Tag: surplus income

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

Post author By Brandon Smith
Post date July 12, 2021

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.

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 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:

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;
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;
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;
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
“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 is a roughly 9-month legal process to eliminate debt

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.

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.

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.

Tags action from creditors, alternative to bankruptcy, application for discharge, assignment in bankruptcy, automatic discharge, bankruptcy deals, bankruptcy discharge, bankruptcy duties, bankruptcy estate, bankruptcy filing, Bankruptcy Judge, bankruptcy law, bankruptcy legislation, bankruptcy outcome, bankruptcy period, bankruptcy process, bankruptcy protection, Companies’ Creditors Arrangement Act, condition of discharge, condition of discharge from bankruptcy, conditional discharge, Consumer Proposal, creditor opposition, date of bankruptcy, debt load, debt obligations, discharge hearing, Division I Proposal, duties of a bankrupt, files for bankruptcy, filing for bankruptcy, income tax debt, Ira Smith Trustee, licensed insolvency trustee, mandatory credit counselling sessions, surplus income, Trustee opposition, unsecured debts

Brandon Blog Post

TRUSTEE IN BANKRUPTCY: CERTAIN ACTIONS AGAINST TRUSTEE CAN BE UNLEASHED WITHOUT FIRST REQUIRING COURT PERMISSION

Post author By Brandon Smith
Post date June 21, 2021

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.

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.

Trustee in Bankruptcy: No action against Trustees without leave of court

Canadian insolvency laws say that there cannot be any legal action against trustees in bankruptcy (now called a licensed insolvency trustee) without the prior leave of the court. The leave application, more often than not, would be brought before a Bankruptcy Judge. However, as you will see below, any Judge of the Ontario Superior Court of Justice could hear such an application involving a trustee in bankruptcy.

Section 215 of the Bankruptcy and Insolvency Act (Canada) (BIA) protects the Canadian bankruptcy laws for all officials in the bankruptcy process, including the bankruptcy trustee:

“215 Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act.”

In my January 9, 2019, Brandon Blog, PRIVACY BREACH LAWSUIT AGAINST LICENSED INSOLVENCY TRUSTEE FAILS, I described one attempt that failed to obtain leave of the court to begin litigation against a trustee in bankruptcy.

Our bankruptcy and insolvency courts believe that the test to determine whether a court should use its discretion to give leave for litigation to be commenced against either a trustee in bankruptcy or a court-appointed receiver was not a tough test. The protection is only to ensure that the receiver or trustee in bankruptcy is protected against senseless or burdensome actions that have no basis.

In this Brandon Blog, I describe a recent Ontario court decision that further clarifies a basis for when the court will exercise its discretion and allow litigation against a licensed trustee in bankruptcy. As the Motions Judge used the old terminology, I will stick with it in this blog.

Action against the trustee in bankruptcy background

The Motion Judge‘s Endorsement was released on May 31, 2021. The Endorsement was from a motion by the plaintiff for a determination as to whether or not leave of the court under S.215 of the BIA was required. The plaintiff’s position was that it was not, but if it was, such leave should be granted. The defendant trustee in bankruptcy’s position was that leave was required and should not be granted.

The plaintiff, Mr. Flight, ended up filing bankruptcy proceedings 4 times over a 13 year period of time! He filed the same type of bankruptcy over and over again! He claims his financial situation is the fault of the defendant trustee in bankruptcy. He used the same trustee in bankruptcy for all of his bankruptcies! It is not clear in this motion how the trustee is responsible for his having to file personal bankruptcy all those times.

Mr. Flight brings on litigation against the trustee in bankruptcy claiming negligence, fraud, breach of fiduciary duty, unjust enrichment and conversion. The complainant claims the accused failed to identify and take suitable action relating to a fraud perpetrated by the bookkeeper for Mr. Flight’s sole proprietorship business.

The plaintiff’s amended claim seeks a declaration the defendant engaged in misfeasance, negligence, fraud and breach of fiduciary duty in his personal capacity, and that the defendant was unjustly enriched.

The plaintiff’s claim against the trustee in bankruptcy

The main subject matter of the claim alleges the bookkeeper’s theft caused the plaintiff’s repeated bankruptcies and that the defendant trustee in bankruptcy ought to have detected this fraud in the administration of the four bankruptcies.

The plaintiff maintains that the trustee in bankruptcy then failed to take any meaningful action to address the alleged fraud and its impact on the fourth bankruptcy after its discovery. In particular, the plaintiff claims the trustee failed to diligently commence an action against the former bookkeeper, failed to investigate the fraud, failed to adjust the plaintiff’s surplus income, failed to recommend debt relief options or financial options, and certainly no other possible insolvency process such as a consumer proposal alternative to bankruptcy and failed to have the plaintiff promptly discharged from his fourth bankruptcy.

The defendant’s alleged “grand failure to act” caused Mr. Flight damages of $10 million from loss of business, loss of profit, loss of income and pain and suffering.

The court’s analysis

As I mentioned above, the threshold issue under Canadian insolvency legislation is whether the plaintiff required leave to commence this action. If it is determined that leave is required, the analysis then moves to whether the claim meets the test for leave.

The Motion Judge stated that there is authority to support the plaintiff’s position that the insolvency laws state that leave is not required where the trustee in bankruptcy is being sued in its personal capacity.

More particularly, the Supreme Court of Canada held that the leave provision under the BIA is not to be interpreted as though it applied to any action arising out of the administration of the estate. That is not the way section 215 is worded. To allege that the trustee in bankruptcy made an act of omission is a claim that is not concerning a report made under or any action taken according to the BIA.

Trustee in bankruptcy: The court’s decision

The plaintiff alleges causes of action against the trustee in bankruptcy in his personal capacity in their amended statement of claim and affidavit materials for negligence, fraud, breach of fiduciary duty, unjust enrichment and conversion starting with the confidential consultation and with each bankruptcy assignment. The Motion Judge concluded that the plaintiff does not require leave under s. 215 of the BIA to commence this action. Based on this conclusion, the Motion Judge did not need to consider anything further.

You will observe as I previously stated, none of the court’s evaluation had anything to do with whether the claims had a possibility of success in its litigation legal process. The Motion Judge, who was not a Bankruptcy Judge but rather a Motion Judge felt the accusations were such that they were not purposeless or burdensome actions that have no basis.

As the main action will now proceed, I will follow the case to find out the exact details and the various bankruptcy claims that Mr. Flight is making regarding the conduct of trustees involved. As the case is reported, I will report to you.

Finding a good, Licensed Insolvency Trustee (Trustee In Bankruptcy) Near You

I hope that you found this trustee in bankruptcy Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges 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.

Call us now for a no-cost bankruptcy consultation.

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.

Brandon Blog Post

INSOLVENCY DEF: SHE HAS $100,000 IN DEBT AFTER A FAMILY EMERGENCY

Post author By Brandon Smith
Post date June 16, 2021

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.

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 is insolvency def?

The insolvency definition (insolvency def) is a state of financial distress in which a person or company is unable to pay its debts. The definition of insolvency can be displayed in an insolvent person or the insolvent debtor company which arises from:

poor cash management;
a reduction in cash inflow;
an increase in expenses;
inadequate accounting controls and reporting;
a lack of proper human resources management; or
all of the above.

The purpose of this insolvency def Brandon Blog is twofold. First I will give a simple primer on what insolvency def is. Next, I will explain how a person can analyze their situation to determine if an insolvency process is for them and if so, which one.

I will use a real-life example that appeared earlier this week in the Toronto Star.

Factors contributing to insolvency

The above reasons can lead to different types of insolvency. The insolvency def can be looked at in a few different ways when considering factors and symptoms.

Balance Sheet insolvency def –

Balance sheet insolvency is when a person or company does not have enough assets, if fully collected or liquidated to pay off all of their debts.

Cash flow insolvency def –

Cash-flow insolvency is when an individual or company has enough assets, if fully collected or liquidated, to pay what is owed. Nevertheless, they do not have enough cash to pay their creditors in full.

What is the difference between technical insolvency and actual insolvency def?

While insolvency def in the technical sense is a basic synonym for balance sheet insolvency, cash-flow insolvency is not the same as insolvency under the Bankruptcy and Insolvency Act (Canada) (BIA).

What Is an insolvent person according to the BIA?

“Insolvent person” according to the BIA insolvency def is a person or company that is not bankrupt and is resident, carries on business or has property in Canada, whose liabilities to creditors provable as claims under the BIA amount to $1,000 or more and which for any reason they are not able to pay those obligations as they typically come to be due.

Further, if the insolvent person or the insolvent company liquidated all of their assets, there would still not be enough money to pay off all of the amounts owing to creditors; both secured creditors and unsecured creditors.

What does the insolvent def mean financially?

Now that I have given you the textbook insolvency def, let us look at a real-life example. Every Monday in the Toronto Star there is a column called Millenial Money. This past Monday, Evelyn Kwong wrote about a 34-year-old named Chele. Chele earns $45,000 per year gross.

As I understand it, she borrowed $100,000 to pay for medical expenses back home in the Philippines for a family member. Also, her ex-husband racked up an amount of debt that she is also responsible for. It is unclear from the article if the two sets of debt obligations total $100,000 or something greater.

They presented Chele’s situation to a financial expert to give advice. After looking at Chele’s debt situation, he advised that she speak with a licensed insolvency trustee to determine if a consumer proposal or a bankruptcy proceeding would be best to alleviate Chele of her outstanding debts.

What If I Am Insolvent?

What is Chele’s situation? First, let us look at her monthly statement of income and expenses:

Monthly take-home pay	$2,200
Recurring monthly expenses:
Rent	700
Transportation	810
Food	250
Sports and hobbies	50
Cell and internet	100
Personal	300
Monthly total expenses	$2,210

So Chele is able to essentially balance her cash-flow budget. Her take-home pay is presumably after income tax and other deductions. We can assume that she either receives a small refund on her tax return or at least does not owe any income tax.

As she rents, she does not own a home. Her transportation costs are for her car which is financed. Let us assume that the equity she has in her car fits into her provincial exemption so that a licensed insolvency trustee would have no interest in her car.

So Chele has no assets other than her car and she owes at least $100,000. Now we can look at the consumer proposal as an alternative to bankruptcy vs her doing an assignment in bankruptcy filing.

Consumer proposal vs bankruptcy proceeding

As I have written before, a consumer proposal is an insolvency process under the BIA for any person who owes $250,000 or less, not including any debts secured by their personal residence. It is a debt settlement arrangement to pay your unsecured creditors less than the total you owe in order to relieve yourself of all of your debt obligations.

A person can take up to 5 years to make the regular monthly payments to the licensed insolvency trustee acting as the Administrator in the consumer proposal. The insolvency trustee then distributes the total amount agreed to by the creditors and paid by the insolvent debtor as a dividend distribution. Once the insolvent debtor fully completes the consumer proposal, they are relieved of all of their unsecured debt balances (other than a few minor exceptions laid out in the BIA).

Canadian bankruptcy law says that any offer to the creditors in a consumer proposal has to be a better alternative for the creditors than they would get from the person’s bankruptcy estate. So first we need to calculate what the creditors could expect from Chele’s bankruptcy.

Chele has no assets available to her creditors. Her equity in her only asset, her car, is protected by her personal exemption for a vehicle in Ontario. There are no other known assets. All bankruptcy trustees are required to perform a surplus income calculation. In Chele’s case, she earns $2,200 per month net of tax, and she is allowed to earn as a single person in 2021 $2,400 per month before she is subject to any surplus income. So she also does not need to contribute any surplus income.

Assuming Chele has never been bankrupt before if she performs all of her duties in bankruptcy, she is entitled to a discharge from bankruptcy 9 months after the date of bankruptcy, unless a creditor opposes it. All she will be required to pay is the fee to the licensed insolvency trustee to administer her bankruptcy.

In a consumer proposal, in this case, she could offer anything because that would meet the requirement of being a better alternative than her bankruptcy. However, creditors generally expect to receive no less than 20% to 25% on their outstanding debt. So if Chele owes $100,000, at the midpoint of 22.5%, she would have to offer to pay her creditors $22,500 payable in monthly payments over no more than 5 years or 60 months. That works out to a monthly payment of $375. Chele does not have room in her budget right now to afford that monthly payment.

So in her case, unless she can figure out how to reduce her spending so that she can afford a monthly payment for the next 60 months, my advice to her would be to choose the bankruptcy option and file an assignment in bankruptcy. If all goes well, she can start to rebuild her life, free from all her unsecured debt, in 9 months’ time.

Insolvency def summary

I hope that you found this insolvency def Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges 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 while avoiding 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.

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.

Call us now for a no-cost consultation.

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.

Brandon Blog Post

CONSUMER PROPOSAL VERSUS BANKRUPTCY: MASTER THIS KNOWLEDGE AND BE SUCCESSFULLY DEBT FREE

Post author By Brandon Smith
Post date December 21, 2020

We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team 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 consumer proposal versus bankruptcy Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

Consumer proposal versus bankruptcy introduction

The holidays are upon us and we can all ideally get a well-deserved break. This 2020 year truly threw us a curveball in March and it isn’t over yet. Many people have already identified that they need to understand their options in taking care of way too much debt. Hopefully, they will use the period of time during the holiday break downtime to seriously consider fixing their situation.

Maybe their New Year’s resolution will be to once and for all solve their financial situation. That is why I believe this is a good time to write this Brandon’s Blog to help those people who are wondering about the issues surrounding a consumer proposal versus bankruptcy.

***Consumer proposal versus bankruptcy*: Who qualifies for a consumer proposal?**

A consumer proposal is an alternative to bankruptcy. Consumer proposals are for people whose total financial debts do not surpass $250,000, not including financial debts secured by their primary house.

Division 1 proposals are available to both:

companies; and
individuals whose debts exceed $250,000 (leaving out mortgages on their principal home).

I will focus on the differences between a consumer proposal versus bankruptcy.

***Consumer proposal versus bankruptcy*: What are consumer proposals?**

Consumer proposals are formal ways governed by the Bankruptcy and Insolvency Act (Canada) (BIA) available only to people. Working with a licensed insolvency trustee (Trustee) acting as the consumer proposal administrator, you make a proposal to:

Pay your creditors a percentage of what you owe them over a specific period not exceeding 60 months
Extend the time you have to pay off the debt
Or a mix of both

Payments are made through the Trustee, and the trustee uses that money to pay each of your creditors. The consumer proposal must be completed within 5 years from the date of filing.

Below I will highlight more differences between a consumer proposal versus bankruptcy.

***Consumer proposal versus bankruptcy*: Is a consumer proposal worth it?**

The advantages of a consumer proposal versus bankruptcy are:

You keep all of your assets
Legal actions that are being contemplated or actually begun against you by unsecured creditors and results of a judgment such as freezing your bank account and wage garnishments are stopped.
Unlike informal debt negotiation or debt settlement programs, the consumer proposal forum catches all of your debts and your unsecured creditors must take part in your restructuring process.
Of all the debt relief options available to a person, it is the only government-approved program that combines debt consolidation (without having to apply for one or more loans) and debt settlement.
You do not need to use the “B” word.

You will definitely pay less than you owe with a consumer proposal. It could be as much as 75% less. All of your unsecured debts will be consolidated right into a simple regular monthly payment. What you pay is based on what your creditors could expect to receive in your bankruptcy and what you can actually afford.

So is a consumer proposal worth it to make one monthly payment that you can afford to pay a portion of the total you owe instead of going bankrupt? I think it is.

What is the impact on my credit rating if I file a consumer proposal versus bankruptcy?

We are always asked, “How will a consumer proposal affect my credit rating?”. The follow-up question is “What is the impact on my credit rating if I file for personal bankruptcy or do a consumer proposal?”.

The person who files for bankruptcy will absolutely obtain R9 status. This is the lowest credit score possible. It will remain on their credit report for 6 years after the person gets their bankruptcy discharge. So for a first-time bankruptcy with no surplus income and the person gets their discharge after 9 months, it is on the credit report for about 7 years. If the person is a first time bankrupt with surplus income, then their bankruptcy discharge cannot be gotten for at least 21 months. This equates to having the R9 for 8 to 9 years.

An individual that files a consumer proposal sees their credit score go to an R7 ranking which is less extreme. It will remain to be on their credit report for around 8 years in total, starting with the filing date.

Through the two mandatory credit counselling sessions that are provided with either a consumer proposal or bankruptcy, we teach you ways you can start rebuilding your credit score right away.

What are the costs and fees of a consumer proposal versus bankruptcy?

When doing a consumer proposal as a debt solution, the Trustee costs are included in the settlement you bargain with your creditors. The calculation of what is reasonable for you to pay is done without any reference to the Trustee costs.

For example, if your consumer proposal has you paying a regular monthly payment of $400 for 60 months, the Trustee’s fee and disbursements are taken from those funds. The consumer proposal fee is a tariff defined in the BIA.

If there is no surplus income or assets that you hand over to the Trustee, the cost for this type of personal bankruptcy is about $2,000. This cost would need to be paid to the Trustee either upfront or over an 8 month period in equal monthly payments.

However, if you file for bankruptcy and you have surplus income and/or assets that you must turn over to the Trustee, the personal bankruptcy cost could be higher. The Trustee’s fee and costs must be taxed by the Court. However, it will be calculated using the hours spent by the level of staff at each staff member’s normal hourly rate. If there are insufficient assets to pay the Trustee’s fee, the difference has to be paid for by the bankrupt person or someone else guaranteeing the Trustee’s costs.

This is another distinction between bankruptcy vs consumer proposal.

What happens to my assets in a consumer proposal versus bankruptcy?

If you do a consumer proposal, you keep your assets. In bankruptcy, other than for exempt assets, your assets are seized by the Trustee. Exemptions depend on the province you live in.

In Ontario the assets you get to keep in bankruptcy consist of:

The equity in your home of no more than $10,000.
A motor vehicle with an equity value of no more than $6,000.
Clothing and medical and dental aids.
Household furnishings up to a value of $13,100.
Tools of the trade with a value of no more than $11,300.
Pensions, RRIF, RRSP (except for any RRSP contributions made within 12 months of the date of bankruptcy).
Farmers – no more than $29,100 for animals and tools and equipment.

This difference to your assets between a consumer proposal versus bankruptcy is massive.

What happens if I miss payments and default on my consumer proposal versus bankruptcy payments?

If you do not maintain your payments on a consumer proposal, it defaults and it is over. You then cannot file a new one. Collection action by your creditors will begin again.

If you do not complete all your duties in bankruptcy, you will definitely not be discharged. If your Trustee gets discharged and you remain undischarged, then all your creditors can return to taking collection action against you to try to recover on their loans or other debt payments you owe them.

This is one more consumer proposal versus bankruptcy difference.

When is a meeting of creditors held in a consumer proposal?

A meeting of creditors in a consumer proposal is held if one is requested by one or more creditors who are owed at least 25% of the overall value of the proven claims.

A request for a meeting has to be made by the creditors within 45 days of the declaration of the consumer proposal. The Office of the Superintendent of Bankruptcy (OSB) can also ask for the Trustee to call a meeting of creditors whenever within that specific very same 45-day time frame.

The meeting of creditors is held within 21 days after being called. At the creditors’ meeting, they elect to either approve or turn down the proposal.

If no meeting of creditors is requested within 45 days of the filing of the proposal, the proposal will be regarded to have actually been approved by the creditors no matter any kind of objections received later.

A consumer proposal is fully performed as soon as:

the person has made the required payments within the time period called for in the consumer proposal; and
the two mandatory counselling sessions with the Trustee have been done.

In a bankruptcy, the discharge relies on various facets, including whether it was the first time the debtor filed for bankruptcy and if they need to make surplus income payments to the Trustee. The calculation for surplus income is based mainly on your household monthly income.

If the debtor has actually never ever declared bankruptcy before as well as they do not have to make surplus payments, the bankrupt is entitled to be released 9 months after declaring bankruptcy. Nevertheless, if the bankrupt has surplus income, they will require to make payments for 21 months before they can be discharged.

This is one more distinction between a consumer proposal versus bankruptcy.

***Consumer proposal versus bankruptcy*: How to file for bankruptcy?**

In order to file, you need to engage a Trustee. This is a person or company accredited by Industry Canada to administer the insolvency process in Canada.

The 11 steps below are a guide to the filing for bankruptcy process:

Contact a Trustee and attend a meeting with him or her to speak about your personal situation and your options. This will include all your options to avoid bankruptcy.
Deal with the Trustee to complete the necessary bankruptcy documents.
The Trustee will after that submit the bankruptcy paperwork to the OSB and get back a certificate evidencing your bankruptcy.
The Trustee notifies your creditors of the bankruptcy.
You attend a meeting of creditors if one is called.
You participate in 2 counselling sessions.
Based on your provincial exemptions, the Trustee sells your non-exempt assets; you may likewise need to make surplus income payments to the Trustee.
In certain conditions, you might have to participate in an evaluation by an officer at the OSB.
The Trustee prepares a report to the OSB describing your activities during the bankruptcy.
You go to the discharge hearing if required.
You get your discharge from your bankruptcy and afterwards, the Trustee completes the management of your bankruptcy file, including paying a dividend to your creditors, if available.

As you can see from the description of how a consumer proposal works and from these 11 steps, there is a difference in how a consumer proposal versus bankruptcy works.

***Consumer proposal versus bankruptcy*: Get back to a stress-free life**

I hope you have enjoyed this consumer proposal versus bankruptcy Brandon’s Blog. Both a successfully completed consumer proposal or obtaining your discharge from bankruptcy lets you get back on the road to financial health, relieve the stress you face and bring you:

Freedom by getting out from under garnishments;
The ability to live better than just hanging on one payday to the next;
Improved credit ratings; and
Improved health and well-being.

You are worried because you are facing significant financial challenges and you don’t fully understand the options available to you, including, filing a consumer proposal versus bankruptcy. 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.

Ira Smith Trustee & Receiver Inc. offers a full range of insolvency services to people facing a financial crisis. Whether you need help with a proposal to your creditors to avoid the worst case, financial counselling or advice about insolvency options, our goal is to make sure that you understand the process, your choices, and what steps will get your life back on track.

Call us for your free first consultation. We will inform you about all the choices readily available so you can make a proper decision about the very best plan to deal with your financial obligations.

Call Ira Smith Trustee & Receiver Inc. today. All you have to lose is your debt!

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Tags alternative to bankruptcy, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy discharge, BIA, Consumer Proposal, consumer proposal versus bankruptcy, credit score, debt consolidation, how will a consumer proposal affect my credit rating, Ira Smith Trustee, licensed insolvency trustee, Office of the Superintendent of Bankruptcy, OSB, surplus income, trustee, What is the impact on my credit rating if I file for personal bankruptcy or do a consumer proposal, Who qualifies for a consumer proposal

Brandon Blog Post

BANKRUPTCY SURPLUS INCOME: OUR ESSENTIAL GUIDE 4 YOU

Post author By Brandon Smith
Post date October 7, 2020

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

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Bankruptcy surplus income introduction

I have written many blogs about personal bankruptcy and consumer proposal insolvency matters over the recent past. I notice though that it has been many years since I have written about bankruptcy surplus income. I refer to it in many of my Brandon’s Blogs but have not described it in detail in quite a while.

In order to correct that situation, here I discuss the concept and application of bankruptcy surplus income in personal bankruptcy filings.

**What is bankruptcy surplus income?**

Surplus income is perhaps an inadequately worded expression. Very few individuals would certainly really feel that they have surplus income, especially when dealing with financial debt. Nonetheless, in the bankruptcy context, surplus income describes a calculation that figures out just how much cash monthly an individual must be paying into their bankruptcy estate for the benefit of their creditors.

When you file for personal bankruptcy in Canada you are able to retain most of the income that you make monthly. In order to have a practical level of living during the bankruptcy period, the Office of the Superintendent of Bankruptcy Canada (OSB) establishes a net month-to-month earnings standard.

These earnings criteria take into consideration annual inflation and are derived from information collected by Statistics Canada annually. What you pay to your licensed insolvency trustee (Trustee) into your bankruptcy estate every month is determined by these standards. They are used to decide if a bankrupt has any bankruptcy surplus income.

I have to warn you though. The practical standard of living that the OSB permits is actually the Canadian poverty line. It matters not if you reside in one of Canada’s most pricey cities or in a rural area. There are no regional modifications made. The OSB lays out the meaning and calculation in its Directive No. 11R2. Every year the OSB updates the exemption limitations.

Click on this link for the up to date bankruptcy surplus income 2020 Directive No. 11R2-2020.

What happens to a person’s wages during bankruptcy?

You are still allowed to earn money and collect your wage or salary when you apply for bankruptcy under the Bankruptcy & Insolvency Act (Canada) (BIA). As a matter of fact, lots of people apply for bankruptcy because their wages, salary, or bank account are being garnisheed or frozen either by Canada Revenue Agency (CRA) or a judgment creditor. As I have written in several Brandon’s Blogs, the filing of an assignment in bankruptcy knocks out the garnishee against your wages or salary and/or the freeze on your bank account.

Now that there is no longer a garnishee, your earnings on an after-tax basis are readily available to you. The Canadian bankruptcy process, which strives for fairness, states that your after-tax income is now available for contribution to bankruptcy surplus income. To provide you a feel for the personal exemptions permitted, on an after-tax basis, as established by the OSB, here is the 2020 table the Trustee needs to work off of:

Superintendent’s Standards – 2020

bankruptcy surplus income

How it works is that you look at the table and pick first how many persons are in your household. The next column marked “S” and “N”, is the exemption that the OSB standard that it gives your family. You can then do one of two things: (1) go across the top of the table that resembles the closest your household after-tax income (the household’s, not just yours); or (2) if you know the calculation, do the exact calculation.

bankruptcy surplus income

Bankruptcy surplus income limits for 2020 Canada

To have bankruptcy surplus income payable, your after-tax regular monthly earnings need to be $200 or greater than the limit established by the OSB. The exact computation is to add the bankrupt’s after-tax monthly earnings to the bankrupt spouse’s after-tax month-to-month revenue, and the same for anyone else in the family that is contributing their income for household expenditures.

Take that sum and deduct your allowed exemption. Then subtract the reasonably few unique extra exemptions, if appropriate:

medical expenses;
support payments
child care expenses
court-imposed fines or penalties
expenses as a condition of employment.

After that take the bankrupt’s percent of the complete household income bankruptcy surplus income which you just computed. Split that number in half which is the month-to-month surplus income that the bankrupt must pay.

So for example, take a look at the calculation below for an imaginary family of two where both spouses work and there are no extra special deductions:

Family Situation (Family unit of two)

Bankrupt’s available monthly income	$2,800
Add: Other family unit member’s available monthly income	1,000
Family unit’s available monthly income	$3,800
Minus: Superintendent’s standard for a family unit of two	2,793
Total monthly surplus income	$1,007
Family Situation Adjustment (2800 ÷ 3,800 = 73.68% $1007 × 73.68% = $741.96)	$741.96
Payment required from bankrupt ($741.95 × 50% = $370.98)	$370.98

Bankruptcy surplus income calculator

To help you better understand everything that goes into the calculation, I want to share with you a tool I use to calculate bankruptcy surplus income. I am providing you with the link to the same spreadsheet that I use to do the calculation.

Here is the link:

Bankruptcy surplus income calculator

Your income is checked by the Trustee on a month-to-month basis and is balanced out over the entire period of your bankruptcy. If you have a short-term boost in earnings, such as from a bonus or commissions, or a short-term reduction, such as a temporary layoff, this will be factored in.

**When do bankruptcy surplus income payments end?**

For a 1st time bankrupt, without surplus income, you are entitled to get an automatic discharge after 9 months. This requires that neither the Trustee nor a creditor has opposed your bankruptcy discharge. If you are a 1st time bankrupt yet you do have surplus income, then you need to make monthly bankruptcy surplus income payments for 21 months. You are then entitled to an automatic discharge if all your surplus income payments are made and there is no opposition to your discharge.

If you have actually been bankrupt before and this is your 2nd (or more) bankruptcy, you will not have the ability to obtain a discharge in 9 months. Your bankruptcy will certainly be lengthened. A 2nd + bankruptcy lasts for a minimum of 24 months. If you have surplus income, a second-time bankrupt will certainly not have the capacity to obtain a bankruptcy discharge for 36 months. The monthly bankruptcy surplus income payments must be made for the very same 36 months.

Can I file bankruptcy if I make too much money?

The test to file for bankruptcy is not how much money do you make. The test is:

are you insolvent; and
have you committed one or more acts of bankruptcy within the six months preceding the filing of an assignment in bankruptcy or the launching of an application for a bankruptcy order.

But if you do make a lot of money, and go into bankruptcy, then no doubt you will have a large bankruptcy surplus income obligation to pay to the Trustee every month. That large amount may not fit into your monthly budget. You may not be able to afford that monthly bankruptcy surplus income payment.

So what can you do? You should speak to a Trustee about filing either a consumer proposal or a Division I Part III proposal. Both are filed under the BIA. Why? Depending on your assets, a proposal may work better for you. Although your proposal would have to be a better alternative for your creditors than your bankruptcy, it gives you the advantage of terming out the monthly payments.

It may work out that for a little more, you can get up to 60 months to pay. So rather than having only 24 or 36 months to make your total payment, as the case may be, you could get 60 months to pay only a bit more. Obviously, the proposal is more gentle on your budget than a bankruptcy. It is also easier on your credit score and credit report.

Bankruptcy surplus income summary – Are you in financial trouble?

To declare personal bankruptcy is a major life event. However, it is a necessary thing to rid yourself of crippling debt. Most people who declare bankruptcy have been faced with a major life event. The main examples are illness, pay cuts, job loss, or divorce. It is not your fault. I hope this bankruptcy surplus income Brandon’s Blog has given you helpful information.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious 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 Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Tags assignment in bankruptcy, automatic discharge, Bankruptcy & Insolvency Act (Canada) (BIA), bankruptcy order, bankruptcy surplus income, bankruptcy surplus income calculator, can i file bankruptcy if i make too much money, Consumer Proposal, Directive No. 11R2, Division I Part III proposal, Ira Smith Trustee, licensed insolvency trustee, Office of the Superintendent of Bankruptcy Canada (OSB), personal bankruptcy, Superintendent's Standards – 2020, surplus income, trustee, when do bankruptcy surplus income payments end

Brandon Blog Post

HOW TO FILE FOR BANKRUPTCY IN CANADA: PERSONAL BANKRUPTCY MODUS OPERANDI

Post author By Brandon Smith
Post date September 16, 2019

If you would prefer to listen to the audio version of this how to file for bankruptcy in Canada Brandon’s Blog, please scroll to the bottom and click on the podcast below

Introduction

I am most often asked by people how to file for bankruptcy in Canada. When I receive that question, I tell people that there are a few steps that need taking before the actual filing. These steps are the process I use to make sure that the person can actually benefit from personal bankruptcy. I don’t just put someone into bankruptcy and hope that it will work out alright for them. I have to make sure upfront that there is a benefit for them. It has to make sense.

Getting over the initial fear

It takes a lot for a person to overcome that initial fear and reach out to phone me. They are admitting that they have financial problems. I understand the fear a person has. My role in that first phone call or meeting, for which there is no charge, is to help the person get over their fears. I answer the most important questions the person wants to be answered. I also need to remind them that the answers are by necessity, generic. Once I have their specific information, then I can answer their questions in a way that is specific to their situation.

How do I apply for bankruptcy in Canada?

The first step in the application process is providing me with detailed information about your specific situation. We get this information by having you complete our initial assessment intake sheet. We call ours the Debt Relief Worksheet.

The Debt Relief Worksheet collects the information we need to do a proper initial assessment. The information collected includes:

Basic details such as name, address and marital status.
A listing of all your assets and your debts.
Your employment.
Your household monthly cash flow/budget.
Questions whose answers are important to understanding who you are.

You can click here to see a copy of our Debt Relief Worksheet.

The free assessment

Once I have a fully completed Debt Relief Worksheet, I can then analyze the information and provide you with an assessment designed specifically for you. Normally, when you first submit the information to me, I will have to follow up on questions for you to answer. This is all normal.

Once I have the full picture, I can properly assess what bankruptcy will mean for you. This will lead us to a discussion of alternatives to avoid bankruptcy that is right for you. It may be that you have a specific issue that can be dealt with outside of bankruptcy. Once resolved, the rest of your situation is manageable without resorting to a filing under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA).

The next possibility is you can’t fix things on your own, but you still do not need a licensed insolvency trustee (formerly known as a trustee in bankruptcy) (Trustee) to do a BIA filing on you. Perhaps with credit counselling, you can get your budget under control and pay down your debts.

If the right answer is that you do not need to file under the BIA, I will tell you so and connect you with the proper help that you need. The cost for me to review your situation and provide you with the right alternatives available to you is zero. It will not cost you anything.

Consumer proposal vs bankruptcy

If you do need a formal insolvency filing, we have to figure out which one. We are still looking at if you can avoid bankruptcy. We do this by looking at your whole situation. We first look at what bankruptcy means to you. What would the outcome of your bankruptcy be?

Some of the factors we consider are:

Your assets that would not be exempt and therefore would be handed over to us as your Trustee.
Have you ever been bankrupt before?
Are your debts $250,000 or higher, not including any mortgages or other loans secured by your principal residence?
Do you owe $200,000 or more to Canada Revenue Agency (CRA) for unpaid income tax?
Are all your tax filings up to date?
Your income and do you have a surplus income?
If you do have surplus income, what would your monthly payment be and can you afford it in your budget?
Based on the information you gave us, can we determine the likelihood of any creditor opposing your discharge from bankruptcy?
Any other special circumstances you have told us about.

The answers to these questions help us determine if you need to file for bankruptcy or not. In many cases, I help people avoid bankruptcy by filing a consumer proposal. As I have written before, in many cases, it is possible to avoid bankruptcy.

By filing a viable consumer proposal debt settlement plan, you are offering to pay your creditors a fraction of what you owe. You are promising to make monthly payments for a time period not greater than 60 months. A successfully completed consumer proposal will release you from your debts that exist at the time of your filing.

Those that are eligible to file a consumer proposal choose this option. They are happy to avoid bankruptcy. Our assessment and the advice we give you on consumer proposal vs bankruptcy is still free.

How to file for bankruptcy in Canada

If we decide that bankruptcy is necessary, we will then prepare the required documents. These documents include your sworn Statement of Affairs and your monthly cash flow budget. The Statement of Affairs is a document that:

Identifies you.
Lists your assets with their respective estimated realizable value.
Indicates which assets are exempt from seizure, if any.
Lists your creditors by name and amount owing.

Part of the filing process is that the insolvent person swears that the document is accurate. This is done in our office as our Trustees are also commissioners for taking oaths for the work we do. All of this is done in my office.

I then electronically file the sworn Statement of Affairs and other required documents with the Superintendent of Bankruptcy. Once the Official Receiver, who is the Superintendent of Bankruptcy’s local official, reviews and accepts the filing, the insolvent person is officially bankrupt.

This is how a person files for bankruptcy in Canada.

What happens if I declare bankruptcy in Canada?

Once you declare bankruptcy (or file a consumer proposal), all collection and enforcement action against you stops. Creditors can no longer sue you or harass you trying to collect the outstanding debts. You are now protected by the stay of proceedings.

Then the Trustee needs to take possession of your assets that are not exempt from seizure under provincial law. Before you file, I always tell you what those assets are and what will happen.

If you declare bankruptcy (or file a consumer proposal), you will have to attend two counselling sessions. Those sessions are conducted in my office by the Trustee who is also a qualified credit counsellor.

If you have met all of your duties and responsibilities in your bankruptcy, including the payment of surplus income if required, you are then entitled to a discharge from bankruptcy. If no creditor or the Trustee objects to your discharge, then you receive an absolute discharge. If there is something in your activities or your background where there is an objection to your discharge, then the matter must be heard in the bankruptcy court.

Before you file, I will give you my best-educated guess on the likelihood of an objection to your discharge arising.

Will I lose my house if I file bankruptcy in Canada?

If you declare bankruptcy, there are various ways and conditions in bankruptcy that you will NOT lose your house.

Everybody who owns a house and also experiences financial issues is worried about losing their house. Losing your home is possibly among the most terrible concerns people with a huge debt load that is crushing them have. This is exactly how it functions if you file for personal bankruptcy in Ontario.

In Ontario, the provincial regulation that describes what is excluded from seizure is called the Execution Act, R.S.O. 1990, c. E.24. For a full checklist of all bankruptcy Ontario exemptions, please review my Brandon’s Blog, BANKRUPTCY IN ONTARIO CANADA SECRETS EXPOSED.

The exemption in Ontario for your house is $10,000 of equity. The present thinking is that if your equity is $10,000 or less, if you go bankrupt, then your entire equity is excluded from seizure by the Trustee. Nonetheless, if your equity is $10,001 or greater, your whole equity in your home is NOT exempt and also is readily available to your Trustee for the benefit of your creditors.

Keep in mind that we are talking about your equity. In determining your equity, we first have to determine the market value of the house. We then deduct any mortgages or other loans registered against the property. The net result of this calculation represents your equity. If you own the home jointly with your spouse, then it is half of that number that is your equity. The other half belongs to your spouse.

If someone is available and willing to purchase your equity from the Trustee for its value, then the Trustee will collect that money. Once the Trustee sells its interest in the equity of your home, the Trustee no longer has an interest. If the person purchasing your equity is your spouse, another relative or friend, they are doing it so that you will not have to leave your home.

If that happens, then you will not lose your house if you file for bankruptcy. If you have no equity because the loans registered against your home is equal to the home’s value, again, you will not lose your home.

How much does it cost to file bankruptcy in Canada?

The expense of declaring bankruptcy is something you will certainly need to take into consideration. Just how much you will need to pay to go bankrupt relies on a number of variables, including:

your month-to-month income;
what assets you own;
the size of your family members; and also
whether you have ever been bankrupt in the past.

You are required to your surplus income into your estate every month. Surplus income is defined by the federal government. If your household makes over a certain amount every month, you pay a component of your earnings over that base set by the government each year. That base is essentially the poverty line.

The surplus income computation is reasonably complicated. I recommend you bring your current pay stubs to your meeting with me to make sure that I can accurately estimate it for you.

The fee a Trustee is entitled to charge in an ordinary personal bankruptcy must be approved by the Court. In a bankruptcy where there really are no assets, the fee is set in the statute.

If you have non-exempt assets, the Trustee sells them and receives the proceeds of the sale(s). If you have surplus income to pay, the Trustee collects those payments from you. The Trustee’s fee, which is the cost of the bankruptcy, comes from the money collected by the Trustee. So, in this example, where the Trustee has collected more than the cost of the bankruptcy approved by the Court, there is no additional cost to you at all. In this way, the Trustee is free!

If there are no assets or surplus income, then the bankrupt has to make monthly payments to the Trustee to cover the cost of the bankruptcy. If the bankrupt person cannot afford to, then you will have to get a relative to put up the money necessary to pay for the cost of your filing for bankruptcy. In this case, the government approved fee is in the range of $1,800.

Summary

I hope this Brandon’s Blog gives you a good idea of how to file for bankruptcy in Canada. We know that having too much debt is very stressful.

The Ira Smith Team understands how to help you rid yourself of your debts. However, more importantly, we understand your emotional needs. You are worried because you are facing significant financial challenges. You are worried not only about yourself but also your family.

The stress placed upon you due to your financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we deal with your problems and devise a debt settlement plan, we know that we can help you.

We know that when you are facing financial problems you need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a debt settlement plan for you 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 back on the road to a healthy stress-free life. We will help you to recover from the pain points in your life, Starting Over, Starting Now.

Tags Bankruptcy, bankruptcy in Canada, Consumer Proposal, consumer proposal vs bankruptcy, Debt, debt relief, debt relief worksheet, debt settlement, debt settlement plan, file bankruptcy in canada, how do i apply for bankruptcy in canada, how much does it cost to file bankruptcy in canada, how to file for bankruptcy in canada, Ira Smith Trustee, personal bankruptcy, surplus income, what happens if i declare bankruptcy in canada, will i lose my house if i file bankruptcy in canada

Brandon Blog Post

CANADA STUDENT LOAN FORGIVENESS: BANKRUPTCY TREATS STUDENT LOANS FAIRLY

Post author By Brandon Smith
Post date September 4, 2019

UPDATE OCTOBER 30, 2019: On September 27, 2019, the Court of Queen’s Bench of Alberta issued its decision on the appeal of this case. The decision described in this Brandon’s Blog was reversed. You can read about it in our new blog:

STUDENT LOAN BANKRUPTCY DISCHARGE CANADA: REGISTRAR DECISION REVERSED

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“Forgiveness does not change the past, but it does enlarge the future.” Paul Boose

Introduction

In my last Brandon’s Blog, I talked about the balance between a debtor and the creditors the Canadian insolvency system strives for. I just read today a decision of the Registrar in Bankruptcy sitting in the Court of Queen’s Bench of Alberta in Edmonton. In this case, Morrison (Re), 2019 ABQB 521, highlights this balance in this case dealing with Canada student loan forgiveness.

Can Canada student loans be forgiven in bankruptcy?

This is an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As I have previously written in several of my Brandon’s Blogs, in general, student loans cannot be discharged by a bankruptcy where the date of bankruptcy occurred within seven years after the date on which the bankrupt discontinued to be a full-time or part-time student.

Section 178(1.1) of the BIA, allows for after five years after the day on which a bankrupt with student loan debt ceases to be a full-time or part-time student, the Court may, on an application, order that the financial debt will be discharged. For such Canada student loan forgiveness, the Court has to be satisfied that:

the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.

So it is possible for student loans to be forgiven in bankruptcy. In this case, if the bankrupt’s application for student loan forgiveness succeeds, the student loan debt will not survive after her discharge. The application was opposed by both Canada Student Loans and the Ontario Student Assistance Program (the government).

Is the forgiveness all or none?

Before getting into the unusual details of this case, the Registrar’s decision dealt with one of the issues that came up over the course of the application. The issue was whether the choice to forgive student loans is all or none. That is, whether it is open to a Registrar hearing this application to find that only a part of the financial obligation needs to survive, in contrast to releasing all of it.

Based on the case law, the Registrar was satisfied that this was an all or none proposition. The Registrar stated that he was somewhat let down that it had to be that way. If the decision is that these financial debts are extinguished by the bankrupt’s discharge, the government could object to the bankrupt receiving an absolute discharge.

Like any other creditor, they could ask that a financial condition be enforced as a condition of discharge. In other words, the bankrupt would have to pay a portion of the student loan amount into the estate to be distributed by the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) as a condition of getting a discharge. This frequently occurs with high tax obligation debtors.

As it turns out, the government did not oppose the discharge application that was heard following this student loan application. They also did not ask that a monetary condition be applied to the terms of the conditional Order that was given.

So, it had to be all or none.

The vital facts

In 2015 Ms. Morrison was in financial hardship. At the time, she estimated her overall unsecured financial obligations were $71,501.00. Of that amount, about $50,000.00 was student loan debt. She sought the guidance of a Trustee and then assigned herself into bankruptcy. Ms. Morrison’s stated intent was to have all her unsecured debt on an equal footing to make sure that she can take care of everything via the insolvency process. She told her Trustee that she wanted her student loan debt to be included in her unsecured debt that would be eliminated by her discharge from bankruptcy. She clearly wanted Canada student loan forgiveness.

Ms. Morrison was last a full-time student in April 2008. Her last day of classes was on April 18, 2008. She had been a full-time student up until that day. So, arguably, she discontinued being either a full-time or part-time student on April 19, 2008. Unfortunately for her, she assigned herself to bankruptcy on February 27, 2015. Her personal bankruptcy in February 2015 was just a bit too early.

This somewhat defeated her stated reason for going bankrupt. So this is why she made this application to try to have her student loan debt forgiven by her discharge from bankruptcy. Depending on how you do the calculation, Ms. Morrison’s date of bankruptcy was about 60 days or so too soon.

If she had actually waited until April 19, 2015, to become bankrupt, rather than February 27, 2015, as she did, her student loan debt would be eliminated by her bankruptcy discharge.

The government tried to argue that under the student loan legislation, you calculate the time that she ceased being a full-time or part-time student begins on the 1st day of the month following the month she finished her studies. The Registrar was not having any of that.

He said that the student loan treatment he was asked to consider was based on the terms of the BIA. Therefore, he was going to use the more practical conclusion that for BIA purposes, the day you ceased being the student is the day after classes ended. I guess you could quibble that the day after you finish writing your last exam was really the date you ceased being a student, but nobody raised that issue.

The considerations

The Registrar considered cases from both Alberta and other provinces laying out the factors that relate to the discretion the Court had in such a forgiveness application. As I stated above, the Registrar had to determine if:

the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.

The Registrar laid out his understanding of the factors he needed to consider based on previous decisions. His list was:

Whether the student loan funds were utilized for the purpose it was loaned for.
If the person finished their education.
Did the applicant obtain financial gain from education?
Whether the applicant has actually made reasonable initiatives to repay the financial debts.
If the applicant has made use of the option of applying for interest rate relief.
The timing of the bankruptcy.
Do the student loans form a significant percentage of the total debt?
Whether the applicant had an adequate job and therefore income to be expected to make payments against the student debt.
The applicant’s lifestyle.
Did the applicant had sufficient earnings for there to be surplus income in bankruptcy under the Superintendent’s Directive.
What approaches the applicant made to the government for debt relief and what the government’s response was.
Whether the applicant went to at any time was unable to work due to medical issues or disability.

The Registrar’s findings

Registrar’s findings reveal the following:

The student loans were used for the purpose the funds were loaned.
Ms. Morrison completed her education.
She acquired a financial advantage from her education as she currently works in the area she studied for, or a related one.
She made some effort to settle the student loan debt. She entered into a contract with the government but her financial condition prevented her from making good on that plan. She apparently made some repayment.
The bankrupt’s initiatives at getting to a practical arrangement were not trivial. However, it appears that she required the framework of an insolvency process for her to come to terms with all her debts.
The applicant got interest-free standing for a period of time.
The student loans developed by far and away made up the best part of the bankrupt’s general indebtedness.
The applicant is (and was) for the most part a single parent of one. She committed a significant percentage of her income to her child (now a teen).
She lived a modest way of life.
She now has full-time employment and surplus income.

The decision

The Registrar found that the timing in connection with the seven-year cut-off was extremely close. The bankrupt’s primary interest and her shared intent at the time of meeting with the Trustee were to deal with all of her creditors on equal ground. Ms. Morrison did not look for bankruptcy to avoid her student loan debt but rather to deal with all of her financial problems.

There was obviously miscommunication between Ms. Morrison and her Trustee. The trouble was that the miscommunication aggravated her stated goal, which was the entire point of her insolvency proceeding.

When the matter was heard, it was approximately eleven years after her education was finished. The Registrar stated that in these extremely uncommon conditions he is completely satisfied that it remains in the interest of justice that an order goes pursuant to s. 178(1.1).

The government did not otherwise oppose the discharge. The Registrar made a conditional order of discharge taking all circumstances, including her surplus income, into consideration.

In this way, the Registrar balanced the right of this honest but unfortunate debtor to get her fresh start, with the rights of her creditors.

“True forgiveness is when you can say Thank You for that experience.” Oprah Winfrey

Canada student loan forgiveness summary

Are you or your company in need of debt forgiveness. Have you tried your best to balance your financial survival with those of your creditors but you just cannot keep up?

The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.

There is no “one solution fits all” approach with the Ira Smith Team. That is why I can develop a debt settlement plan for you as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

Tags bankrupt person, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, can canada student loans be forgiven, canada student loan forgiveness, canada student loans, condition of discharge, financial hardship, Ira Smith Trustee, licensed insolvency trustee, student, student loan debt, student loan debt forgiveness, student loans, surplus income

Brandon Blog Post

CANADA BANKRUPTCY AND INSOLVENCY ACT GRANTS STAY OF EXECUTION

Post author By Brandon Smith
Post date August 28, 2019

canada bankruptcy and insolvency act

Canada bankruptcy and insolvency act introduction

The Canada Bankruptcy and Insolvency Act is a federal statute. It attempts to balance the rights of an insolvent debtor with the rights of creditors to get paid. One of those balancing acts is that when you file under the statute, the person filing is granted a stay of proceedings. What that means is that debt collection and enforcement activities are stopped and cannot continue without the prior permission of the Court.

I recently read a very interesting decision of the Ontario Superior Court of Justice out of Ottawa, ON. What that case also shows is that if the insolvent and the then bankrupt person just told the truth, he would have been much better off.

Before getting into the actual case, there are a few questions that I am regularly asked that I would also like to answer. I think those answers will also help with understanding this case.

**What is the purpose of the Canada Bankruptcy and Insolvency Act?**

The main purpose of the Canada Bankruptcy and Insolvency Act is to help the honest but unfortunate debtor. It is designed to allow a person or a company to get financial rehabilitation through financial restructuring. It also allows a person the same opportunity to shed their debts through bankruptcy.

As mentioned above, at the same time, the rights of the creditors to get paid are also balanced. So that is why in a true restructuring, the creditors must receive more money than if the person or company went bankrupt. That is also why in a bankruptcy, the debtor must give up all their assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). The only assets not given up are those for which there is an exemption under either provincial or federal law. That is also why there is the concept of surplus income payments in a personal bankruptcy filing.

The presumption is that the debtor is honest but unfortunate. That is both before and during their insolvency process. As you will see from the case description below, the debtor was not honest and it is his lies that got him into trouble.

The insolvency process begins with the requirement that in order to obtain relief from debt, the insolvent debtor will be truthful. That is why a filing is initiated by a sworn statement of affairs.

Is insolvency a criminal offence?

As you may recall from some of my prior Brandon’s Blog posts, being insolvent is a financial condition. It is that:

your debts are greater than your assets;
if you liquidated your assets there would not be enough money to pay off your debts in full; and
you have generally ceased paying your debts when they come due.

So becoming insolvent is not a criminal offence.

Similarly, filing for either a consumer proposal, Division I Proposal or for bankruptcy is not a criminal offence. However, if you really are not the honest part of the honest but unfortunate person the Canada Bankruptcy and Insolvency Act is designed to help, you must seek the advice of a lawyer before filing anything.

There are also certain offences a person could commit under the actual bankruptcy statute. Some are quasi-criminal in nature. Again, if you think you are in trouble, you need the advice of a lawyer.

canada bankruptcy and insolvency act

Now for the case – ***Re Brennan*, 2019 ONSC 4712 (CanLII)**

On August 8, 2019, this decision of The Honourable Mr. Justice Kershman was released. The case involved the bankruptcy of Mr. Lawrence Brennan (Mr. Brennan) and his creditor, Mr.André Robert (Mr. Robert).

Mr. Robert made an application to the Court to lift the stay of proceedings stopping Mr. Robert from enforcing his judgment against Mr. Brennan’s asset. Mr. Robert said that Mr. Brennan supplied incorrect and deceptive details relating to the presence of a Registered Retirement Savings Plan (RRSP) throughout a judgment debtor exam on July 10, 2018.

Mr. Robert brought this motion for:

An Order stating that the stay of proceedings according to sections 69 to 69.31 of the Canada Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 does not apply in regard to Mr. André Robert, yet is restricted to the seizure of Mr. Brennan’s RRSP with the Lawyers Financial Investment Program.
An Order proclaiming that Mr. Robert will be qualified to proceed with his enforcement process for repayment of his judgment, plus interest and the cost of enforcement restricted to Mr. Brennan’s above-noted RRSP.
Indemnification for the costs of this motion.

Mr. Robert’s argument was that, had it not been for Mr. Brennan’s bankruptcy, there would be no stay of proceedings and he would have the ability to take Mr. Brennan’s RRSP according to the Execution Act, R.S.O. 1990, c. E.24.

The honest but unfortunate debtor

Mr. Robert is a lawyer. Mr. Brennan and others sought and obtained his legal advice. Mr. Robert then billed Mr. Brennan and each of his colleagues for the legal work. They thanked Mr. Robert by not paying him.

Mr. Robert went to Court to claim his legal fees and won. He then sent the Sheriff to seize any assets that could be found belonging to the defendants, including Mr. Brennan. That exercise awarded Mr. Robert with the princely sum of just under $65. So, Mr. Robert then notified Mr. Brennan that he was required to attend a judgment debtor examination. The purpose of this exam was for Mr. Brennan to answer questions, truthfully under oath, as to the nature, extent and location of all of his assets.

Throughout the judgment debtor exam, Mr. Robert asked Mr. Brennan if he possessed any kind of RRSPs. Mr. Brennan said, under oath, that he did not. This response was substantiated by Mr. Brennan’s written financial form, which was finished by Mr. Brennan as a component of the examination under oath.

It turns out that Mr. Brennan lied under oath to Mr. Robert. Seventeen days later, Mr. Brennan filed for bankruptcy. In his sworn statement of affairs completed as part of his bankruptcy filing, Mr. Brennan attested that he owned an RRSP in the amount of $13,017.00 held by the Lawyers Financial Investment Program.

Mr. Brennan may have been unfortunate, but prior to his assignment in bankruptcy, he was not honest.

Seizure of an RRSP – in bankruptcy and no bankruptcy

The evidence before the Court was that there were no contributions to Mr. Brennan’s RRSP in the 12 months prior to his date of bankruptcy. There was also evidence that there was no insurance element to the RRSP either.

This is important for 2 reasons:

If there is an insurance element to an RRSP, and the beneficiary is what is called a “designated beneficiary”, normally a spouse, parent, child or grandchild, then the RRSP is exempt from seizure under Ontario law.
In bankruptcy, an RRSP is exempt from seizure under federal law. The only amount that can be recouped by a Trustee is any contributions made to the RRSP within the 12 months prior to the date of bankruptcy.

So in this case, none of those conditions existed. The issue before the Court was because under Ontario Law, absent a bankruptcy, a judgment creditor can execute against a defendant’s RRSP. In other words, if there is no bankruptcy, in Ontario, the judgment creditor can seize the RRSP.

canada bankruptcy and insolvency act

Mr. Brennan’s defence

Mr. Brennan represented himself in Court. His defence consisted of that he:

Did not understand that he had any RRSPs in his name.
Informed Mr. Robert around one month prior to the examination that he would certainly need to go bankrupt.
Needs the Court to have pity for his circumstances.

Certainly not the most compelling defence in the circumstances.

The Court agrees with Mr. Robert

The Court went through an analysis of the Canada Bankruptcy and Insolvency Act as well as the relevant Ontario laws. The Court concluded that:

The RRSP currently in this bankruptcy is exempt from seizure but was available to be seized before the bankruptcy. If Mr. Brennan had been truthful in his examination under oath, Mr. Robert would have seized the RRSP through the Sheriff in enforcing his judgment.
Therefore, the Court lifted the stay according to section 69.4 of the Canada Bankruptcy and Insolvency Act to be equitable so that Mr. Andre can seize them.
To alleviate any kind of tax obligation effects, the Court ordered that 30% of the RRSP should be subtracted at source and also to the Canada Revenue Agency to the credit of Mr. Brennan’s current year income tax account. The remaining amount of the RRSP is to be paid to the Sheriff of the Judicial District of Ottawa, who will disperse it in conformity to the Execution Act and the Creditors Relief Act.

The moral to Mr. Brennan’s story

Although the Court decision does not say it, Mr. Brennan must have not obtained any legal advice before participating in the judgment debtor examination. Any lawyer hearing his story would have told him exactly what I tell every person who comes to my office to talk about an insolvency proceeding. Be honest and truthful.

Mr. Brennan did a really dumb thing. Part of the evidence that came out in Court is that he went to see the Trustee who did his bankruptcy filing six weeks prior to the July 10, 2018 judgment debtor examination to discuss his financial situation. He must have talked about the RRSP then.

If Mr. Brennan was honest and truthful at his judgment debtor examination, he could have filed for bankruptcy before the Sheriff managed to seize his RRSP. In that case, Mr. Brennan would have told the truth and his RRSP would have been exempt from seizure in his bankruptcy.

So instead of telling the truth and keeping his RRSP after bankruptcy, Mr. Brennan lied and therefore lost his RRSP, notwithstanding his bankruptcy.

That is the moral of Mr. Brennan’s story. By telling the truth and then becoming the honest but unfortunate debtor, the Canadian bankruptcy system will protect you.

Canada Bankruptcy and Insolvency Act summary

Are you an honest but unfortunate person in financial trouble? Have you run your company in an honest fashion but through various circumstances, the company’s debts are greater than its assets. Is there just not enough cash to pay all the bills?

If so, you need to call me today. As a licensed insolvency trustee (formerly called trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.

Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.canada bankruptcy and insolvency act

Tags 2019 ONSC 4712 (CanLII), Bankruptcy, bankruptcy trustee, canada bankruptcy and insolvency act, Consumer Proposal, honest but unfortunate, insolvent debtor, Ira Smith Trustee, is insolvency a criminal offence, licensed insolvency trustee, Ontario Superior Court of Justice, Re Brennan, restructuring, RRSP, statement of affairs, surplus income, trustee, what is the purpose of the bankruptcy act

Brandon Blog Post

LICENSED INSOLVENCY TRUSTEES: CAN MY BASIC BANKRUPTCY DISCHARGE BE REVERSED?

Post author By Brandon Smith
Post date July 22, 2019

If you would prefer to listen to an audio version of this licensed insolvency trustees Brandon’s Blog, please scroll to the bottom and click on the podcast.

Licensed insolvency trustees introduction

From time to time I am asked an interesting question about licensed insolvency trustees and the bankruptcy process. The question is, can a bankruptcy discharge be reversed? The simple answer is, yes.

Most people then wonder how this could be possible. In order to understand how we should have a discussion of the bankruptcy discharge process. The best way is through a recent Court case I recently read.

Licensed insolvency trustees: The discharge process

It is the discharge when the person’s debts are erased. The debts are not “discharged” until that time. In order to get a discharge, the bankrupt has to live up to all of his or her duties.

The duties of a bankrupt include:

make disclosure of and deliver possession of all his or her assets (other than for certain provincial exemptions) that is under his or her possession or control to the licensed insolvency trustee (Trustee) or to anyone the Trustee so directs;
in such scenarios as are defined by the Office of the Superintendent of Bankruptcy, provide to the Trustee, for termination, all credit cards;
supply to the Trustee all documents or files relating to the property of the person who has filed for bankruptcy;
make full disclosure of all assets and liabilities to the Trustee by completing the sworn statement of affairs within 5 days of the date of bankruptcy;
assist the Trustee in making an inventory of all property; make full disclosure to the Trustee concerning all property sold or otherwise transferred within 1 year prior to the date of bankruptcy;
disclose any property sold or transferred at undervalue within 5 years prior to the date of filing;
attend the first meeting of creditors if held;
disclose current income and expense and continue monthly disclosure until discharged in order for the Trustee to calculate any surplus income requirement;
if there is surplus income, to make all such payments to the Trustee in full; and
to perform any other acts required by the Trustee or the Court, including, fulfilling any conditions of discharge issued by the Court.

Failure to perform any of the duties laid out in the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), will result in the Trustee, and perhaps one or more creditors, opposing the bankrupt’s discharge. When there is an opposition, the Trustee will schedule a Court hearing date.

At the Court hearing, the Court can issue an absolute order of discharge, provide a discharge but with conditions to be fulfilled or even suspend the bankrupt’s discharge. Sometimes, there may be both a condition and a suspension, depending on the circumstances. In rare and bad circumstances, the Court could even refuse to hear the bankrupt’s application for discharge. Licensed insolvency trustees are expected to assist the Court by making a recommendation. llicensed insolvency trustees

Mark Daniel MacFarlane bankruptcy

Section 180 (1) and (2) of the BIA states:

“Court may annul discharge

180 (1) Where a bankrupt after his discharge fails to perform the duties imposed on him by this Act, the court may, on the application, annul his discharge.

Annulment of discharge obtained by fraud

(2) Where it appears to the court that the discharge of a bankrupt was obtained by fraud, the court may, on the application, annul his discharge.”

On June 24, 2019, the Supreme Court of Nova Scotia In Bankruptcy and Insolvency released its decision in the bankruptcy case of Mark Daniel MacFarlane (Citation: MacFarlane (Re), 2019 NSSC 201).

This case is not complex. However, it does clearly shows that the answer to the question, “can a bankruptcy discharge be reversed?” is clearly yes.

Mr. MacFarlane had a surplus income obligation to pay to the Trustee for the benefit of his creditors the amount of $3,823.05. At the time he was entitled to a discharge, he still owed the Trustee the amount of $2,879.05. In every personal bankruptcy, licensed insolvency trustees must do the surplus income calculation. If it turns out that the bankruptcy is required to contribute to his or her bankruptcy estate through surplus income payments, licensed insolvency trustees must report to the Court if the bankrupt made all the required payments.

The bankrupt also owned at the date of bankruptcy, an automobile that the Trustee estimated had a forced liquidation value of $17,500. The Trustee had disallowed the claim of a creditor claiming security over the vehicle. That creditor did not appeal the Trustee’s decision.

So, equity in the vehicle was available. In such cases, licensed insolvency trustees must obtain that value. For some reason that the Trustee could not fully explain, he agreed to sell the vehicle to Mr. MacFarlane for $15,702.50 plus HST. The Trustee did not sell it for all cash, but rather, entered into a conditional sale agreement with the bankrupt. In other words, the Trustee gave him financing.

Mr. MacFarlane paid made various payments totalling $7,040.00, both before and after his discharge, leaving a balance of $8,662.50.

Mark Daniel MacFarlane discharge

Although now stated explicitly in the Court decision, it appears that when it came time for Mr. MacFarlane’s application for discharge, the Trustee opposed it. On June 1, 2018, the Trustee applied for his discharge.

For some unexplained reason, the Trustee decided to not collect the balance of the surplus income requirement. The Trustee asked the Court for his outright discharge. The Court gave Mr. MacFarlane his absolute discharge.

So now the bankrupt is discharged, but he still owed the outstanding money for the vehicle that was sold to him by the Trustee under a conditional sale agreement. Rather than paying off the amount owing, Mr. MacFarlane sold the vehicle out of province and pocketed the cash. llicensed insolvency trustees

Licensed insolvency trustees can apply to Court to have a discharge reversed

So now the Trustee makes an application to Court to have Mr. MacFarlane’s discharge reversed. Officially, it is called having the discharge annulled. An annulment makes it as if the discharge never happened. So, if the Trustee is successful, Mr. MacFarlane will be back in bankruptcy. The Trustee also asked that the Court order the payment of the balance of what is owing on the vehicle, for a suspension of the discharge and an amount for costs and disbursements. Mr. MacFarlane represented himself in Court.

The Court was not overly impressed with either Mr. MacFarlane or the Trustee. The Court felt that not did he fail to carry out his responsibilities under the BIA, he actually acted in such a way to deny himself the advantage of any type of latitude the Court might have given him relative to those obligations.

The Court went on to say that his responsibilities under the BIA are not pointers or activities to be carried out when convenient or if life does not get in the way. It was obviously not his place to choose what he would and would not do. Concerning the automobile, it was not his to just sell it, pocket the cash, and tell the Trustee (and by extension his creditors) to go take a hike.

The Court was not too happy with the Trustee

The Court was at a loss to some of the Trustee’s behaviour also. There was no explanation given as to why the Trustee merely gave up on collecting all of the surplus income requirement. Likewise, there was no explanation why the Trustee would have given the bankrupt a discount off of the liquidation value of the vehicle. Such a look is not good for licensed insolvency trustees.

Quite rightly, the Court pointed out that in such situation, licensed insolvency trustees, and specifically this Trustee, should not have recommended to the Court that Mr. MacFarlane receive an absolute order of discharge. Rather, the Trustee should have insisted on a conditional order of discharge. The conditions would have been that the bankrupt pay off both the surplus income balance and the amount owing on the vehicle before being entitled to an absolute order of discharge. llicensed insolvency trustees

The Court’s decision

The Court ordered that:

Mr. MacFarlane’s discharge from bankruptcy be annulled, so now he is once again an undischarged bankrupt.
He must pay the Trustee the $8,662.50 owing on the vehicle.
The Trustee will collect $500 for disbursements in tracing what happened to the vehicle from Mr. MacFarlane also.
There will not be an automatic discharge once he pays the $9,162.50 to the Trustee. Rather, the bankrupt will have to apply to the Court for his discharge and there will be another discharge hearing.
Since the Court was not asked to revisit the balance owing on surplus income, the Court didn’t review that again.
The request of the Trustee for $5,000 as a censure of the bankrupt’s behaviour was denied. The Court said that this situation was caused in part by the Trustee allowing the surplus income requirement to be waived and agreeing to an absolute discharge.

Although not part of the Order, the Court strongly stated that any costs in the additional work done by the Trustee now, and the disposition of the amount to be received once finally paid, will be reviewed by the Court.

The Court emphatically intimated that since the Trustee’s actions were in part to blame for this situation, the Court was going to make sure that part of the $9,162.50 will go to the creditors when the Trustee comes back to Court to have its accounts taxed.

Licensed insolvency trustees conclusion

So there you have it on licensed insolvency trustees. Can a bankruptcy discharge be reversed or revoked? As we see in this case if the discharge was improperly obtained because the bankrupt did not fulfill all of his or her duties, YES. Similarly, if it can be shown that a discharge was obtained through fraud or fraudulent conduct, the discharge can be annulled in that case also.

Whenever I sit down with a person to talk about his or her insolvency, or with an owner of a company to discuss business financial problems, I make sure that we have an entire discussion. I not only talk to them about what process I recommend for their unique situation, but I also walk them through the entire process and what all the rights and responsibilities are. For personal insolvency, this includes the discharge process.

Are you or your business experiencing money troubles? Are you on the verge of bankruptcy? Do not wait till it is far too late to understand how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.

As licensed insolvency trustees, we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.

Call the Ira Smith Team today so we can get rid you of the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Staring Now. Call the Ira Smith Team today.

Tags absolute discharge, annul, Bankruptcy and Insolvency Act, bankruptcy discharge, bankruptcy process, BIA, conditional discharge, court, date of bankruptcy, Ira Smith Trustee, licensed insolvency trustee, licensed insolvency trustees, Office of the Superintendent of Bankruptcy, surplus income, suspended discharge, trustee

Brandon Blog Post

CANADIAN BANKRUPTCIES LAWS: OPPOSITION TO TRUSTEE DISCHARGE

Post author By Brandon Smith
Post date June 24, 2019

If you would prefer to listen to the audio version of this Canadian bankruptcies laws Brandon’s Blog, please scroll to the bottom of the page and click on the podcast

Introduction

Believe it or not, people search online for “Canadian bankruptcies laws” almost 500 times every month. Although the spelling looks a bit off, the point is that people are interested in Canadian insolvency laws. People also search for “Canadian personal bankruptcies laws”.

I recently reviewed an interesting bankruptcy case from British Columbia. The issue is one that does not normally find its way into the courts. The issue deals with the Trustee’s discharge from a bankruptcy administration.

So combining these disassociated events, it gave me the idea for this Brandon’s Blog.

Two kinds of discharges in a personal bankruptcy

In every personal bankruptcy, there are two kinds of discharges. In the normal course, first the bankrupt gets his or her discharge from bankruptcy. Then, when all parts of the bankruptcy administration is finished, the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee), gets its discharge.

I have previously written several blogs on the discharge of a bankrupt, but for information purposes, I will briefly summarize the issues surrounding a bankrupt’s application for discharge. Then I will describe the issues in the BC case about the discharge of a Trustee.

The bankrupt’s application for discharge

A bankruptcy discharge is when the bankrupt person is released under Canadian bankruptcy legislation from his or her financial debts. Some people think that it is filing for bankruptcy that releases the bankrupt from responsibility. This is not the situation. It is the discharge process that “discharges” the debts.

The personal bankruptcy discharge is among the key advantages of the Canadian insolvency system. The discharge is crucial to the insolvency process. Debtors, after bankruptcy, can wipe the slate clean and begin again. This is a central concept under the “Canadian bankruptcies laws”.

A personal bankruptcy discharge provides the discharge of many unsecured financial debts. Certain debts will not be discharged. They are:

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.

Notice of opposition to discharge

A bankrupt’s bankruptcy discharge application might be opposed by one or more unsecured creditors or the Trustee. This occurs if the bankrupt has not met all of his/her obligations. It can likewise happen if the insolvent has committed a bankruptcy offense. Those are acts provided in Section 173 (1) of the Bankruptcy and Insolvency Act (Canada) (BIA). The Court will assess the overall conduct of the bankrupt and provide its decision.

How bankruptcies work

There are 4 kinds of discharges:

Absolute discharge – The bankrupt is released from the commitment to repay the financial liabilities that existed on the day of filing for personal bankruptcy, except for the types of financial obligations indicated above.
Conditional discharge – A bankrupt has to fulfill specific conditions to obtain an absolute discharge. As soon as all conditions have been met, an absolute discharge is given.
Suspended discharge – An absolute discharge that will be given at a future date identified by the Court.
Refused discharge – The Court has the right to decline a discharge.

What does trustee discharge mean?

A recent case decided by The Supreme Court of British Columbia in Kelowna, BC, dealt with the issue of the discharge of a Trustee. After concluding a bankruptcy administration, the Trustee applies for its discharge. The case is McKibbon (Re), 2019 BCSC 848 (CanLII).

William Edward McKibbon is a person who went through the bankruptcy discharge process. His bankrupt’s application for discharge ultimately ended with his getting an absolute order of discharge after fulfilling his discharge conditions on February 24, 2016. His Trustee then received its discharge. The Trustee discharge date was on November 5, 2016.

Mr. McKibbon made an application to the Court for the withdrawal of the Trustee’s discharge. Section 41 of the BIA deals with the discharge of the Trustee. The case was heard on April 25, 2019, in The Supreme Court of British Columbia in Kelowna, BC. The Court’s decision was released on May 30, 2019.

Section 41(1) of the BIA states:

“Application to court

41 (1) When a trustee has completed the duties required of him with respect to the administration of the property of a bankrupt, he shall apply to the court for a discharge.”

The Trustee went through all the steps required and obtained its discharge.

Section 41(5) of the BIA says:

“Objections to be filed with court and trustee

(5) Any interested person desiring to object to the discharge of a trustee shall, at least five days prior to the date of the hearing, file notice of objection with the registrar of the court setting out the reasons for the objection and serve a copy of the notice on the trustee.”

No person objected to the Trustee’s discharge, including Mr. McKibbon. Now in 2019, he was asking the Court to revoke the Trustee’s discharge as he had certain complaints about the Trustee’s conduct.

The allegations against the Trustee

Mr. McKibbon now alleges that the Trustee’s discharge was gotten because the Trustee did not disclose all pertinent facts.

Mr. McKibbon’s allegations were that: (i) the Trustee had experienced issues in the calculation of the surplus income payable by the bankrupt in that the Trustee had miscalculated the surplus income numbers; (ii) the method by which the Trustee calculated the surplus income; and (iii) the Trustee had not finalized the bankrupt’s pre- and post-bankruptcy income tax returns because it had made errors when submitting those tax returns to the Canada Revenue Agency (CRA).

These allegations were disputed by the Trustee. The Trustee claims that the surplus income calculations were appropriate. Concerning the income tax returns, the Trustee stated that the issues relating to the income tax returns were the result of the CRA, incorrectly, re-allocating income and expenses between the pre- and post-bankruptcy periods.

Can the discharge of the Trustee be revoked?

Section 41(8) of the BIA deals with the revocation of a Trustee discharge. It states:

“Effect of discharge of trustee

(8) The discharge of a trustee discharges him from all liability

(a) in respect of any act done or default made by him in the administration of the property of the bankrupt, and

(b) in relation to his conduct as trustee,

but any discharge may be revoked by the court on proof that it was obtained by fraud or by suppression or concealment of any material fact.”.

Mr. McKibbon, in his complaint, said that the Trustee suppressed and concealed material facts.

The Judge’s decision

The Judge in his decision stated that the analysis of BIA section 41(8) goes back to 1899. The case law requires that to revoke the discharge of the Trustee, there needs to be an aspect of fraud in the suppression or concealment.

The Judge also referred to a 2011 decision in the Superior Court of Québec which reached a similar conclusion. That case is Re Delorme, 2011 QCCS 236 (CanLII).

Mr. McGibbon’s position was that these authorities are mistaken and made the wrong decision. He did so with no authorities have actually been pointed out to bring into question those verdicts!

The Judge concluded that in order for there to be a “suppression or concealment of any material fact”, there has to be an element of fraud. He also concluded that Mr. McGibbon had the onus to provide evidence that the Trustee purposely did so with the intent to defraud the court, the creditors or the bankrupt. He found that as Mr. McGibbon failed to do so, he did not have to dig into the details of the allegations.

The Judge also noted that Mr. McGibbon had a bankruptcy discharge hearing, and the Court set the amount of surplus income he needed to pay as part of his conditional discharge from bankruptcy. Therefore, any issue surrounding the surplus income calculation by the Trustee was eliminated with this condition that Mr. McGibbon fulfilled.

Accordingly, the Judge found that there is no basis whereupon any kind of deceptive behaviour can be presumed for the Trustee in failing to reveal any material facts in its discharge application. Therefore, the application to revoke the Trustee’s discharge was rejected. Finally, the Judge allowed for the Trustee to make any submissions it wished to concerning costs to be paid by Mr. McGibbon.

Are you thinking about using “Canadian bankruptcies laws”?

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

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You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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What does bankruptcy discharge mean in Canada?

Bankruptcy discharge and its consequences for the bankrupt

What are the types of bankruptcy discharge?

Bankruptcy is a roughly 9-month legal process to eliminate debt

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

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

The standard of review on such an appeal

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

Bankruptcy discharge summary

Trustee in Bankruptcy: No action against Trustees without leave of court

Action against the trustee in bankruptcy background

The plaintiff’s claim against the trustee in bankruptcy

The court’s analysis

Trustee in bankruptcy: The court’s decision

Finding a good, Licensed Insolvency Trustee (Trustee In Bankruptcy) Near You

What is insolvency def?

Factors contributing to insolvency

Balance Sheet insolvency def –

Cash flow insolvency def –

What is the difference between technical insolvency and actual insolvency def?

What Is an insolvent person according to the BIA?

What does the insolvent def mean financially?

What If I Am Insolvent?

Consumer proposal vs bankruptcy proceeding

Insolvency def summary

Consumer proposal versus bankruptcy introduction

Consumer proposal versus bankruptcy: Who qualifies for a consumer proposal?

Consumer proposal versus bankruptcy: What are consumer proposals?

Consumer proposal versus bankruptcy: Is a consumer proposal worth it?

What is the impact on my credit rating if I file a consumer proposal versus bankruptcy?

What are the costs and fees of a consumer proposal versus bankruptcy?

What happens to my assets in a consumer proposal versus bankruptcy?

What happens if I miss payments and default on my consumer proposal versus bankruptcy payments?

When is a meeting of creditors held in a consumer proposal?

Consumer proposal versus bankruptcy: How to file for bankruptcy?

Consumer proposal versus bankruptcy: Get back to a stress-free life

Bankruptcy surplus income introduction

What is bankruptcy surplus income?

What happens to a person’s wages during bankruptcy?

Superintendent’s Standards – 2020

Bankruptcy surplus income limits for 2020 Canada

Bankruptcy surplus income calculator

When do bankruptcy surplus income payments end?

Can I file bankruptcy if I make too much money?

Bankruptcy surplus income summary – Are you in financial trouble?

Introduction

Getting over the initial fear

How do I apply for bankruptcy in Canada?

The free assessment

Consumer proposal vs bankruptcy

How to file for bankruptcy in Canada

What happens if I declare bankruptcy in Canada?

Will I lose my house if I file bankruptcy in Canada?

How much does it cost to file bankruptcy in Canada?

Summary

UPDATE OCTOBER 30, 2019: On September 27, 2019, the Court of Queen’s Bench of Alberta issued its decision on the appeal of this case. The decision described in this Brandon’s Blog was reversed. You can read about it in our new blog:

Introduction

Can Canada student loans be forgiven in bankruptcy?

Is the forgiveness all or none?

The vital facts

The considerations

The Registrar’s findings

The decision

Canada student loan forgiveness summary

Canada bankruptcy and insolvency act introduction

What is the purpose of the Canada Bankruptcy and Insolvency Act?

Is insolvency a criminal offence?

Now for the case – Re Brennan, 2019 ONSC 4712 (CanLII)

The honest but unfortunate debtor

Seizure of an RRSP – in bankruptcy and no bankruptcy

Mr. Brennan’s defence

The Court agrees with Mr. Robert

The moral to Mr. Brennan’s story

Canada Bankruptcy and Insolvency Act summary

Licensed insolvency trustees introduction

Licensed insolvency trustees: The discharge process

Mark Daniel MacFarlane bankruptcy

Mark Daniel MacFarlane discharge

Licensed insolvency trustees can apply to Court to have a discharge reversed

The Court was not too happy with the Trustee

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

***Consumer proposal versus bankruptcy*: Who qualifies for a consumer proposal?**

***Consumer proposal versus bankruptcy*: What are consumer proposals?**

***Consumer proposal versus bankruptcy*: Is a consumer proposal worth it?**

***Consumer proposal versus bankruptcy*: How to file for bankruptcy?**

***Consumer proposal versus bankruptcy*: Get back to a stress-free life**

**What is bankruptcy surplus income?**

**When do bankruptcy surplus income payments end?**

**What is the purpose of the Canada Bankruptcy and Insolvency Act?**

Now for the case – ***Re Brennan*, 2019 ONSC 4712 (CanLII)**