All posts by Victor Fong

fraud-bankruptcy

Will fraud charges survive bankruptcy?

Hoyle (Estate) v Gibson-Heath, 2017 ONSC 4481 (CanLII)

This is a recent court case involving a debtor who was convicted of fraud and subsequently went bankrupt. The issue: will debt arising from fraud charges survive a bankruptcy?

Melissa Gibson-Heath commenced employment at the Fairfield Manor East retirement home in Kingston on 28 January 2004. In 2008, she was promoted to the position of full-time Administrator of the retirement home. Between 28 May 2008 and 3 March 2010, Ms. Gibson-Heath stole $229,000 from Clifford Hoyle, an elderly resident of the retirement home. She was subsequently charged criminally, pleaded guilty and, upon conviction, was sentenced to 18 months’ imprisonment. The court also made a free-standing restitution order in the amount of $229,000 less any amounts recovered by the Crown.

Mr. Hoyle passed away and his estate and his two daughters, Kathryn Greig and Margaret Hoyle, subsequently commenced a civil action against Ms. Gibson-Heath and other parties who they claim share responsibility with her for the theft of Mr. Hoyle’s money. Ms. Gibson-Heath has been noted in default. She appears to have filed an assignment in bankruptcy on 25 February 2014 and was automatically discharged from bankruptcy on 26 November 2014.

The plaintiffs moved for judgment against Ms. Gibson-Heath.

Section 178(1) of the Bankruptcy and Insolvency Act (the “BIA”) sets out certain debts that are not released upon a bankrupt’s discharge from bankruptcy:

178 (1) An order of discharge does not release the bankrupt from:

(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;

(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;

The Court referred to the case of Dickerson v. 1610396 Ontario Inc. where the Ontario Court of Appeal held that the exceptions contained in section 178(1) of the BIA are based on the overriding social policy that certain claims should be protected against the general discharge obtained by a bankrupt because of the reprehensible nature of the bankrupt’s conduct. Parliament has clearly made a policy decision that a bankrupt should not be allowed to raise the shield of her general discharge against judgment creditors who hold judgments grounded on reprehensible conduct.

Here, Ms. Gibson-Heath was convicted of fraud. The restitution order made by the Ontario Court of Justice as part of Ms. Gibson-Heath’s sentence clearly survives her bankruptcy. The Court noted that there is no reason, in principle or practice, why a civil judgment should not now go against Ms. Gibson-Heath for the amount still outstanding under the restitution order.

The Court held that Ms. Gibson-Heath’s role was to look after Mr. Hoyle and to act in his best interests. As an elderly gentleman, who was already in the early stages of dementia when he started to reside at Fairfield Manor East at the end of 2006, Mr. Hoyle was undoubtedly vulnerable to any abuse of the trust that he placed in those who cared for him. The Court referred to the case of Hodgkinson v. Simms which provided that, “the most significant characteristic of a fiduciary relationship is the vulnerability of the beneficiary arising most often out of the authority with the fiduciary actually has or acquires over the property or opportunities of the former.” The Court applied this case to the current situation and found that the relationship between an elderly resident of a retirement home and a personal support worker can also be a fiduciary one, and that the circumstances deemed to have been acknowledged by Ms. Gibson-Heath evidence the existence and breach of a fiduciary duty.

The plaintiffs were entitled to judgment against Ms. Gibson-Heath for the amount owing of $155,468.46.

death

What happens to debt upon the death of a debtor?

A Quora user asks: What happens to debt upon the death of a debtor?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada answers:

I’m going to answer from a Canadian perspective. However, I think the answer would apply in most common-law countries.

If there are assets in the deceased person’s estate upon his death, the Executor is required to liquidate the assets and use the proceeds to pay off the debt.

If there are insufficient assets to pay off all the debts, then the estate is insolvent and can file for bankruptcy. The Executor would retain a Licensed Insolvency Trustee who would agree to administer the bankruptcy of the deceased’s estate. The Executor would also retain a bankruptcy lawyer who would apply to bankruptcy court for an Order permitting the Executor to assign the deceased’s estate into bankruptcy.

Upon the bankruptcy being filed, the Executor will need to assist the Licensed Insolvency Trustee in identifying and liquidating any assets the debtor may have had. If there are no assets, then the Executor will need to make arrangements to pay the Trustee his fees.

fraudulent conveyance oppression remedy

Can a corporation file bankruptcy and then continue business under a new corporation?

Question asked on Quora: Can a corporation file for bankruptcy to avoid a lawsuit and the same owners then open same business under a new corp?

The representatives of the corporation claimed multiple times to be able to fund the business. Those same representatives are both chair and CEO of other corporations and do not fear credit loss from being sued.

If they can, is their new corporation liable?

Answer from Victor Fong, Licensed Insolvency Trustee, Toronto, Canada

Caveat: I am not a lawyer and I practice in Canada. The following reply is based on Canadian law. You should arrange for a consultation with a lawyer in your jurisdiction to get a clear answer.

Assuming the old corporation had assets of value (e.g., plant and equipment, accounts receivable, real estate, etc.), if the representatives moved assets from the old corporation to the new corporation when the old corporation had unpaid debts, this would be considered a “fraudulent conveyance”. The creditors of the old corporation can take legal action to have this transfer set aside by a court and bring the assets back to the old corporation for the purpose of being liquidated (say by a bankruptcy trustee or receiver retained by the creditors) with the proceeds distributed to the old corporation’s creditors.

If the old corporation had no assets of value and was essentially operating as a shell company, then legally, the representatives can do what you described because there were no assets to transfer in the first place.

Now, from the standpoint of a shareholder (as opposed to a creditor as described above), there is a concept in Commonwealth countries (such as Canada) called an “oppression remedy”. If you were a shareholder of the old corporation and the company representatives transferred assets to the new corporation and carried on business, you can seek a remedy from the Court to have this transfer set aside. But as above, if the old corporation had no assets and nothing was transferred to the new corporation, then I don’t think there’s much you can do.

 

lawsuit

Planning bankruptcy to stop a lawsuit

Question from Quora, asked by Kayee Tong: Is it possible to rack up debt to reduce the chance of lawsuits by threatening default and bankruptcy protection to a potential lawsuit?

Here is the answer from Victor Fong, Licensed Insolvency Trustee in Toronto, Canada

I’m a Licensed Insolvency Trustee operating in Canada, so what follows is my perspective from the standpoint of Canadian bankruptcy law.

If you are accumulating debt when no intent to repay it (i.e., you’re ready to proceed with a bankruptcy filing), then you’re committing de facto fraud.

What you have to understand that filing for personal bankruptcy in and of itself does not make the debt go away. Your debt goes away only when you are discharged from your debts. And a number of parties can intervene to prevent you from being discharged from your debts.

For example, your bankruptcy trustee or your creditors can have you examined in bankruptcy court and asked such questions (under oath) as where the money was spent. If you cannot account for where the money you borrowed was spent or the court determines that the money you borrowed was spent frivolously, this will cause you a lot of problems in obtaining your discharge from bankruptcy.

Upon reviewing evidence of your conduct before and during your bankruptcy, your discharge could be outright refused by the bankruptcy court or it could be subject to conditions such as paying a monetary sum to your creditors via the trustee.

So what you’re contemplating is a really, really bad idea.

I see that you’re a medical professional. Is the lawsuit related to your medical practice? I’m assuming that you have professional liability insurance that would deal with such a lawsuit?

You should seek confidential professional advice from a bankruptcy attorney. And I don’t think it’s a smart idea to post such a question using your actual profile if you’re going to pursue this strategy.

limited liability company

Can a Limited Liability Company’s creditors go after the owner’s personal assets?

Question asked by James “Seamus” Lusk, on Quora: If a Limited Liability Company goes bankrupt, can the company’s creditors go after the owner’s personal assets?

Answer from Victor Fong, Licensed Insolvency Trustee in Toronto, Canada

Caveat: I practice in Canada and I am not a lawyer. You should contact an attorney and discuss with her the particulars of your situation.

With that being said, as you may be aware, LLC is an acronym for Limited Liability Company. So the entire purpose of operating under an LLC is to avoid personal liability for the company’s debts. So to answer your question, the general answer would be “no”.

However, there are three major exceptions:

  • If you gave any personal guarantees for the LLC’s debts (which most banks will insist on if the business loan is large), then you are personally on the hook.
  • If your personal conduct was determined by a court of law to be especially egregious resulting in losses for your creditors, the LLC may not protect you. The legal term for this concept is called “piercing the corporate veil”.
  • In Canada, if you are a director of the corporation, you are personally liable for obligations created by statute such as unremitted payroll deductions for income tax and government pension contributions, unpaid employee wages, and unremitted sales taxes. I’m assuming that there would be similar laws in the United States (which is where I assume you are located).

You also have to consider your own personal reputation. Do you plan to start a new company in the same industry? Because even if your corporation’s creditors cannot touch your personal assets, your reputation will be such that suppliers and financiers in your industry will no longer want to deal with you. You look at someone like Donald Trump who had multiple bankruptcies (through his corporations) and has accumulated a questionable reputation among lenders, tradespeople and suppliers in the real estate industry. Some food for thought.

home bankruptcy

Keeping a jointly owned home in a bankruptcy

Question from Randy14U on Reddit AMA: Hi Victor, I may have to go bankrupt but my wife doesn’t have to as she doesn’t have the mountain of debt that I have. We have about $80K in equity in our home. Can we keep our home? Half of this equity is hers, how would that affect a bankruptcy for myself? If we simply sell the house, can she take half of the equity while I put the rest towards my debt?

Reply from Victor Fong, Licensed Insolvency Trustee, Toronto, Canada

Hi Randy,

Her share of the equity in the home would not be directly affected by your bankruptcy.

However, the Licensed Insolvency Trustee would attempt to liquidate your share of the equity (that would automatically become property of the trustee upon your filing bankruptcy) in your bankruptcy proceedings by asking her to purchase the trustee’s interest in the house.

A basic calculation of the equity you or your wife would have to “repurchase” from the trustee would be calculated as the current fair market value of your home minus the current outstanding balance on your mortgage less any homestead exemptions in your province, times 50%.  If you or your wife are unable to pay the trustee out all at once, the trustee might be willing to set up a payment plan with you, supported by a promissory note you would give to the trustee. During the time the equity is being paid out, the trustee will register a charge against the property with the land registry office in order to secure the promissory note.

As you suggested in your post, if you were to sell the property prior to filing bankruptcy and she took here share and you paid down your debts with your share of the sale proceeds, that would be perfectly fine so long as you pay your creditors on a pro rata basis. That is, don’t use your share of the money to pay off certain creditors and leave the rest unpaid. You should pay each creditor an equal share according to how much you owe each of them.

debt bankruptcy

Too much debt to file bankruptcy?

Debt is too much? A question asked by a user on Quora:

When declaring bankruptcy can’t be avoided, does it matter how much debt one racks up?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada answers as follows:

The amount of debt accumulated prior to filing bankruptcy is an important factor in determining what would happen in your bankruptcy. There are additional factors as well:

  • How quickly the debt was accumulated prior to bankruptcy.
  • Why was the debt accumulated – i.e., what were the funds used for? Cash advances at the casino? An exorbitant shopping spree? To finance medical bills? To pay for groceries?

For example, using debt to purchase groceries for your family after you’ve been laid off from work would be considered a reasonable explanation for why the debt was accumulated. However, accumulating debt to go off on a gambling or spending spree would not be considered reasonable.

So depending on your answers to the above questions, your bankruptcy proceedings may be straightforward and painless, or problematic and prolonged.

Straightforward and Painless

In Canada if you’re filing bankruptcy for the first time, you can discharged from your bankruptcy in as little as 9 to 21 months. You file, attend two counselling sessions, how the trustee your monthly income and expenditures, pay the trustee his fees (or your surplus income obligation if your average monthly income during those first 9 months exceeds a monthly threshold ).

Problematic and Prolonged

Your discharge from bankruptcy could potentially be opposed by your trustee, one of your creditors, or by the Office of the Superintendent of Bankruptcy. If your discharge is opposed, you will be required to apply for your discharge from bankruptcy with the bankruptcy court. You would be advised by your trustee to retain a lawyer specializing in bankruptcy law to represent you. Upon reviewing evidence of your conduct before and during your bankruptcy, the court will make one of the following orders with respect to your discharge:

  • If your conduct was especially egregious, your discharge shall be refused. This means that you will still owe all your debts and your creditors can recommence legal proceedings against you to collect on their debts.
  • Your discharge will be conditional upon you making a monetary payment to your bankruptcy estate for the benefit of your creditors.
  • Your get an absolute discharge. This basically means you are discharged from your debts with no strings attached.
negative items on credit report

What is the fastest way to remove negative items from my credit report?

A Quora user asks: What is the fastest way to remove negative items from my credit report?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

If the negative items on your credit report were due to an error and untrue, calling the credit reporting agency will fix it fairly quickly. You may be required to submit to them a form describing the error along with copies of photo ID.

On the other hand, if the negative items on your report are factually correct (e.g., you did actually miss those monthly payments), then there is nothing you can do. Here is how long you would have to wait for items to be removed from your credit report in Canada:

  • Credit transactions – negative information about accounts such as credit cards, lines of credit and loans (also called “trades” or “trade lines” by credit reporting agencies) stays for 6 years. Equifax counts from date of last activity (for example, a payment you made). TransUnion counts from date of first delinquency—the date you first defaulted on the account (for example, by making a late payment) without returning to good standing
  • Secured loans – Loans backed by an asset, such as a mortgage, a car lease or loan stay for 6 years.
  • Banking items – negative information, including: chequing and savings accounts closed “for cause” due to money owing or fraud committed by the account holder bad cheques (also called non-sufficient funds or NSF) stays for 6 years.

Tip: don’t fall for those scam businesses that claim that they can remove negative items on your credit report for a fee. Here is how they work: in return for you paying them a lot of money, they’ll lodge a dispute with the credit reporting agency. The agency will remove the negative item in your report while they conduct an investigation. However, once their investigation concludes that the negative item was factually correct, they will put it back into your credit history.

jail, bankruptcy

I went to jail. Should I file for bankruptcy now?

A Quora user asks: I went to jail. Should I file for bankruptcy now? I went into serious debt?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

If you’ve been released from jail

Having been in jail, you now have a criminal record. With that in mind, what are your chances of getting a job that will pay you enough to: (1) finance your living expenses; and (2) gradually pay off your debts?

To be blunt, it’s hard enough to get a good paying job as it is. Now you face an additional burden of potentially being turned down for employment once a prospective employer conducts a criminal background check.

So my advice: go out there and try to get work and see what happens when they run a background check. If you’re able to get hired despite it and the job pays you well, then gradually pay down your debts.

If you can’t get work because of your record, file bankruptcy (assuming you have no assets) and start fresh.

If you’re currently in jail

Now on the other hand, if you are currently in jail and wish to file bankruptcy, there’s nothing to prevent you from doing so except for the fact that you’ll need to find a Licensed Insolvency Trustee that’s willing to come to visit you in prison in order to: (1) perform a financial assessment of your circumstances; (2) sign the necessary bankruptcy documents with you; and (3) perform your two credit counselling sessions. If you’ve never been bankrupt before, you can be discharged from your debts in 9 months.

inheritance after filing bankruptcy

Inheritance or windfall after declaring bankruptcy

Question on Quora asked by Ivan Zarate: If a person becomes rich after declaring bankruptcy (e.g., an inheritance or winning a lottery), why don’t they have to pay back their original debt?

Answer given by Victor Fong, Licensed Insolvency Trustee in Toronto, Canada:

The idea of bankruptcy is for a person to get a fresh start in life so she can become a productive citizen and contribute to society without being burdened by overwhelming debt.

With that being said, in Canada, if you acquire property (like an inheritance or some other windfall) between the time you file for personal bankruptcy and the date of your discharge from bankruptcy, the trustee seizes it from you for the benefit of your creditors. If the amount of your windfall is more than what you owed to your creditors, the trustee would keep enough of it to pay all your creditors and his fees and would return the excess to you.

On the other hand, if you receive that windfall after your discharge from bankruptcy and the conditions for you receiving that windfall didn’t exist until after your discharge, then you keep it.

debt consolidation loan or bankruptcy

Should I get a debt consolidation loan or file for bankruptcy?

A user on Quora asks: I owe $65k in credit card debt. What’s better: those debt consolidation loans that I get in the mail or filing for bankruptcy?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

There are 3 main factors you must take into consideration in deciding which option best suits you:

Financial Goals

Do you have any financial goals which require you to have access to credit within the next 7 years? If the answer is “yes” then bankruptcy might not be the best choice for you.

Within the context of the question above, from my experience, personal bankruptcy is appropriate if you’re either really young or really old.

If you’re really young, you can file and get rid of your debt. By the time you’re in your late twenties or early thirties your bankruptcy will be off your credit record just in time for you to get that mortgage or that business loan.

If you’re really old, you’re past the station in life where you need to get a mortgage or business loan.

Assets

Do you have any assets? If you have assets, they may have to be liquidated by a Licensed Insolvency Trustee if you choose to file bankruptcy. Therefore, this will also be an important factor in your decision.

Ability to service debt consolidation loan payments

Can you afford to make the monthly payments on a debt consolidation loan? The size of your payments will depend on the borrowing rate you can get from the lending institution. If the interest rate you are paying on the debt consolidation loan is higher than the average interest rate you currently are paying on your credit cards, you’ll be paying more money in interest than you would if you just paid off the credit cards on your own. In this situation, a debt consolidation loan wouldn’t make any sense.

On the other hand, if you can negotiate an interest rate on the debt consolidation loan that is lower than the average interest rate on your credit cards, then such a loan might make financial sense.

shopping addict

Advice for a shopping addict

Shopping addict Jocelyn Stengel asks on Quora: I am a shopping addict, how do I go about freezing my credit and what other steps can your recommend I take to prevent myself from opening credit?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Freezing your credit – call your bank and ask them to cancel your loan accounts. Of course, you will still need to pay off the current balances.

Prevent opening new credit – lodge a written undertaking with Equifax, Trans Union and Experian (i.e., the credit reporting agencies) that you will not use, possess, apply for, acquire or obtain any credit for 3 years. Three years should be enough time to give yourself a break from credit and learn how to live on cash.

tuition-student-loan-bankruptcy

Can university tuition be included in a bankruptcy?

A Quora user asks: Can tuition debt owed directly to a university (not a loan) be discharged in a bankruptcy?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

I’m going to answer your question as it applies to Canada (where I practice).

The general answer is “yes”. It’s only government-guaranteed student loans that are non-dischargeable (unless you’ve been out of school for 7 years at the time you filed bankruptcy).

Now I have two questions: (1) how much do you owe; and (2) in what program were you studying? The reason why I ask is that there’s a very specific situation where the answer might not apply.

If you’re attending law school or medical school and owe a significant amount of money, this may cause problems in you getting discharged from these debts. Generally speaking, according to current case law, loans taken out (be they public or private) to obtain a professional education are not dischargeable. The reasoning is that the education that you receive in law school or medical school is an “asset” that you can use to earn significant income in the future. Therefore, in this specific situation, you’d need to repay the entire loan.

debt settlement fix credit

Is debt settlement a good way for consumers to fix their credit issues?

Question from a Quora user: Will a debt settlement fix credit? Is debt settlement a good way for consumers to fix their credit issues?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

The reason for the existence of credit ratings and credit scores is to protect lenders from potentially feckless borrowers who approach them for loans. Therefore, if someone’s credit rating has already been affected by, for example, late or non payment of debts, then a settlement won’t do anything to “fix it”.

The only way to fix a credit report issue is to deal with the outstanding debts by: (1) paying it off; (2) through a settlement; (3) or with the assistance of a Licensed Insolvency Trustee who can assist you with a legal settlement called a consumer proposal. Once you’ve dealt with your debts through one of these options, then you will need to rebuild your credit from scratch.

Rebuilding credit can be initiated by obtaining a secured credit card and using it on a regular basis.

co-signer bankruptcy

What happens to a co-signer of a loan agreement if I file for bankruptcy?

A Quora user asks: What happens to a co-signer of a loan agreement if I file for bankruptcy?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

You need to read what the loan agreement actually says.

Having said that, what these agreements usually say us that all signatories to the loan agreement are joint and severally liable. So if one person cannot pay (like yourself), then the other party is responsible for the entire loan.

Now, what recourse does the co-signer have against you if you file for personal bankruptcy?

If the co-signer pays off the debt, she can file a claim in your bankruptcy proceedings since now she is now one of your creditors. More particularly, she has the same rights as the other creditors, namely:

  • She can request that you be examined under oath before a bankruptcy court if there are issues regarding your personal conduct prior to and during your bankruptcy.
  • She can request a meeting of creditors which your Licensed Insolvency Trustee would be required to schedule and which you would be required to attend. The purpose of the meeting is to review the state of your financial affairs and to provide an opportunity to the creditors to ask you questions.
  • She can oppose your discharge from bankruptcy by filing an opposition with your Licensed Insolvency Trustee. If this happens, you would not be eligible for an automatic discharge from bankruptcy and you would be required to attend bankruptcy court to apply for your discharge from bankruptcy (and hence your debts).

collection agency settlement

Is there a strategy to deal with collection agencies?

A Quora user asks: I look up strategies to do a collection agency settlement and they all talk about illegal “things to look out for” that collection agencies do. Well, this agency doesn’t do any of those things but I still want to know if there is a strategy I can use. Can I ask to pay some kind of percentage?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Are you in this situation because you’re unable to pay the debt or because you don’t want to?

If you can convince them that you’re unable to pay this debt due to circumstances beyond your control (e.g., unemployment, illness, etc. – and they’ll probably want documentation, like a layoff notice or doctor’s note) then they might be willing to settle with you. They’d rather get x% of something than 100% of nothing.

They might be more willing to negotiate a percentage of what you owe them if you pay the entire settlement up front. So say you owe $10,000 and they agree to 50% of that (i.e., $5,000). They may only settle on that amount if you pay the entire $5,000 in one lump sum.

If you’re going to agree to this, you should get some sort of letter from the collection agency that it has the authority to negotiate and collect on behalf of the bank you borrowed from. The letter will usually be issued by the bank itself.

In exchange for the settlement proceeds, they should give you a release letter releasing you from the balance of the debt. Go to their office with a bank draft for the settlement amount and exchange it for the release letter. If you pay them the settlement amount without any sort of written release, then you have no documented proof that you agreed to this deal in the first place.

Caveat: I’m not a lawyer, so you should seek professional legal advice before agreeing to any settlement with the debt collector.

 

 

 

bankruptcy assessment

An assessment of a possible bankruptcy

SummerTO2 asks on Reddit: Hi Victor! Can you perform a bankruptcy assessment of my situation? I have a total of more than $50,000 debt from credit cards and line of credit. My wife and I don’t have car nor home mortgage. I am unemployed right now (but no EI) and my wife is on EI. I am planning to file for personal bankruptcy. How would you assess my situation? And is my wife affected when I file for bankruptcy? We live in Ontario. Thanks!
Hi SummerTO,
Based on the information you’ve indicated in your post, if:
  • You’ve never been bankrupt before;
  • your household consists of just yourself and your wife (i.e., no dependent children); and
  • your combined average net monthly income over the next 9 months will not exceed $2,601 per month
then your bankruptcy will last for 9 months and you’ll be discharged at the end of that 9 month period.
Your wife won’t be affected by your bankruptcy (I’m assuming that you are the only person in the household with financial problems). However, if she has any joint debts with you, those creditors would look to her for payment.
Regarding cost, most trustees will charge a flat fee that can be paid in 9 monthly instalments. In the Greater Toronto Area, fees will generally range from $1,800 – $2,000, paid over 9 months.
Hope this helps!

 

tax debt

Are tax debts dischargeable?

A Quora user asks: is tax debt dischargeable?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

In Canada, income tax debts are dischargeable but with an important caveat.

If your bankruptcy was filed after 18 September 2009 and the following applies to you:

  • Your income tax debt is $200,000 or more; and
  • Your income tax debt comprises 75% or more of your total debts

then you will not be eligible for an automatic discharge from bankruptcy. You will need to apply to bankruptcy court for your discharge and the court will set out the terms of your discharge based on your individual circumstances, such as:

  • the reason why you fell behind in your income taxes
  • your ability to pay some of your income tax debt
  • whether you’ve previously been bankrupt and the reasons for the previous bankruptcy

In Canada, there will be 3 possible outcomes from your discharge hearing in court:

  • Your discharge will be conditional upon you performing some act, such as paying money to your bankruptcy estate for the benefit of your creditors.
  • Your discharge will be refused. An order refusing discharge is made if the bankrupt’s conduct before and during bankruptcy was especially egregious.
  • Your will receive an order of absolute discharge from bankruptcy. That is, your debts will be discharged immediately.
credit counsellor

Why do credit counsellors say Licensed Insolvency Trustees are working for the creditors?

A Quora user asksWhy will a credit counsellor say a Licensed Insolvency Trustee is working for the creditors?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

By “credit counsellor”, I’m assuming that you’re referring to non-profit organizations such as Credit Canada (here in Toronto).

These organizations usually receive their funding from the banks. They are therefore acting as defacto collection agents for the banks so they are literally “working for the creditors”.

The issue of whether the trustee sides with the bankrupt or the creditors usually only becomes an issue if the bankrupt has acted in a dishonest manner to the detriment of his creditors before or during the bankruptcy.

Therefore, if there is a conflict between the bankrupt’s interests and the creditors’ interests, the trustee must side with the creditors. However, in the vast majority of cases where a bankrupt has acted honestly and there are no contentious issues, this issue of whom the trustee is siding with simply isn’t raised.

can i buy a home

Can I buy a home after filing for bankruptcy?

Can I buy a home?  A Quora user asks: If I file for bankruptcy, can I still buy a home?

 

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

The following comments are based on Canadian bankruptcy law. I’m also assuming that you’d be an undischarged bankrupt when you purchase the home.

Yes, in theory you can purchase a home so long as someone is willing to give you a mortgage to finance the purchase and is aware of your bankruptcy. It is an offence to obtain credit over $1,000 without disclosing to a lender that you are an undischarged bankrupt.

Aside from this, a question your trustee will ask is this: if you’re filing bankruptcy, how are you getting the money for the down payment? If someone is gifting you the money, then that gift is subject to seizure by your trustee while you’re undischarged.

With the above in mind, the best thing to do would be to wait until you’re discharge before purchasing a home.

Once you’ve been discharged, can start rebuilding your credit by obtaining a secured credit card. A secured credit card is relatively easy to acquire once you’ve obtained your discharge from bankruptcy. You will need to start using it and paying off the monthly balance consistently.

You’ll also need to start putting some money away for a down payment towards your dream home. In Canada, the minimum down payment is 5% of the purchase price if the price is $500,000 or less. If the purchase price is between $500,000 and $999,999, the down payment is 5% of the first $500,000 and 10% of any amount over $500,000.

bankruptcy without spouse

Can I file bankruptcy without my spouse?

Bankruptcy without spouse: a Quora user asks: If my fiance and I decide to get married, can I file for bankruptcy without my spouse, or are both of our names on the bankruptcy petition? No assets.

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Caveat: I am a bankruptcy trustee in Canada, so I am unfamiliar with the U.S. Bankruptcy Code (I assume you reside in the U.S.). So I am going to provide an answer if your situation was in Canada.

The answer is “no”, you can just file bankruptcy on your own. However, to the extent that your debts are joint with your fiancé, the creditors which are owed these joint debts will be able to go after him to recover what they are owed.

 

bankruptcy before or after marriage

Should I file for bankruptcy before or after marriage?

Alexis Royal asks on Quora: Should I file for bankruptcy before or after marriage?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Caveat: I am a Licensed Insolvency Trustee in Canada, so I am unfamiliar with the U.S. Bankruptcy Code (I assume you reside in the U.S.). So I am going to provide an answer if your situation was in Canada.

I would advise you to file and compete your bankruptcy proceedings before you are married. During the time that you are in bankruptcy, you are required to disclose to your bankruptcy trustee the income in your entire household (both you and your husband if you’re living together). The trustee requires this household income information in order to calculate how much of your debts you will need to repay during your bankruptcy.

 

foreign debt

Can foreign debt affect me here in Canada?

Foreign debt: Michelle D. on Quora asks: I have debt in the UK and have moved to Canada. Can it affect me over here? Should I go bankrupt in the UK? Can UK bankruptcy affect me in Canada?

I had a voluntary repossession of my car but there is still £5k outstanding. GM Financial have offices in Canada too. Can they pass it to them & affect my credit in Canada? Also have £6k in HSBC credit card. The weak CAD means 1 payment to them both would wipe out 1/2 a month’s salary!

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

You really have 3 questions, so I’m going to answer this in 3 parts…

Can it affect me over here?

The technical answer is “yes” but the practical answer is “no”. In theory, your UK creditors can pursue you in Canada by getting the cooperation of the Canadian courts to help your UK creditors enforce their debts against you in Canada. However, this would cost your UK creditors legal fees since they would have to hire a Canadian lawyer to make an application to a Canadian court to allow this to happen. The legal fees your UK creditors would have to incur would likely exceed the debts you owe them. Therefore, in their mind, it probably wouldn’t be worth their time pursuing you in Canada.

GM Financial in the UK and GM Financial in Canada are technically different two companies in two different jurisdictions. Therefore, GM Financial in Canada shouldn’t be able to pursue you without attending the the above described steps first. This would apply HSBC UK and HSBC Canada as well.

Should I go bankrupt in the UK?

This will depend on whether you plan to return and work in the UK. If you don’t plan to return to the UK, then there might not be any point in you doing anything at all (for the reasons I explained above). If you do plan to return to the UK and don’t want the burden of your creditors garnishing your wages or seizing your assets upon your return, you should meet with a UK bankruptcy trustee and discuss with him/her a possible bankruptcy filing.

Can a UK bankruptcy affect me in Canada?

This will depend on whether you have assets in Canada and the level of your monthly income in Canada. I’m not familiar with the UK bankruptcy laws, but most bankruptcy laws around the world require you to disclose to your bankruptcy trustee your worldwide assets and income. So any assets you might have in Canada may have to be liquidated by your UK bankruptcy trustee. Likewise, you may have to pay a percentage of your monthly income to your UK bankruptcy trustee if our monthly income is over a certain threshold. In the UK, this is called an Income Payment Agreement.

Also, if you are applying for a job in Canada, prospective employers will generally ask if you have filed bankruptcy within the last 5 years. So this may affect your ability to be hired for any future jobs here. Whether you answer “yes” or “no” will depend on how they ask the question: (1) “have you filed bankruptcy within the last 5 years?”; or “have you filed bankruptcy in Canada within the last 5 years?”. You would answer “yes” to the former and “no” to the latter.

 

 

take name off mortgage

Can I take my name off a mortgage and then file for bankruptcy?

Take name off mortgage? A Quora user asks:  Can I take my name off a mortgage and then file for bankruptcy?

I’m going to answer your question assuming that you are not on title of the home and that you merely co-signed the mortgage with another person.

If you are on title of the home and you want to remove your name before filing for personal bankruptcy, my answer will be completely different….

Whether you can take your name off your mortgage will depend on your bank. If the bank feels that the other person on the mortgage has the financial ability to carry the mortgage payments herself, then removing your name shouldn’t a problem. However, if it’s the bank’s view that your co-signor won’t be able to carry the mortgage on her own, then they will not remove your name unless she can get another co-signor to replace you that’s acceptable to the bank.

 

credit report

Will a bankruptcy automatically come off my credit report?

A Quora user asks: Will a bankruptcy automatically come off my credit report after 7 years or do I need to do something proactive to get it off?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

I’m in Canada, so the answer I’m going to give to you pertains to how it works in my country.

Equifax: A bankruptcy gets removed from your credit file 6 years after you’ve been discharged from bankruptcy. If you are not discharged, Equifax will keep a record of your bankruptcy on file for a maximum period of 7 years (14 years for subsequent bankruptcies) from your bankruptcy filing date.

Trans Union: A bankruptcy gets removed form your credit file 7 years (14 years for subsequent bankruptcies) after you’ve been discharged from bankruptcy. If you are not discharged, Trans Union will keep a record of your bankruptcy on file indefinitely until you obtain your discharge.

The bankruptcy should come off your credit report automatically after the 7 years. However, it’s always good to obtain a copy of your credit report from both Equifax and Trans Union at the 7 year mark to confirm that the bankruptcy record has indeed been removed. If not, you will have to contact them to correct this.

cancel bankruptcy

Can my bankruptcy be cancelled or annulled?

Cancel bankruptcy: a user on Quora asks: Can my bankruptcy declaration be cancelled or annulled?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

In Canada, a personal bankruptcy generally cannot be annulled unless:

  • a debtor who is applying to court for an annulment of the bankruptcy can prove to the court that the bankruptcy should not have been filed in the first place (i.e., the debtor was not insolvent and had the ability to pay his creditors). If successful, the court may grant the annulment; or

 

  • the debtor who is in bankruptcy files a proposal under the Bankruptcy & Insolvency Act (either a consumer proposal or if his non-mortgage debt is more than $250,000, a commercial proposal – also known as a Division I proposal). Upon the acceptance of the proposal by the debtor’s creditors and the bankruptcy court, the bankruptcy will be annulled. However, if the debtor defaults on the payment of the proposal, he will find himself in bankruptcy again.
business bankruptcy

What happens to a person whose business goes bankrupt?

Business bankruptcy question: a Quora user asks: What happens to a person whose business goes bankrupt?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

In Canada, if you are incorporated, then you are not responsible for the corporation’s debts. There are however 2 major exceptions:


1. If you are a director, you are personally responsible for unpaid wages & vacation pay, unremitted payroll taxes and unremitted sales taxes that were left unpaid from the distribution of the corporate assets (if any) by the bankruptcy trustee.

2. If you signed any personal guarantees for the corporation, you will be personally liable if these debts remain unpaid from the corporate bankruptcy proceedings.

More often than not, the business was also the owner’s sole source of income. So the business owner has most likely accumulated a lot of personal debt to finance his living expenses because he wasn’t earning enough money from the business. So in my experience, the business owner will usually file for personal bankruptcy alongside the bankruptcy of his business corporation.

relationship and debt problems

Being in a relationship with someone who has a debt problem

A Quora user asks:

Do you think it is wrong, a bad idea, or unrealistic for me to want to avoid getting serious with guys who have considerable debts from college?

I worked hard to get through college with no debts, and I’m worried about perhaps ruining my future if I end up getting married to a guy who has considerable debts which could make life tough. I want a relationship to lead to marriage, so realism is important. Thanks. What are your thoughts?

Victor Fong, Licensed Insolvency Trustee replies:

Hi – that’s a great question. I’m a bankruptcy trustee in Canada and I wrote an article about this on my blog [1] , which I will reproduce here:

——————————————————————————————————————————————

Throughout my career as a bankruptcy trustee, I have seen the following scenario play out time and time again:

  • Girl meets boy and falls in love. He’s not perfect – he could be irresponsible at times – but he makes her laugh and makes her feel good. Besides, she’s confident that she can make him change his ways.
  • Boy wants to buy a new home or car, but has pretty shoddy credit and/or low income. However, that doesn’t matter, his girl loves him so much that she’ll co-sign the loan for him.
  • Eventually, and for one reason or another, the boy stops making his loan payments and takes off. He doesn’t return his girlfriend’s calls and she gets stuck with all his debt. There’s no way she can pay this debt herself so she filed for personal bankruptcy.
  • The roles assigned to the “boy” and “girl” in this scenario are deliberate: from my experience, it is almost always the man who suddenly absconds and the woman who gets the short end. I know this may be politically incorrect, but it is factually accurate from my experience.

So ladies, how do you avoid this scenario (or avoid it the next time)? Consider taking these steps:

In the short term, keep your financial affairs separate from your boyfriend or spouse. Do not co-sign any loans, keep your bank accounts separate and keep your assets separate.

If you are serious about establishing a long-term relationship with your partner (like marriage for instance), ask if he is willing to consent to a background check. A comprehensive background check will screen the following:

  1. Address histories
  2. Civil and bankruptcy records
  3. Credit reports
  4. Criminal records
  5. Driving histories
  6. Education and employment histories
  7. Liens and judgment histories
  8. Media coverage

If he has nothing to hide and really loves you, he should have no problem in consenting to this. If he is hesitant and cannot give you a REALLY good explanation, then you should have second thoughts about entering into a long term relationship with him. I have personally used Kroll to perform background checks on prospective employees.

If you have significant assets and income (or expect it in the future), discuss with him the issue of entering into a pre-nuptial agreement.
Feelings of romantic love will inevitably subside and reality will set in. And if it turns out that your partner is a “real” deadbeat, you will at least have taken preventive measures to make sure that only your heart gets broken, and not your wallet.

Footnotes
[1] Love and money don’t mix – Fong Financial Literacy Canada

proof of debt

A question about proving debt

ii8Bit asks on Reddit:

Been looking to speak to someone like you!

My question: is it the same in Canada as the US. Where if you write a letter to a debt collector requesting proof of debt owed, they have to get back to you with proof, and if they can’t it’s wiped clean?

Thanks!

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Hi ii8Bit,

I don’t think that it’s that simple – at least not in Canada. There would be a number of steps one would need to take to achieve that same result:

You’re contacted by a collection agency asserting that you owe debt. You don’t pay it, either because you’re unwilling or unable;

The agency subsequently sues you for the debt by taking you to small claims court. At court, you can challenge the existence of the debt. And if the agency cannot produce proof of the debt (e.g., signed loan agreement or credit card agreement), then the court will dismiss the agency’s motion against you.

So just writing a letter to an agency for proof of the debt won’t prohibit them from taking collection action against you if they don’t happen to have the paperwork. The matter would have to go to small claims court. But if the above scenario plays out in your favour, then the debt is effectively “wiped clean” because the creditor cannot enforce its collection.