Newsletter - April 2011

Bankruptcy discharge process

Introduction

The Bankruptcy and Insolvency Act (the Act) allows an honest but unfortunate debtor to be discharged from its debts. This newsletter's objective is to discuss the different processes leading to a bankruptcy discharge.

Length of the bankruptcy

The length of a bankruptcy is based on the number of past bankruptcies, on current income and some of the family unit's expenses. These include but are not limited to tax instalments, medical fees and babysitting charges.

Debtors who have an upper average income of more than $200.00 on the grid determined by the Office of the superintendent of Bankruptcy must make payments as surplus income. For instance:

1st bankruptcy without surplus income => automatic discharge after 9 months

1st bankruptcy with surplus income => automatic discharge after 21 months

2nd bankruptcy without surplus income => automatic discharge after 24 months

2nd bankruptcy with surplus income => automatic discharge 36 months

3rd bankruptcy or more => hearing before the Court 12 months after the date of the bankruptcy

Exception: Fiscal debtors: that is when a debtor has a tax liability of $200,000 representing 75% or more of the entirety of the unsecured proven claims. However, the director's obligations towards a corporation are excluded from this definition.

Amendments : The length of the bankruptcy, as well as the payments to be made, may be subject to changes during the case if there is a modification to the income, disbursements or in the number of family members.

Opposition

• Those who may oppose the discharge of a debtor are the trustee, a creditor or the Office of the Superintendent of Bankruptcy.
• When an opposition is filed, an application for a hearing before the Court is made.

Reasons for opposition

What are the principal reasons for opposition?

• In most cases, the trustee is the one opposing, either because the debtors did not respect their commitments or their financial obligations towards the bankruptcy estate, or because they did not attend the required budgetary counselling meetings.
• However, a creditor may oppose the discharge for different reasons, for instance when a debtor chose bankruptcy whereas he would have been able to file a consumer proposal, or when the debtor caused its bankruptcy through questionable conduct.

When is a hearing scheduled?

• When there is an opposition to the debtor's discharge;
• When the debtor went bankrupt for the third time or more;
• When the debtor is a fiscal debtor.

Hearing before the Court

• The hearing is made before a registrar, a special clerk or a judge.
• The debtor is questioned on the causes of its bankruptcy, the nature of its debts, its budget and the measures that have to be taken to avoid indebtedness in the future.
• The debtor is not required to hire an attorney, except in the case where an opposition has been filed by a creditor. If the debtor requires an attorney, he does so at his discretion and cost;
• The trustee, or his representative, must attend the hearing, and file a report to the Court and question the debtors.

Trustee's report on the debtor's discharge

• The trustee must prepare a report as per section 170 of the Act.
• The content of the report usually includes, but is not limited to, information regarding the debtor's behaviour, the amounts realised by the trustee and background information on the debtor.
• The report is filed with the official receiver and sent to the Court, to the debtor and any creditor who requests it.

Possible decisions rendered by the Court

• Absolute discharge: the debtor is discharged of its debts, except for those defined in section 178 of the Act;
• Conditional discharge: the debtor is discharged subject to terms and conditions. It is most likely that the conditions will be to made payments to the estate, representing either a lump sum or the balance due to the trustee;
• Suspended discharge: discharge is suspended for a specified time and the debtor is discharged at the expiration of the timeframe.

Non dischargeable debts

Under section 178 of the Act, debtors are not discharged from the following debts:

• fines, penalties or debts arising from a court order;
• fines in respect to bodily harm, assault or death;
• debts for alimentary or child support;
• fraudulent debts or debts resulting from misrepresentation;
• student loans if the debtor was a student within seven years preceding the bankruptcy;
• dividends to which an undeclared creditor would have been entitled to;
• interest with respect to any of the debts aforementioned.

Conclusion

Processes regarding discharge of a bankrupt can be complicated. For any inquiry concerning this subject, please contact with a trustee from Ginsberg, Gingras & Associates in your region.

EMMANUEL H. RACICOT, B.SC.SOC, CIRP

Bankruptcy Trustee, Gatineau

Mr. Emmanuel H. Racicot is trustee in bankruptcy in our office located in Gatineau at 160, boul. de l'Hopital, suite 102, Gatineau (Quebec) J8T 8J1, 819-243-1515 .

For additional information on this topic or any other insolvency matter, please contact one of our trustees. The contact information and e-mail addresses of our professionals are available on our Web site at www.ginsberg-gingras.com.

Ginsberg Gingras & Associates Inc. is a member of the DFK Canada Inc., DFK International and is associated with the accounting firm of Ginsberg Gluzman Fage & Levitz, LLP Chartered Accountants.

** This article does not constitute any legal advice. It is offered for information purposes only. Since every case is different, the advice of a qualified professional should be sought in each situation. **