service induced post-traumatic stress disorder (PTSD). He remains under professional care. He is in need of debt relief.

On November 13, 2013, Master Corporal Durdle filed an assignment in bankruptcy. This was his second bankruptcy and therefore, he was not entitled to an automatic discharge from bankruptcy. The purpose of the Court hearing was for the Court to consider what form of bankruptcy discharge he should be entitled to. In this second bankruptcy, there were minimal non-exempt assets and unsecured creditors totaling $73,476.76.

In 2014 while an undischarged bankrupt, Master Corporal Durdle received taxable income, including:

  1. $16,778 from a wage loss replacement plan;
  2. A rehiring allowance of $28,107.04, including $19,675 in severance pay;
  3. Pension income of $23,594.10;
  4. Disability income of $49,289; and
  5. $3,624 in employment income.

The decision the Court had to make was, as the guidelines existed in 2014, how much if any of this 2014 taxable income should be considered “surplus income”?ira smith bankruptcy trustee vaughan

Debt relief in Canada: The Court’s thinking

The Registrar made a point of saying:

“…I wish to be clear that nothing should be taken as putting military debtors on a different footing than a civilian. The rule of law, including that of civil contract, is one of the core values we hold as Canadians, and which is protected by our men and women in uniform. What is, however, on a different footing is the debt we owe those men And women when they are injured or ill in the discharge of those Duties.”

Debt relief in Canada: The Registrar’s analysis

The Registrar went through a very thoughtful analysis of the law. He considered it in connection with the various types of 2014 taxable income:

  1. Wage loss replacement plan – Wrongful termination awards would normally be included in total income, as would pay in lieu of notice. The Registrar, however, went on to comment that in this case, the wage loss replacement plan was not termination pay or pay in lieu of notice but rather, pay because Master Corporal Durdle’s PTSD prevented him to continue serving. The Registrar concluded that this amount should not be considered as income in accordance with Section 68 of the Bankruptcy and Insolvency Act (BIA). Therefore, the Registrar also concluded that this amount should not be included in the calculation of surplus income.
  1. Rehiring allowance – The Registrar applied the same logic for this payment. He decided that it should not be included in the calculation of surplus income. He decided that this payment was a result of Master Corporal Durdle’s PTSD preventing him from continuing to serve in the military.
  1. Pension income – The Registrar could not determine whether this income was solely a benefit due to Master Corporal Durdle’s PTSD or not. However, it did factor into the Registrar’s ruling.
  1. Disability income – The Registrar considered this income in light of previous Court decisions involving lump sum awards. This included under a Workers’ Compensation Plan. The Registrar went on to review the actual Federal statute under which the payment was made to him, the Veterans Well-being Act (S.C. 2005, c. 21). The Registrar concluded that this amount would not be included in the calculation of surplus income.
  1. Employment income – The Registrar concluded that this amount is included in the surplus income calculation.

Debt relief in Canada: The Court’s decision

The Registrar concluded that if he includes the pension income ($23,594.10) and of course the employment income ($3,624) (less statutory deductions), Accordingly, Master Corporal Durdle’s income falls under the Superintendent of Bankruptcy threshold for 2014. Accordingly, Master Corporal Durdle had no surplus income to pay when considering Section 68 of the BIA.

Since this was Master Corporal Durdle’s second bankruptcy, he was not entitled to an absolute discharge. Therefore, the Registrar did not impose any conditions on his discharge, but rather, suspended his discharge for one day.

Debt relief in Canada: Sometimes understanding and kindness is required

The Registrar was obviously moved by Master Corporal Durdle’s service to Canada. He also considered his current plight brought on by service-related PTSD. The Registrar followed the law and also showed his understanding and kindness of this sad situation.

If you have financial difficulties, whether brought on by a medical cause or for any other reason, you need to seek professional advice from a Firm that will show you the understanding and kindness you deserve. The Ira Smith Trustee Team has seen many cases of personal and corporate financial distress. We understand your pain and we know how to alleviate it; with understanding and kindness.

Our strategy for every single business and person is to develop a result where Starting Over, Starting Now comes true, starting the minute you walk through our door. You’re just one call away from taking the necessary actions to get your debt settlement and back on the road to leading a healthy and stress-free life. Contact the Ira Smith Team today.debt relief in canada

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FILING FOR BANKRUPTCY IN CANADA: INTENSE MENTAL HEALTH & DISCHARGED BANKRUPTCY

anthony bourdain

Filing for bankruptcy in Canada: Introduction

With filing for bankruptcy in Canada, if a person’s discharge is opposed, there must be a court hearing. At the hearing, the court will decide if the discharge will occur. Once the discharge is granted, the person will be relieved of his or her debts as of the day he or she filed for bankruptcy (with certain exceptions) and will be free to start rebuilding his or her credit rating and financial future.

Filing for bankruptcy in Canada: Court of Appeal for Ontario decision

The purpose of my blog is to describe a March 2018 Court of Appeal for Ontario decision, Kuczera (Re), 2018 ONCA 322 (CanLII). This is an important decision in how mental health issues intersect with the bankruptcy discharge process.

Mr. Kuczera’s financial problems began with a costly and hotly contested divorce proceedings. With his debts mounting and the divorce proceedings continuing, Mr. Kuczera filed a consumer proposal. As a result of the ongoing family law battle, his mental health deteriorated and he became clinically depressed. He was no longer able to cope with life and was unable to work.

Filing for bankruptcy in Canada: Defaulting on the consumer proposal

Up to this point, he was making the consumer proposal payments. His default in the consumer proposal caused it to be annulled. The consumer proposal was his attempt to get out of bankruptcy, as he first used filing for bankruptcy in Canada with an assignment in bankruptcy first. So, Mr. Kuczera now remained an undischarged bankrupt.

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Filing for bankruptcy in Canada: The bankruptcy discharge hearing

Mr. Kuczera represented himself in Bankruptcy Court on his discharge hearing. He tried to show the Registrar in Bankruptcy that he tried his best to live up to all of his bankruptcy obligations to the licensed insolvency trustee, but due to his mental health issues, he could not. Unfortunately, his evidence was only a basic report from his psychiatrist.

The Registrar did not grant an absolute discharge. Rather, based on the evidence in front of her, she ordered that a discharge be granted only after payment of the outstanding balance under the consumer proposal, and one other minor condition. The Registrar went on to state that he was held responsible for his situation.

Filing for bankruptcy in Canada: Appeal of the Registrar’s decision

Mr. Kuczera was able to hire a lawyer to appeal the Registrar’s decision to a Judge sitting in Bankruptcy Court. The Judge refused to consider fresh evidence in the form of more descriptive psychiatric reports supporting the summary findings presented at the original discharge hearing. The Judge dismissed Mr. Kuczera’s appeal.

Filing for bankruptcy in Canada: Appeal of the Judge’s decision

He now had his lawyer appeal the Judge’s decision to the Court of Appeal for Ontario. The Court of Appeal disagreed with the approach of the appeal judge. The Court of Appeal could not understand why the appeal judge would not allow the more detailed reports from Mr. Kuczera’s treating psychiatrist. These new detailed reports were further to the summary report provided to the Registrar.

The Court of Appeal went on to say that neither the Registrar nor the appeal judge gave proper weight to the psychiatric evidence. It also went on to say that a discharge condition requiring Mr. Kuczera to pay the payments due under the consumer proposal would not be “difficult”, as described by the Registrar. Rather, the Court of Appeal said that it would be “crushing”.

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Filing for bankruptcy in Canada: What the Court of Appeal found

So the Court of Appeal found that:

  • the appeal judge erred by not considering the fresh psychiatric report evidence;
  • The need for the bankrupt to pay the balance of the consumer proposal payments would be crushing; and
  • The fresh psychiatric evidence was compelling.

Given the length of time that Mr. Kuczera remained in bankruptcy, and considering the above factors, the three-judge panel in the Court of Appeal for Ontario unanimously agreed that Mr. Kuczera gets his absolute discharge from bankruptcy.

Filing for bankruptcy in Canada: Mental health issues

Mental health issues are at the forefront of the news. Most recently, both Kate Spade and Anthony Bourdain committed suicide because of mental health issues. I believe that as society recognizes mental health issues as a legitimate illness or disability, you will see it influencing Bankruptcy Court decisions. That certainly was the case for Mr. Kuczera.

Filing for bankruptcy in Canada: Debt after your bankruptcy discharge

After receiving your bankruptcy discharge, NOBODY can try to collect this debt again. Discharged debt cannot appear on your credit report as anything other than a zero balance. Sometimes collection agencies report a discharged debt to the credit bureaus, hoping you will pay off the debt and not correct the information with the credit bureaus. The debt will still incorrectly appear on your credit report.

Filing for bankruptcy in Canada: Discharged debt and your credit report


When discharged debt re-appears on your credit reports, it affects your credit score and can result in higher interest rates or credit denials. Sometimes debt collectors buy discharged debt, knowing they can’t collect on it, but hoping you don’t know that.

These debt collectors may tell you that the discharge doesn’t apply to them because they are not the original creditor. Don’t be fooled. Creditors who attempt to collect a discharged debt are violating a court order. The court can stop them, and they may even have to pay damages.

Discharged debt should not show on your credit report except as a zero balance – Monitor your credit report and be proactive. A discharged debt is not valid and is not collectible.

Filing for bankruptcy in Canada: Do you have too much debt?

I hope that you have found this information helpful. Bankruptcy is the last thing we try to do for a person in financial difficulty. If caught early enough, we can get involved in a debt settlement restructuring program for you.

The Ira Smith Team knows that you are worried because you are facing significant financial challenges. The stress placed upon you is enormous. We understand your pain points.

Contact the Ira Smith Team today. We know how to solve your financial challenges, remove your pain and put things back on a healthy path. Contact us today for your free consultation so that we can save your life, Starting Over Starting Now.filing for bankruptcy in canada

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