OSB issues Draft Directive on Counselling Matters, Seeks Public Consultation

As you may recall in previous newsletters, we reported about the Office of the Superintendent of Bankruptcy’s (OSB) report into what is perceived to be abuses by Credit Counsellors/Debt Advisors and business arrangements with Licensed Insolvency Trustees (LIT)s.  In its 2017 newsletter, the OSB indicated that would be making legislative changes to address its concerns.

On October 16, 2017, the OSB released its draft Directive on counselling.  This is the first of its overall plan and it is seeking input from stakeholders by November 24, 2017.  In most consumer insolvencies, there are two mandatory counselling sessions required for all debtors.

Some of the changes that are proposed are:

  • The LIT shall fulfill their obligation to provide insolvency counselling personally, or by designating, on a specific insolvency estate, another LIT or an individual who has been registered against the LIT’s license.
  • Counselling is to be held only at the LIT’s office. The location is to be an authorized office of the LIT and not the office of a third party who is not licensed by the OSB.  There are some exceptions to this but only with the approval of the OSB.
  • Counsellors must be registered against the LIT’s license.
  • The counsellor must meet certain education requirements in order to be registered, have adequate professional liability insurance and must take annual professional development.

Any individual is ineligible to be registered as a counselor if:

  1. They are in a real, potential or perceived conflict of interest;
  2. They are engaged in or involved with the provision of financing and lending services to individual bankrupts or consumer debtors including, but not limited to, credit rebuilding services, loans in various forms, and insurance;
  3. They are employed by, associated with or acting as a Third-Party Debt Advisor; (A Third Party Debt Advisor is defined as an individual or organization who, in return for direct or indirect consideration, acts as an advisor to a debtor or an intermediary between debtors and LITs. This includes those who derive consideration or a benefit from selling insolvent debtors a range of services before, during, or after an insolvency filing under the BIA. Such services may include, but are not limited to: financial evaluations, representation, restructuring services, credit rebuilding, loans in various forms, or insurance); or,
  4. They are employed by, associated with or acting as a Referral Arranger. (A Referral Arranger is defined as an individual or organization in the debt advisory industry (whether for-profit or not-for-profit) that participates in a formal or informal referral arrangement with an individual LIT or corporate LIT).

The LIT is to meet with all debtors to complete the Insolvency Counselling and Designated Form which appears to mean that this task cannot be delegated to an employee;

There are some points to consider:

  1. Will LIT’s designate non-employee counsellors and attest to their qualifications?
  2. Will this lead to all counselling only being done by the LIT firm and not any independent counsellors?
  3. Will these independent counsellors be travelling to the LITs office to perform the counselling or will LITs be registering the counselor’s office as an authorized location?
  4. Will the LIT add the counsellor to their professional negligence insurance and/or will the insurer even allow it?
  5. Will the credit counselling/debt advisory industry discontinue its practices of referring individuals to certain LITs or will that somehow change?

It is clear that the OSB is making the LIT more responsible for the counselling and is taking steps to protect debtors from paying unnecessary fees.  What is not clear is that any Third Party Debt Advisor or Credit Counsellor could still refer files to an LIT but not take the counselling in return.  And there is nothing that precludes them from independently contacting the debtor and selling their other services for a fee.

However, these debtors need a place to go to file their consumer proposal and/or bankruptcy. The unfortunate part of it that there are many debt advisory firms out there, whether they are for profits and not for profits, that have slick and/or misleading advertising campaigns or websites that draw the debtor to them first before seeing an LIT.

Will these steps that the OSB is suggesting level the playing field and help inform debtors that LITs are the go to professionals when dealing with debt, who are Licensed by the Federal Government and have the necessary training associated for dealing with debt issues.

Only time will tell.

Boale, Wood & Company Ltd. Is a full service insolvency boutique that assists consumers and businesses in dealing with debt.

Call us.  It’s not too late. (604) 605-3335.

A closer look at May 2017 insolvency stats

Consumer insolvencies in BC increased in May 2017 by 21.7 percent from April 2017.  Consumer proposals increased 25.9 percent while bankruptcies increased 16.9 percent.

The proportion of proposals in consumer insolvencies in BC accounted for 55.5 percent during May 2017 while they accounted for 50.4 percent for all insolvencies across Canada for the same period.

Consumer insolvencies in BC for the 12-month period ending May, 2017, decreased by 7.1 percent compared with the 12-month period ending May 2016. Consumer bankruptcies decreased by 6.3 percent, while consumer proposals decreased by 7.8 percent. Consumer insolvencies in all of Canada are down by 1.1 percent over the same period last year.

The proportion of proposals in consumer insolvencies in BC was 56.9 percent during the 12-month period ending May 2017, up from 53.6 percent during the 12-month period ending May 2016. It indicates the popularity of consumer proposals as a way for consumers to deal with their debt and with dealing with a Licensed Insolvency Trustee over other unregulated service providers.

The insolvency statistics indicate the increasing benefits of the protections provided to consumers under the Bankruptcy and Insolvency Act over other non-legislated options, whether that is a consumer proposal or a bankruptcy.   It also indicates that consumers are seeing the benefits of seeking the professional advice of a Licensed Insolvency Trustee rather than those of other non regulated service providers.

If you would like to know exact details of how a consumer proposal or a bankruptcy would benefit you in dealing with debt, call us at (604) 605-3335 to schedule a free consultation.

Call us.  It’s not too late

See this article for other Canadian insolvency stats for April 2017.

Consumer Proposals, the Licensed Insolvency Trustee (“LIT”) and Third Party Debt Consultants – the debate continues

There has been considerable debate as to whether an individual needs an independent debt advisor to file a consumer proposal to “protect” the interest of the debtor and get the lowest consumer proposal possible.

Quite often the discussion boils down to the fees of the LIT.  The argument is that the LIT doesn’t represent the debtor’s best interests as they get paid more if the debtor pays more. The underlying theme is that the LIT wants you to pay as much as you can to obtain a higher fee.  Hence, they say that the LIT is in a conflict of interest.

It has also been suggested that at the initial meeting the debtor might provide information to the LIT that could possibly be used to obtain a larger amount for the creditors, and thus greater fees for the LIT or that going to an LIT without a debt advisor is like being unrepresented in Court.  In my experience, I can’t think of one situation where that would apply.

Other arguments include that independent representation is needed to protect assets without having to also worry about your creditors.  Assets are either exempt pursuant to provincial legislation or they are not.  There should be nothing to hide.

There have been comments that it costs $1,500 to file a consumer proposal.  Not true.  Most LITs require an up front payment, but typically not anywhere near $1,500.

Frankly, none of these assertions could be further from the truth.

Let’s look at the facts:

  1. An LIT is an Officer of the Court and is required to balance the interest of all stakeholders and be objective.
  2. The Assessment Directive issued by the Office of the Superintendent of Bankruptcy (“OSB”) provides that the LIT shall provide a complete assessment of the debtor’s affairs including assets, liabilities and income AND explain all the options available to the debtor for dealing with their debt. There is your independent assessment.
  3. The fees that are paid to the LIT are set by the Government of Canada through the OSB. So the Trustee hasn’t set the fees. The LITs fees are a byproduct of an accepted proposal.  Every LIT gets paid the same in a consumer proposal. And if the LIT is banking on more fees, then objectivity has been lost.
  4. The creditors are the ones that vote on the proposal. The LIT has no say in the outcome.
  5. The LIT is best positioned to know what creditors want by reason of their experience in administering consumer proposals since 1991. That experience leads us to tell the debtor what may or may not work.
  6. The LIT is governed by a Code of Ethics by both its regulatory body, the Office of the Superintendent of Bankruptcy and its professional association, the Canadian Association of Insolvency and Restructuring Professionals (“CAIRP”).

If you have nothing to hide and want a proposal to be accepted to bring certainty to your situation, then you are best served by an LIT and no one else.

The insolvency process is about full and frank disclosure to your creditors.  If you want your creditors to take a discount on what you owe them, then you need to be prepared to make full disclosure of your situation.  By not disclosing everything to your LIT might mean that they would have changed their advice to you.  As well, any proposal that is obtained by fraud or fraudulent means can be annulled.

Lastly, if you don’t do anything wrong, you won’t get in trouble.

LITs have been administering consumer proposals since 1991 and nowhere has it been stated, by the OSB or other stakeholders that LITs are in a conflict.  The very nature of the role is that of conflict as we answer to many stakeholders.  But we carry out these duties every day without any one complaining.

We have illustrated the nature of our role below;

As is apparent, we answer to many stakeholders.

What you need to make a fair and reasonable proposal to your creditors is the expertise of an LIT who will treat you fairly and give you the straight goods.

The experienced professionals at Boale, Wood & Company Ltd. understand the stress that financial difficulty can cause.

We know that realizing that you are experiencing financial problems is a hard thing to do for most people and sometimes you feel helpless. But instead of feeling helpless, let us help you gain control of your debts and understand your options.

Start by scheduling a meeting with us to discuss the solution best suited to your situation. This meeting is free and there is no pressure or obligation for you to make a decision right away.

We have the expertise to find the solution best suited to you.

Call us, it’s not too late. (604) 605-3335.

 

I filed for a consumer proposal or a bankruptcy and I am still receiving statements from my creditors!

One of the most common questions I receive from a debtor is “Why do I keep receiving statements from creditors when they know I have filed a consumer proposal or a bankruptcy”.  Usually it’s a frantic phone call or email that says, I finished my proposal or bankruptcy and now I receive this statement.  They are still coming after me for payment.

There is no reason to panic.  The reason statements are sent has to do with timing, computer generation, lack of human intervention and legal disclosure requirements and not with pursuing collection.

Timing

When an individual files a consumer proposal or a bankruptcy the Licensed Insolvency Trustee notifies the creditors of such.  In many instances, financial institutions and credit card companies use third party service providers who are tasked with filing the claims with the Licensed Insolvency Trustee and providing information relating to the debt. So it is not the Bank directly who does this work.  So there is a time lag between the Bank actually receiving notification of the insolvency and the sending of statements.

As well, the statements are computer generated every month.  There is no person actually looking at this. And it does take a while for these institutions to do their housekeeping such as closing accounts and to stop sending statements.  Yes there are additional interest charges on these statements but again, these are computer generated and you are not responsible for interest charges after the date of filing.  The Bank will ultimately get around to fixing this.

So it is very common that a debtor files and continues to receive statements for a period after the filing.  It’s all about the timing.

Legislation

Financial institutions are required, by law, to send a statement to the debtor when a payment is received.  In fact, the legislation says that the Bank is not required to send statements if there is no outstanding balance at the end of the period or the credit agreement has been suspended or cancelled and the bank has demanded payment of the outstanding balance.  So in the case of when a bankruptcy or a proposal has been filed, the credit agreement has been cancelled and the bank is no longer required to send statements.  If they receive a payment through the Licensed Insolvency Trustee by way of a dividend, that then triggers the requirement to send a statement and hence, the phone call to the Licensed Insolvency Trustee.

Conclusion

So if you have filed a consumer proposal or a bankruptcy, it is not uncommon to receive statements from creditors after filing.  It is nothing to be concerned about.  If you are compliant with your payments and documents, then you have nothing to fear.

What to Expect When You File for Personal Bankruptcy

When a person files for personal bankruptcy it is typically a final course of action for an individual in financial difficulty. Your Licensed Insolvency Trustee (LIT) will review your situation and recommend a course of action.  If your debt cannot be resolved through other options like a consumer proposal, your LIT may recommend Bankruptcy. It is a legal process legislated under the Bankruptcy and Insolvency Act within Canada, and is designed to protect you from being bound forever by debts you are unable to repay.

The decision to file for personal bankruptcy is likely a stressful one. The highly qualified LITs at Boale, Wood and Company Ltd. will support you through the entire process, and will ensure you fully understand the various steps involved.

If you are filing for personal bankruptcy for the first time, here is an overview of what to expect during the process:

Initial Consultation

Meeting with an LIT at Boale, Wood & Company Ltd. is free. Together, we will discuss your circumstances, help you understand your options, and determine your best course of action for debt relief. If you decide to file for personal bankruptcy, we will serve as your LIT throughout the duration of the process.

Application Form and paperwork

We will help you properly complete all the required forms and submit them on your behalf.

No More Creditors

Going forward, your LIT will deal with creditors and collection agencies on your behalf. Your debts will be frozen at this point, and no more interest will accumulate.

Asset Review

We will review all personal asset exemptions, assets that are protected from creditors, for which you are eligible.

Monthly Reporting and Payments

During your bankruptcy period, you will be required to report your income on a monthly basis and provide proof of your income (such as paystubs). The LIT will provide the monthly reporting forms. You may be required to pay a small amount on a monthly basis to your LIT.  This amount would be significantly lower than your original debt.

Counselling

You are required to attend two mandatory counselling sessions with your LIT. We will provide valuable information on money management and household budgeting.

Discharge

Once your bankruptcy is over, you will be officially discharged from Bankruptcy (see our article on bankruptcy discharges).  You will have no further responsibility for the debts listed on your bankruptcy subject to certain exceptions.

The experienced professionals at Boale, Wood & Company Ltd. understand the stress that financial difficulty can cause.

We know that realizing that you are experiencing financial problems is a hard thing to do for most people and sometimes you feel helpless. But instead of feeling helpless, let us help you gain control of your debts and understand your options.

Start by scheduling a meeting with us to discuss the solution best suited to your situation. This meeting is free and there is no pressure or obligation for you to make a decision right away.

We have the expertise to find the solution best suited to you.

Call us, it’s not too late. (604) 605-3335.

Choosing the Right Licensed Insolvency Trustee

Being in debt is stressful no matter how much you owe. If doesn’t matter if you owe $10,000 or $100,000, if you can’t pay it, it’s stressful. Debt issues not only can have an impact on your credit and your financial well-being, but the stress of being in debt can also trigger relationship or heath related issues.

If you find yourself overwhelmed by debt, you want to make sure you have the right Licensed Insolvency Trustee to help you through this difficult and highly stressful situation.

So what should you look for in a Licensed Insolvency Trustee (“LIT”)?

 

Non- judgmental

Perhaps the most important trait in a quality LIT is their ability to be non-judgmental and allow you to maintain your dignity. An LIT should be willing to look beyond the numbers and paperwork to understand your specific situation without blame. It’s about moving forward, not looking back.
Being in debt can make you feel extremely vulnerable. You want an LIT who can help you understand what to expect during the process, and who will support you every step of the way.

Experience and Accreditation

Naturally, when you entrust an advisor to help you with your financial difficulties, you expect them to have a solid understanding and knowledge of the various debt relief options, implications, and eligibility requirements. Our LITs have years of experience helping people just like you through their financial troubles. In fact, we’ve helped thousands of people to resolve their debt and get a fresh start.

Don’t Settle for Second Best

The experienced professionals at Boale, Wood & Company Ltd. understand the stress that financial difficulty can cause. We are experts at what we do.

We know that realizing that you are experiencing financial problems is a hard thing to do for most people and sometimes you feel helpless. But instead of feeling helpless, let us help you gain control of your debts and understand your options.

Start by scheduling a meeting with us to discuss the solution best suited to your situation. This meeting is free and there is no pressure or obligation for you to make a decision right away.

We have the expertise to find the solution best suited to you.

Call us, it’s not too late. (604) 605-3335.

Bankruptcy Discharges – and why they are so important

The final and most important step in the bankruptcy process is your discharge from bankruptcy.  The discharge from bankruptcy is the legal mechanism that relieves you of your obligations to repay the debts that existed at the date of bankruptcy.  If you don’t receive your discharge, the debt doesn’t go away.  At Boale, Wood & Company Ltd., we cannot stress enough the importance of getting your discharge.

One of the common misconceptions made by people declaring bankruptcy is that they are under the impression that the filing for bankruptcy gets rid of the debt.  Not so.  On the day you file for bankruptcy, you are protected from collection action by your creditors.  There is an automatic “stay” which prevents your creditors from continuing or starting collection action against you.  However, your creditors still exist; they just can’t do anything to you.  Your debts don’t go away until you receive your discharge. That’s why your discharge is so important, because it’s necessary to eliminate your debts.

How Long Will I Be Bankrupt?

The length of your bankruptcy is determined by four main factors.  These factors may change under certain circumstances which affects the length of the bankruptcy.

  1. If this is your first bankruptcy

If this is your first bankruptcy, then you will be eligible for an automatic discharge after 9 months subject to the surplus income threshold.

  1. If you have been bankrupt before

If you have been bankrupt before you will not be eligible for a discharge in 9 months. Your bankruptcy will be a minimum of 24 months subject to the surplus income threshold.

  1. If you have surplus income.

If you have surplus income that exceeds the minimum amount set by the government, your bankruptcy can be extended for a longer period of time. If you are a first time bankrupt and your surplus income is over the income threshold, you would be eligible for an automatic discharge after 21 months (as opposed to 9 months). If you are a second time bankrupt, you would be eligible for an automatic discharge after 36 months. The extension of time o ones bankruptcy is set out in the legislation.  It’s not at the discretion of the Licensed Insolvency Trustee (“LIT”).

  1. If you are not eligible for an automatic discharge.

Your discharge from bankruptcy will happen automatically if

  • the discharge is not opposed by your LIT, a creditor or the Office of the Superintendent of Bankruptcy (“OSB”);
  • you have attended the mandatory financial counseling sessions;
  • this is your first or second bankruptcy; and
  • you have made all required payments.

There are, however, a few reasons why you would not receive an automatic discharge.  It is due to an opposition to your discharge.  The most common reasons for opposition are:

  • You did not complete your duties. This is the most common reason why people do not receive an automatic discharge. In other words, you did not do everything you were supposed to do such as provide the LIT with proof of your income each month;
  • You did not attend your counseling sessions – these sessions are mandatory to obtain your automatic discharge;
  • You did not provide your tax information – the LIT is obligated to file your tax returns in certain instances; and
  • You did not make the required payments.

If you did not perform your duties, you are not eligible for an automatic discharge.  In order to get discharged, a Court application is required.

ALERT: Complete your duties!  If you are having problems meeting your obligations to the LIT, speak to them immediately. It’s not hard. It is a process and you must complete the process. We are here to help you every step of the way but we can’t do it for you and once you start it is in your own best interest to complete the process.

You will also not receive an automatic discharge if one of your creditors (the people you owe money to) opposes your discharge.  This is a rare occurrence, but it could happen.  If they object, a Court hearing is held, and the judge will decide whether or not you will be discharged and what type of discharge would be appropriate in the circumstances.

For a third time or more bankrupt, a Court application is required to obtain a discharge.

Again, be sure to complete all your duties so that you receive your discharge from bankruptcy, and officially eliminate your debts.

The length of the bankruptcy is summarized in the following table:

 No Surplus IncomeSurplus Income
First Time Bankrupt9 Months21 Months
Second Time Bankrupt24 Months36 Months
Third Time Bankrupt or more            Automatic Court Application

Benefits of being discharged

As previously stated, the discharge from bankruptcy is the final and most important step.  There are a number of benefits from being discharged.

  • You are no longer bankrupt. You have no further obligations under the Bankruptcy and Insolvency Act;
  • You can become a Director of a Corporation or be the Power of Attorney for someone;
  • The clock starts ticking on the time period of when the credit bureau clears your record of having gone bankrupt;
  • You will receive relief from all your debts except for the most serious debts such as:
    • Court imposed fines;
    • Child support, alimony and other maintenance payments owed;
    • Student loans in certain situations
    • And some others.

What are the consequences of not getting discharged?

There are times where an individual doesn’t receive their discharge from bankruptcy.  They may not have completed their duties, or their discharge was opposed by a creditor or the OSB.   Maybe they had personal issues to the extent that they just couldn’t carry out their responsibilities.

So now what?  Contact your LIT and find out why you did not get discharged and what you have to do to get your discharge. The LIT may want a fee for reopening your file. If you had a bad relationship with your LIT he may not want to deal with you. If this is the case you may have to retain an insolvency lawyer to go to Court to get your discharge.

What if you do nothing?

If a person does not get a discharge from bankruptcy, the LIT will close their file. This has important consequences for you. Once the LIT is discharged, the protection from your creditors, which you so desperately needed at the outset of the bankruptcy, is gone and the creditors’ rights are revived.  That means that they can pursue you for the original debt, plus interest, as if you had never been bankrupt.

You are still an undischarged bankrupt and subject to the requirements of the Bankruptcy and Insolvency Act including the duties and the offences under the legislation.

Lastly, information pertaining to bankruptcy remains on an individual’s credit file for specified time periods following the discharge. So if you don’t get discharged, the time to get the information off your credit report has not started.

This is the worst possible result.

Here is how to get your bankruptcy discharge if it has been a few years since you went into bankruptcy:

So now it has been a while since you talked to your LIT and the creditors are after you.  Now you are ready to proceed and get your discharge.  How do you go about it?

  1. Contact your LIT – it is important for you to talk to your LIT. They would be in the best position to assist you in getting your discharge.  If your LIT doesn’t want to assist you (once they have been to Court they are not required to assist you further) you need to find someone who will.  Call another LIT to see if they would assist you.
  2. Have available the LIT’s Report (170 Report) – this is the report where the LIT reviewed how you conducted yourself prior to and during your bankruptcy. This report outlines the conditions that have to be met in order for you to receive your discharge.If you do not have this report you can get a copy at the Bankruptcy Court, in the area you filed your bankruptcy.   You may also get a copy of the report from the LIT if the LIT is willing to go through his records to find the report.  The LIT, if he is willing to get the report, will likely charge you for this service.  If you are not sure who your LIT was contact the Office of the Superintendent of Bankruptcy.In British Columbia, the Court Order will usually specify what is required to be done.  You can get a copy of this Order from the Bankruptcy Court.
  3. Have available what is required to meet the conditions outlined in the LITs report or the Court Order – If you had to pay a certain amount of money make sure you have it available or are ready to start making the monthly payments.   If you had to meet other conditions such as providing proof of income, tax information and so forth, make sure that is available.
  4. Make arrangements to attend at Court – Ask your LIT to do this. There will likely be an additional charge for this.  The LIT may refuse to do this. Then you will need to retain a lawyer to represent you or represent yourself at Court. However, this is usually beyond the ability of most individuals who don’t know the rules or how to present the facts to the Court. The BC Supreme Court has published a guide on how to do it yourself.  This publication can be found here.
  5. Consider filing a consumer proposal with another LIT – if you do this and it’s accepted by the Creditors, you don’t need to be discharged from bankruptcy. The legal effect of an accepted proposal is to annul the bankruptcy. Although the insolvency legislation provides for this, they are hard to do and usually don’t work.

If you are an undischarged bankrupt and need a discharge, we may be able to assist you.

Call us.  It’s not too late. (604) 605-3335

Judgement proof. Is there such a thing?

judgement-bigsnit-photoIs anyone really “judgement proof”.   In my view, no.  The phrase “judgement proof” is one of the most misused and misunderstood phrases used in an insolvency context.

Question Asked…

I recently spoke with a Trustee who said I was not a good candidate for bankruptcy as I am “judgement proof”.   Is doing nothing, that is, not paying or settling with my creditors, an option and what does judgement proof mean?  She advised if my financial situation changed I could consider filing a bankruptcy or a proposal then.  Is doing nothing a common alternative?”

Black’s Law dictionary defines judgement proof as “unable to satisfy a judgement for money damages because the person has no property, does not own enough property within the court’s jurisdiction to satisfy the judgement, or claims the benefit of statutorily exempt property”.

None of that means that a creditor cannot proceed against you and obtain judgement.  They can.   But because you have no property and/or you are on a fixed government income, the creditor will have no recourse against you.  In other words, you have nothing to seize.

The creditor still retains the right to try and collect.  That means phone calls, notices or maybe even a bailiff at your door.

It is a myth that if you are on a government pension or social assistance that you are “judgement proof”.  You are not.  And once your government funds hit your bank account, it becomes cash and is available to any judgement creditor who may be trying to garnishee your bank account. And if you owe your bank money, they have the right to seize the funds if you are behind in your payments.  This is known as set off.

If you owe Canada Revenue Agency for taxes, or the Province for medical premiums they have the right to set off the pension against the taxes you owe and/or take any GST credits you are entitled to as well.  Only a proposal or a bankruptcy will stop this type of action.

So doing nothing is always an option.  But if you can’t handle the stress of being in debt, then it’s not a very good option.

Insolvency and Taxes, the Real Facts

tax-600

One of the most common misconceptions is that income taxes are not included in a proposal or a bankruptcy.

False! Income taxes and almost all other debts are included in a bankruptcy or a proposal, including any debt one might owe to the tax department as a result of being a director of a corporation.

Sometimes, despite their best efforts at money management, Canadian consumers get to a point where they simply can’t pay their debts as they become due. Whether due to inability to pay taxes, problems with a business, loss of employment, unexpected financial obligations or other unplanned factors, they become insolvent. They need to seek the advice of a Licensed Insolvency Trustee, who can inform them about their options.

There is another misconception in Canada that there are government programs that allow you to enter into payment arrangements with your creditors. In reality, there are no such programs. There is, however, legislation that allows you to compromise your debts.  For consumers, that legislation is the Bankruptcy and Insolvency Act.

There is an abundance of misleading information about credit and debt repayment programs in the marketplace and on the Internet. Many non-trustee firms use phrases such as “Avoid bankruptcy” or “We can help reduce your debt to one monthly payment,” common themes that you read about in advertising all the time.  Other organizations that offer “credit or debt consolidation”, payment programs or some form of debt relief are in the business of helping you organize your payments and thus charge a fee for their service, whether they tell you up front or not. Even non-profit programs charge fees. The fees charged by these firms differ from company to company and are not to be found anywhere in their promotional material. The fees of a Licensed Insolvency Trustees in a consumer proposal and in a bankruptcy are set out in the Bankruptcy and Insolvency Act.  In other words, all Licensed Insolvency Trustees get paid the same fee.

While non-trustee firms will offer to help an individual avoid bankruptcy, in many cases all that is happening is the inevitable is being delayed or you will be put on a debt repayment program that is so onerous you may eventually default on it and be worse off than when you started. And if you owe Canada Revenue Agency a tax debt, none of these programs will work. Remember, if it sounds too good to be true, it probably is. As well, the majority of these companies have no government oversight, no professional association, no regulatory body and no code of ethics. Trustees have all of these.

The thought of meeting with a Licensed Insolvency Trustee can make people uncomfortable because of the social stigma attached to the word “bankruptcy”. The typical consumer is often unaware of the role of the trustee and the options these professionals can make available for dealing with debt. Unfortunately, that fear will cause many to delay getting the advice they need. Trustees are highly trained professionals and the only ones licensed by the Office of the Superintendent of Bankruptcy (OSB) who can file a consumer proposal or a bankruptcy.  Despite what you may read on the internet, no one else can help you with these options.

To help ensure that the rules are followed, the OSB is responsible for supervising the process and protecting the public interest.  The OSB is also responsible for issuing operating licenses to Trustees and for reviewing everything that a trustee does, ensuring that every debtor is treated exactly the same and fairly as outlined under the Act.

How to get the process started?
A proposal or a bankruptcy will begin with a meeting between the individual and a Licensed Insolvency Trustee who will assess their financial situation, explain the options available and explain the debtor’s rights and responsibilities. After the meeting, the debtor will have enough information to make an informed decision about the next step. Remember, only a Licensed Insolvency Trustee can file a proposal or a bankruptcy.  Its never too late to get information.  Call us today at 604-605-3335

Student Loans – Hardship Applications

February 2015

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

 Student Loans – Hardship Applications. What exactly is it?

There is an abundance of confusion as to what a hardship application is. To the experienced Insolvency Practitioner, it is clear. It is an application to the Court[1] to have the student loan included in the bankruptcy and discharged by the bankruptcy when it would otherwise not be.

To the student, it is unclear as to what the hardship application is. To some, it is a form that is filled in and sent to the Court/Trustee/Office of the Superintendent of Bankruptcy. There seems to be confusion about what it is.

Below is a comment that was found on an information site for student loans and bankruptcy:

“Hi all I am new… Can someone tell me where I can get the “hardship” application to have student loan debt or obligation discharged (BIA, s. 178(1.1 form)…”

Most students do not appreciate that it is an actual application to the Court[2] where the student will speak to why the loan should be discharged. As well, most do not appreciate the materials required in support of the application.

If more than five years have elapsed between the time you ceased to be a student and you go bankrupt a student may make an application to Court to have their student loan discharged from their bankruptcy. This is commonly referred to as a hardship application.

It will be up to the bankruptcy court to decide whether or not they forgive your loans. To obtain forgiveness, you must demonstrate “hardship”.

student-loan-1What does “hardship” mean?

Blacks Law Dictionary defines hardship as “Privation: Suffering or adversity”.

There is no clear definition for what constitutes hardship; each bankruptcy Court across Canada may use a slightly different definition. However, in general, hardship is a simple concept: having to continue to pay your student loans after bankruptcy would be a financial hardship for you.

For example, if you were forced to leave school early without graduating, perhaps due to a medical or family problem, and you are now working at a minimum wage job, the Court would likely determine that you would suffer financial hardship if you were required to continue paying your student loan. The Court would consider the benefit you received from your education (in this example, not much, since you were unable to graduate), and your current income (again, in this example, not much).

Compare that to the person who graduates from law school, with $100,000 in student loans. On the surface it may appear to be a hardship for them to repay the loans, but if they are earning a significant income it is unlikely that the court will allow for the loans to be discharged due to “hardship”. Obviously most cases are somewhere between these two examples.

Who makes the application?

Clearly the onus is on the student debtor to make the application. But for most, they have no idea about how to even start. As said before, most think it’s an application form sent to the student loans people or to the Court.  It is not the Trustee who makes the application but the Bankruptcy and Insolvency Act is silent on who can make the application.

Can the Trustee assist the debtor with application?[3] Yes they can in a way that presents all relevant material to the Court in a manner that is objective.  The issue then becomes how much should the Trustee get paid or what does the Trustee charge for assisting the debtor. In our practice, we would not necessarily attend at the Court with the debtor as it is not the Trustees application, but we may assist the debtor in preparing and reviewing materials to ensure that they have the information that the Court could reply on.

Getting Started

To get the process started, you need to prepare the material that is relevant to the application. The Supreme Court of BC has a guidebook on their website that is available to assist student debtors in preparing the material necessary for the application. This material can be found on their website[4]. It can also be found on our website[5].

But before you do anything you must check to make sure that a Court file has been opened. Speak to your Trustee first. If the Trustee has opened a Court file during the administration of the bankruptcy, you will not be required to open another file.

If a Court file has not been opened, the Trustee can assist you in getting the file opened, however, the student debtor would be responsible for the fee that the Court charges for opening the file.

What is the test?

Ultimately, the test is that the bankrupt has acted in good faith in connection with its obligations under the loan and will still be facing financial hardship to the extent that they will not be able to make the payments.

What does good faith mean? There are 8 different criteria that the Court can consider when making its decision. They are as follows:

  1. Was the money used for its intended purposes? Did you use the money to obtain or further your education or was the money used for something other than its intended purpose?
  2. Did the applicant finish their education? What was the result of the schooling? Did you finish the program and obtain a degree or did you withdraw due to other circumstances.
  3. Did the applicant derive any economic benefit from the education?
    1. Did they graduate? Are they working in the field related to their studies or have they not been able to obtain a job in their field?
  4. Has the applicant made all reasonable efforts to repay the loan?
    1. Have any payments been made. If the only payments that have been made are through the off set of tax refunds, some Courts have held that is not reasonable.
  5. Has the applicant made use of all available options, such as interest relief and remission to reduce the burden of the loan?[6] This could include whatever repayment assistance is available. Some of these options include;
  • Debt management measures
  • Interest relief and extended interest relief for student loans
  • Debt reduction in repayment of student loan
  • Repayment of student loan assistance plan
  1. What was the timing of the bankruptcy?
    a) Did the bankruptcy occur very shortly after the five years had expired?
  2. Does the Student Loan form a significant part of the bankrupts overall indebtedness.
    a) What percentage of the debt relates to the student loans? The Court will look at whether the student loan comprises a significant portion of the debt or whether the bankruptcy included other debts.
  3. Will the bankrupt continue to experience financial difficulty to such an extent that they will be unable to pay the loan?

Conclusion

At the conclusion of the hearing, the Court will decide whether or not to grant the hardship application and have the student loan discharged by virtue of the bankruptcy discharge.

The Bankruptcy and Insolvency Act does not give the Court discretion to provide partial relief.[7] It is an all or nothing proposition.

The trier of fact, the judge, will take into account the submissions of the parties and ultimately make their decision.

student-loan-2

You can download a PDF copy of this article here.

Contact Information

Boale, Wood & Company Ltd.
1140 – 800 West Pender Street
Vancouver, BC V6C 2V6

Telephone:  (604) 605-3335
Toll Free:  (888) 850-6585
Fax:        (604) 605-3359

Email: dwood@boalewood.ca

notes:

[1] Bankruptcy and Insolvency Act, Section 178(1.1)

[2] Ibid

[3] Re: Wood, (1998), 7CBR (4th) 23, 133 Man. R. (2d) 230 (Q.B)

[4] http://www.supremecourtbc.ca/sites/default/files/web/Bankruptcy-Student-Loan.pdf

[5] http://www.boalewood.ca/wp-content/uploads/Bankruptcy-Student-Loan.pdf

[6] Information on interest relief and debt repayments of student loans can be found here. http://www.canlearn.ca/eng/loans_grants/repayment/help/index.shtml

[7] Bankruptcy and Insolvency Act, Section 178(1.1), Houlden, Morowetz and Sarra, 2012-2013 annotated Bankruptcy and Insolvency Act, Page 865.