Tag Archives: bankruptcy

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.
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.

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.

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).

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.
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.

 

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.

co owner house

Is the co-owner of my house affected by my bankruptcy?

From Reddit: ta19762 asks: Big question……if my wife and I declare personal bankruptcy is our house in jeopardy? My mum lives with us and made a significant down-payment, and we pay the mortgage on the remainder. It’s in our name, but we have a legal doc stating my mum owns 37%. I don’t want our financial situation to impact her. She’s on s fixed income and I don’t want to be responsible for making it worse. We live in Ontario.

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

Hi Ta1976,

You indicated that your mother owns a 37% interest in your family home and that you have a legal document to support this. Is this legal document a title deed? That is to ask: is your mother on title with both you and your wife?

Also, is your mother a co-signatory on the mortgage? It would be helpful if you could provide this information.

But to provide a general answer to a situation like yours: the interest owned by you and your wife in the equity (i.e., the fair market value of the home minus the outstanding mortgage balance) would be affected by your bankruptcy. Your mother’s legal interest in the home’s equity would be unaffected.

When filing bankruptcy, your share of the equity becomes the legal property of the trustee. The trustee has a duty to realize on the equity. The trustee will usually work out some sort of payment arrangement where you and your wife can “buy back” the equity from the bankruptcy trustee under a monthly payment plan. The trustee will need the approval of your creditors before entering into such an arrangement with you. In the meanwhile, the trustee will register a bankruptcy caution or a mortgage charge at the land registry where your house is situated to make sure that you don’t sell the home and run off with the money before you’ve paid the trustee in full.

income tax debt

Income tax debt and personal bankruptcy

Income tax debt. Despite beliefs to the contrary, personal income tax debt is treated no differently than most other types of debt under Canadian bankruptcy law. However, this statement comes with a caveat, which we’ll examine later later in this post.

Here is a typical scenario that occurs across frequently:

  • The debtor is self-employed and for one reason or another, has not filed personal income tax returns for a number of years;
  • She eventually has her earnings garnished by the Canada Revenue Agency. She calls CRA to find out what’s going on, and is told that they performed an arbitrary assessment of the income taxes that she owes, since she never filed her tax returns.

Here are the steps you should take:

  • Get your income tax returns filed. Once CRA assesses your income tax returns as filed, you may actually owe a lot less income tax than what CRA initially assessed. If that’s the case, you may be able to pay off your income tax obligations on your own;
  • However, if the actual amount assessed is still unmanageable, you should contact a bankruptcy trustee to determine what your options are to deal with your income tax (and other) debts.

Two formal options under the Bankruptcy and Insolvency Act are to file for personal bankruptcy or alternatively, make a settlement with CRA by way of a consumer proposal.

In contemplating filing for personal bankruptcy, you should be mindful of the following:

  • New amendments to the Bankruptcy and Insolvency Act came into force on 18 September 2009. An individual who filed bankruptcy prior to that date would be eligible for an “automatic” discharge; that is, she would be discharged automatically after fulfilling certain financial and counselling obligations without having to go to court to obtain her discharge;
  • If you file for personal bankruptcy on or after 18 September 2009 and you have: (1) at least $200,000 in personal income tax debt; and (2) the tax debt comprises 75% or more of your total debt, then you will be required to attend a discharge hearing with the bankruptcy court. The court will review your bankruptcy file and you may be required to pay more money to your bankruptcy estate as a condition of your discharge;
  • For example, as a rule of thumb, the Toronto bankruptcy court requires a bankrupt to pay between 10-15 percent of the principal balance of her personal income tax debts as a condition of her discharge. If the circumstances that led to her bankruptcy are particularly egregious (e.g., this is her second bankruptcy and her first bankruptcy was also income tax driven), she may be required to pay an even higher amount.

If you are contemplating filing a proposal to CRA, you should be mindful of the following:

  • If your total debts (defined as all debts excluding your mortgage on a principal residence) are less than $250,000, you will be eligible to file a consumer proposal. This is a streamlined approach of getting your proposal approved and your proposal can be automatically approved by your creditors within 45 days after being filed by a trustee;
  • If your total debts (defined as all debts excluding your mortgage on a principal residence) are more than $250,000, you will be required to file a Division I proposal. This requires a formal meeting of creditors and an application to the bankruptcy court to get your proposal approved. If your proposal is not approved by either the creditors or the court, you are deemed to have filed for bankruptcy at the creditors meeting or at the motion application, as the case may be;
  • Put your best foot forward. That is, offer the very best settlement you can afford when dealing with the CRA. CRA is very sophisticated in dealing with tax debtors who’ve undertaken formal insolvency proceedings, so it is best to deal with them in a straightforward manner.

This post should not be interpreted as legal advice or a legal opinion. Please consult your local Canadian Licensed Insolvency Trustee to review your own particular circumstances.

© Copyright www.Bankruptcy-in-Canada.com, 2013.

what can you keep

What can you keep when filing bankruptcy – federal and provincial exemptions

What can you keep when filing for personal bankruptcy?

This is a common question. When an individual files for personal bankruptcy, her Licensed Insolvency Trustee takes possession of her property, which is then used to satisfy her outstanding debts.  This is the general rule of thumb. However, the trustee (and therefore the bankrupt’s creditors) are not entitled to any property that is considered exempt under the federal Bankruptcy and Insolvency Act or under the laws of the provinces in Canada.  In these instances, the exempt property in questions continues to be the property of the bankrupt.

The various federal and provincial exemptions are as follows:

The federal Bankruptcy and Insolvency Act

Section 67 of the Bankruptcy and Insolvency Act (BIA) establishes four general categories of exempt property:

  • property held by the bankrupt in trust for other persons;
  • property of the bankrupt that is exempt from seizure under the applicable provincial law where the property is situated and where the bankrupt resides;
  • GST credit payments and prescribed payments relating to the essential needs of individuals; and
  • Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs),  and Deferred Profit Sharing Plans (DPSPs) apart from any contributions made in the last 12 months before bankruptcy.

Provincial & Territorial Exemptions

The policy reason for ensuring that a debtor can retain certain property is straightforward:  a person requires essentials such as clothing, household goods and property necessary to earn a living.  Moreover, provincial laws may also exempt certain forms of retirement savings in order to encourage people to save for their retirement years.

Alberta

  • food for a 12-month period;
  • clothing up to a value of $4,000;
  • household furniture and appliances up to a value of $4,000;
  • a motor vehicle to a value of not more than $5,000;
  • equity in a principal residence up to $40,000 (reduced to the debtor’s share if he or she is a co-owner);
  • where the debtor is a bona fide farmer whose principal source of income is from farming, 160 acres of land if the debtor’s principal residence is located on the 160 acres and that tract of land is part of the debtor’s farm;
  • farm property required for 12 months’ operations;
  • personal property required to earn an income to a maximum value of $10,000; and
  • social allowance, handicap benefit or widow’s pension, if these benefits are not intermingled with other funds;
  • health aids.

British Columbia

  • equity in a home in Greater Vancouver and Victoria equal to $12,000; in the rest of the province, home equity to a maximum of $9,000;
  • household furniture and appliances up to a value of $4,000;
  • a motor vehicle to a value of not more than $5,000 (the vehicle exemption is reduced to $2,000 if the debtor has not made child maintenance payments);
  • tools and other personal property required to earn an income to a maximum value of $10,000;
  • clothing and medical aids of unlimited value.

Manitoba

  • Food and fuel: six months’ supply or cash equivalent.
  • Clothing: no dollar limit.
  • Household furniture and appliances: up to $4,500
  • One motor vehicle (needed for occupation): non-farmers up to $3,000, farmers no limit.
  • Health aids: no dollar limit.
  • Tools of your trade: up to $7,500.
  • Farm property: buildings and requirements for 12 months operations.
  • Principal residence: farm house; non-farmers up to $2,500, or $1,500 if you are a co-owner.
  • Farm land: up to 160 acres.
  • Items needed for religious services.
  • Locked-in pension plans.
  • Certain life insurance policies.
  • Municipal or school property.

New Brunswick

  • Food and fuel: three months’ supply.
  • Clothing: no dollar limit.
  • Household furniture and appliances: up to $5,000 (more in some cases).
  • One motor vehicle (needed for occupation): up to $6,500 (more in some cases).
  • Health aids: no dollar limit.
  • Tools of your trade: up to $6,500.
  • Farm property: farm animals to specified limits, their feed for six months, and seeds to specified limits.
  • Items needed for religious services.
  • Pets
  • Pension plans

Newfoundland and Labrador

  • food and fuel required by the debtor andher dependants during the next 12 months;
  • necessary clothing of the debtor and her dependants up to a maximum value of $4,000;
  • household furnishings, utensils, equipment and appliances up to a maximum value of $4,000;
  • one motor vehicle to a maximum value of $2,000;
  • medical and dental aids required by the debtor and her dependants;
  • items of sentimental value to the debtor valued at not more than $500;
  • domesticated animals (pets) not used for a business purpose;
  • the debtor’s principal residence to a maximum value of $10,000;
  • either
    1. personal property used to earn income from an occupation, trade, business or calling to a maximum value of $10,000; or
    2. where the debtor’s primary occupation is farming, fishing or aquaculture, personal property ordinarily used by and necessary for the debtor to earn income from those occupations to a maximum value of $10,000;
  • a pension plan, unless otherwise provided;
  • property as prescribed by regulation; and
  • net income to a maximum prescribed amount.

Nova Scotia

  • Food and fuel: no dollar limit.
  • Clothing: no dollar limit.
  • Household goods: up to $6,500, more in some cases.
  • One motor vehicle: up to $3,000, or up to $6,500 if needed in occupation.
  • Health aids: no dollar limit.
  • Tools of any occupation: up to $1,000.
  • Seeds and livestock for domestic use: no dollar limit.
  • Principal residence: none.

Ontario

  • Household furnishings and appliances up to $13,150
  • your principal residence is exempt from seizure IF the equity in your home does not exceed $10,000. If the equity does exceed $10,000 then your principal residence is subject to seizure and sale
  • All necessary clothing
  • Tools of the trade up to $11,300
  • A vehicle valued up to $6,600
  • Pensions
  • Other special exemptions for farmers
  • Certain life insurance policies and certain RRSPs

Prince Edward Island 

  • Food, fuel, household furniture, appliances: up to $2,000.
  • Clothing: no dollar limit.
  • One motor vehicle (needed for occupation): up to $6,500.
  • Health aids: no dollar limit.
  • Tools of your trade: up to $2,000.
  • Farm property: seed for up to 100 acres, other up to $5,000.
  • Principal residence: none.
  • RRSPs with beneficiary a family member: no dollar limit.

If you are behind on child or spousal support payments, the above exemptions do not apply to any item but tools of your trade.

Quebec

  • unlimited food and fuel;
  • unlimited clothing;
  • household furniture and appliances up to $6,000;
  • motor vehicle (no dollar limit);
  • disability aids and accident benefits;
  • tools of your trade (no dollar limit);
  • farm property (no dollar limit);
  • up to $10,000 equity in a principal residence;
  • an immovable serving as a principal residence, in certain cases, where the amount of the claim is less than $10,000;
  • support that has been court-ordered, donated, or received in a bequest;
  • property declared exempt by a donor or a will;
  • a portion of salary, based on the number of the debtor’s dependants;
  • benefits payable and employer contributions under a pension plan;
  • family papers and portraits, medals and other decorations, and documents;
  • items used in religious worship;
  • income for services as a minister of religion;
  • food, lodging and transportation passes received for employment travel.

Saskatchewan

  • Food and fuel: cash equivalent of supply until the next harvest.
  • Clothing: no dollar limit.
  • Household furniture and appliances: up to $4,500 (or $10,000 for a farm).
  • One motor vehicle (needed for occupation): no dollar limit.
  • Health aids: none.
  • Tools of your trade: up to $4,500.
  • Farm property: livestock and equipment for up to 12 months, two bushels seed per acre of land under cultivation, and enough cash or current crop for farming costs to the next harvest.
  • Principal residence: up to $32,000 (your share) and associated land up to 160 acres.
  • All retirement savings plans: RRSPs, RRIFs, and DPSPs.
  • Certain life insurance policies.

Yukon, Northwest Territories, and Nunavut

  • a 12-month supply of food and fuel;
  • clothing (no dollar limit);
  • household furniture and appliances up to $200;
  • health aids;
  • tools and animals of one’s trade, including a motor vehicle, up to $600;
  • equity in a principal residence up to $3,000; and
  • RRSPs associated with insurance policies.

However, none of the exemptions in the territories apply if a debtor is behind on child or spousal payments, or has absconded from the territories, leaving no spouse or family behind.

Disclaimer:

This material deals with complex matters and may not apply to particular facts and circumstances. As well, the material and the references contained therein reflect laws and practices that are subjects to change. For these reasons, this article should not be relied upon as a substitute for specialized professional advice in connection with any particular matter.

For interpretation of the rules in your case, we strongly recommend that you contact a Licensed Insolvency Trustee to review your situation to determine which assets would be exempt if you were to file for bankruptcy.