What Happens If I Dont Fulfill My Duties During A Bankruptcy?

In Canada, an assignment in bankruptcy is an insolvency solution regulated by the Office of the Superintendent of Bankruptcy Canada (the OSB), whose mandate is to supervise the administration of all estates and matters under the Bankruptcy and Insolvency Act (the BIA).

A debtor who declares bankruptcy under the BIA will be able to get most, if not all, of their debts eliminated. If you owe $1,000 or more to your creditors and are unable to pay the debts as they become due or have ceased making payments to your creditors, you may file a voluntary bankruptcy under the BIA. You must be insolvent within the meaning of the BIA, in that the total of your liabilities must exceed the total fair market valuation of your assets, if sold. In addition, you must either: (1) have property in Canada; (2) be carrying on business in Canada; or (3) have resided in Canada within the past twelve months. 

The procedure for filing a voluntary bankruptcy in Canada begins with obtaining the assistance of a Licensed Insolvency Trustee. The Trustee is required to make a financial appraisal or assessment of your unique financial situation and outline the statutory and non-statutory options which may be available to you in dealing with your debts. In the event you opt to declare bankruptcy, as part of the assessment, the Trustee is required to inform you of which assets are at risk and whether any portion of your income will be payable for the benefit of your creditors.   The Trustee must: (1) inform you of your duties and obligations under the BIA; (2) provide you with a copy of the pertinent sections of the BIA; and (3) obtain from you a written acknowledgement that you have received, read and understood your duties. The bankruptcy is then filed by your Trustee with the OSB, who will issue a Certificate of Appointment to the Trustee declaring you “bankrupt” and appointing the Trustee to administer your bankruptcy estate. 

Leading up to your application for discharge from your debts, the Trustee is required to prepare a report entitled the “Report of Trustee on Bankrupt’s Application for Discharge”. This is known to be a 170 report. In the 170 Report, the Trustee will comment on whether or not you have complied with the duties imposed on you under section 158 of the BIA. Some of the most important duties include:

• Disclosing all property to the Trustee and delivering all non-exempt property to the Trustee.
• Providing the Trustee with RRSP statements, insurance policies, tax records and returns etc.
• Delivering all credit cards in your possession to the Trustee for cancellation.
• Attending two mandatory financial counselling sessions.
• Reporting your monthly household income and expenses to the Trustee in order for the Trustee to determine if there is any surplus income which is payable for the benefit of your creditors, including you making all required payments.
• Attending a meeting of creditors or an examination by the OSB, if required.
• Keeping the Trustee advised at all time of your place of residence until your application for discharge has been disposed of and the administration of the estate has been completed.

If you fail to comply with the duties imposed on you under the BIA, the Trustee will be required to oppose your discharge from bankruptcy and bring an application before the Court for a hearing of the matter.

Requirement to Make Surplus Income Payments as a Condition Of Discharge

A requirement to make surplus income payments to the estate emphasizes the different level of obligation for bankrupts with relatively high incomes. If you are required to make surplus income payments to the estate and you are not in agreement with the amount that you are required to pay, the Trustee shall, within five days after the date on which you would have automatically been discharged, send to the OSB a request that the matter be determined by mediation. You, the Trustee or the Trustee’s representative and an employee of the OSB (who will act as mediator), must attend the mediation. If a mediation settlement agreement is not reached by all parties at the mediation, the Trustee must bring an application before the Court for a hearing to consider the matter. If an agreement is reached by all parties and you fail to comply with the agreement, the Trustee will make an application to Court for a hearing to resolve the matter.

When a creditor, the Trustee or the OSB files a notice of opposition to a bankrupt’s discharge, specific allegations of alleged misconduct or failures on the part of the bankrupt and pertinent sections of the BIA must be cited in the opposition and the matter must be brought before the Court for a hearing.  Subsection 172.1(3) of the BIA provides the Court with the power to: (1) grant an absolute order of discharge to the bankrupt; (2) impose a conditional order of discharge on the bankrupt; (3) suspend the bankrupt’s discharge for a period of time; (4) adjourn the hearing of the bankrupt’s application for discharge (to a future date); or (5) refuse the bankrupt’s discharge. 

The Court may also make an order suspending andattaching conditions to the bankrupt’s discharge, concurrently or consecutively to any suspension. For instance, the Court may order that you be discharged conditional on payment of $2,500 to the Trustee for the general benefit of your creditors and that your discharge be suspended for six months with the suspension being concurrent (or consecutive) to the condition. Once you have complied with the order of the Court, the Trustee will reapply to Court for you to be discharged.

What Happens if I Cannot Comply With the Conditional Order of the Court?

If the Court orders that your discharge be conditional and you are unable to comply with the terms of the conditional order, you can apply to Court to have the order modified if you can satisfy the court that there is no reasonable probability that you will be able to comply with the conditions of the order. An application to Court to modify or vary the terms of a conditional order can be made one year after the date of the original order.

Can I File a Second Or Subsequent Bankruptcy if I Have Not Been Discharge From My Current Bankruptcy?

If you are an undischarged bankrupt, you cannot file a second or subsequent bankruptcy until you have received a discharge from your current bankruptcy. However, as an undischarged bankrupt you can annul your bankruptcy by making a proposal to your creditors. If the proposal is accepted or deemed accepted by your creditors and approved or deemed approved by the Court, the bankruptcy will automatically become annulled. If you opt to continue with the bankruptcy, the bankruptcy will come to an end when you receive an automatic, an absolute or a suspended order of discharge.