Bankruptcy | Debt Problems

Unable to Pay -- What can you do? If a person is unable to pay their debts, there are various options available to deal with the problem. Consulting a lawyer can help you make proper decisions that are appropriate for you. Here is some information I hope you will find helpful.

Communicate

It always surprises me how many people avoid speaking with their creditors when there is a problem. Communicating frankly and sincerely with them will often gain great cooperation. Failure to communicate will in most cases leave the creditor with little alternative but to take court or other enforcement proceedings. Most creditors in business are prepared to work with a person to see themselves paid if they believe the debtor is sincere and making their best effort to pay.

Bankruptcy

Making an assignment in bankruptcy can stop many court or collection proceedings against a person. However, it should always be considered a last resort action after all other efforts have failed.

• There are limitations to the problems that bankruptcy can solve. In addition, bankruptcy will certainly spoil a person's credit rating for a long period of time if that has not happened already.
• Bankruptcy will not affect security held by a creditor. For example, if a creditor holds a mortgage on property or security in goods, the security will still be enforceable. The creditor may still foreclose on the mortgage, seize goods held as security, etc. although in most cases, the creditor can no longer obtain judgment on the promise to pay.
• Certain types of debts are not forgiven by bankruptcy. This includes but is not limited to family law maintenance obligations, court fines, debts from certain types of fraudulent activity, debts from breaches of trust, etc.
• If debts are to be forgiven by bankruptcy, that will only happen when a person is discharged from bankruptcy ... not when the assignment is made. Generally speaking, the discharge for individuals is automatic 9 months an assignment is made unless objections are filed by creditors or other special circumstances apply.
• Most court actions against a person are "stayed" by an assignment in bankruptcy.
• Creditors and certain other persons may object to a person's automatic discharge from bankruptcy. If that happens, a hearing may result. A trustee can also recommend that the bankrupt not receive an automatic discharge. This can result in a discharge being refused, a delayed discharge or a conditional discharge, usually meaning that payments must be made to the trustee over time on a portion of the indebtedness before a discharge is complete.
• An assignment in bankruptcy will be reported through credit bureaus and will show up on a person's credit report for at least 7 years.
• All non-exempt property of a bankrupt person vests with the trustee and can be sold and distributed amongst creditors. The order of priority between creditors is set out in the Bankruptcy & Insolvency Act of Canada. Exemptions vary according to the exemptions law of each province.
• An assignment in bankruptcy is made through a licensed trustee. Usually they are connected with a chartered accounting firm. There is typically an up front fee that must be paid which is in excess of $1000.00.

Orderly Payment of Debts Provisions

This procedure is a part of Bankruptcy & Insolvency legislation but is a consumer alternative to bankruptcy. It involves a voluntary application to make monthly payments on debts that must be paid in full over a few years. An order under these provisions is considered the equivalent of a judgment, but it can give a debtor a chance to make payments on a regular basis where it is impossible to make those arrangements with creditors. In Saskatchewan, the program is administered in connection with the Provincial Mediation Board. There are limitations to the program. It will not cover all forms of debt. Further information should be obtained from the Board. Failure to follow through with the proposal will result in the creditors being supplied with a certificate of default. The certificate of default will entitle creditors to register the order as a judgment at court and then enforce the judgment.

Consumer Proposal under the Bankruptcy & Insolvency Act

This is another alternative to making an assignment in bankruptcy. The proposal must provide for all of a person's indebtedness, which must not exceed $250,000.00 excluding the mortgage on a principal residence, to be paid over time as set out in the proposal. There are requirements that the proposal must meet. Creditors are entitled to vote as to whether they accept or reject the proposal. Proposals a made and administered through persons licensed to act as trustees in bankruptcy.

Regular Proposal under the Bankruptcy & Insolvency Act

This is a second type of proposal that can be made under the Bankruptcy & Insolvency Act. Generally speaking, it is intended for more serious debt problems as an alternative to bankruptcy. A proposal is drafted and distributed to creditors or classes of creditors by a licensed trustee in bankruptcy. Creditors are allowed to vote for or against the proposal. If accepted and approved by the court, the proposal will be in force. If rejected, the person making the proposal will be deemed to have made an assignment into bankruptcy effective the date of the proposal or notice of intent. The procedure and rules relating to this type of proposal are complex. Further information should be obtained through a lawyer practising in this area or a licensed trustee.

Court Orders for Periodic Payments

Courts in Saskatchewan have the power to make orders allowing persons with a judgment against them to make regular payments in lieu of the judgment being enforced. The application must be made by the judgment debtor. The terms of any order and whether it will be granted at all are discretionary on the part of the judge hearing the application.

Opposing Discharges in Bankruptcy

Sometimes a creditor will object to a bankrupt being discharged. The possible grounds are set out in section 173 of the Bankruptcy and Insolvency Act. In most cases, this will result in a court hearing. The bankrupt may or may not need to testify. The objecting creditor will need to file material to support their position. The bankruptcy registrar, who is a judge in the Bankruptcy Court (King's Bench), will hear the matter and make a decision. There are several possible outcomes. The result depend completely on the circumstances. Some possible outcomes include:

• Absolute discharge of the bankrupt if the grounds are not proven;
• A conditional discharge is mandatory if one or more of the grounds in section 173 are proven;
• Refusal of discharge completely. This is typically reserved for people who have abused the bankruptcy system in one manner or another. Most often, the judge sets a time the bankrupt must wait before re-applying.
• A conditional discharge can involve either a suspension of the discharge for a number of months before it becomes effective. The judge may make an order that the bankrupt pay certain money to the estate in bankruptcy either as a lump sum or periodic payments as a condition of the discharge. The judge can also impose other non-monetary conditions for the bankrupt to fulfill as a condition of being discharged.
• A conditional discharge can sometimes allow the bankrupt to be discharged right away if the bankrupt consents to a judgment against them for the amount to be paid.

Contact me if you need to hire legal counsel in this area.