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BC Court confirms single date approach to discharging Student Loans through a consumer proposal or bankruptcy. 

A recent decision by the BC Supreme Court confirmed that BC will continue to follow the single date approach when considering whether or not a Student Loan is dischargeable through either a consumer proposal or a bankruptcy. 

In the recent decision of Re: Piekut (2021 BCSC 1883) the Court declined to change the single date approach to a multiple date approach when considering if Student Loans are discharged in ether a consumer proposal or bankruptcy and continued to follow the current jurisprudence that was established in 2015 in the BC Decision of Re: Mallory (2015 BCSC 5). 

Background 

The current legislation provides that if a student loan is more than seven years old at the date of a bankrupt’s filing, or the filing of a Consumer Proposal, it is dischargeable as a debt under the Bankruptcy and Insolvency Act. If it isn’t greater than seven years old then the debt is not dischargeable. 

It may be discharged if the student makes a “hardship” application once it is more than five years post-study but less than seven years of the filing of the bankruptcy or consumer proposal (more on that later in a subsequent paper). 

We understand that Student Loans considers the End of Study date as the date when an individual ceased or ceases to be a student. This date doesn’t mean the last day you attended school. It is the date that the government considers to be the last date of the program you were last enrolled in. It also includes both full-time and part time attendance. 

The applicant raised the issue of whether the BC Court should continue to use the “single date” approach as decided in Mallory or “multiple date” method of determining whether a student loan is discharged under s. 178(2) of the BIA which has been used in other jurisdictions. 

Does a student who is in-and-out of school, with or without student loans for each (or any) session, reset the clock each time they enroll, or does the clock stop each time they cease study? In BC the answer is the clock resets as decided in Mallory and confirmed in Peikut. The end result is that the student loan survived the proposal and was not discharged under the BIA. 

Different jurisdictions have taken a “multiple date” approach. However, in BC that has been rejected. 

We understand the decision is being appealed. 

If you have Student Loan debt that is unmanageable, contact us today. We offer a free no-obligation consultation where we will look at all your debts with you and help you decide if a bankruptcy or consumer proposal makes sense to deal with your student debt. 

A virtual meeting is available via Zoom or Microsoft Teams. Or we can chat on the phone or by email. If you would like an in-person consultation, we can arrange that as well. We have offices in Vancouver and Surrey. 

Call us. Its not too late! 

(604) 605-3335 

In Canada, one of the most common, if not the most common, debt relief program is a Consumer Proposal. 

Other debt relief programs, commonly referred to as Debt Management Programs, (“DMP”) or Debt Consolidation Programs, typically do not reduce debt. 

To help understand the difference between the two, Boale Wood has posted detailed information on the differences. See this page for more.

Dear clients and friends of Boale, Wood & Company Ltd. As you all are aware, the World Health Organization (“WHO”) recently declared the coronavirus (COVID-19) a global pandemic. This evolving situation is affecting our firm, our clients and our communities in rapidly changing ways. The health and well-being of our firm members, colleagues and clients is paramount and will guide us as we collectively respond to the developing COVID-19 outbreak. We will continue to closely monitor relevant WHO, Public Health Agency of Canada, and local governmental/health institutions, for guidance on travel, staff exposure, premises and preventative measures to ensure our plans and response aligns with the latest recommendations and best practices. As part of our initial response plan, we have instituted the following for debtors until further notice: 1. Counselling Sessions – will be held via telephone or video conference. There will be no need to attend our offices in person. 2. Meetings of Creditors – recently updated Directive 22R2 encourages the Chair of a meeting of creditors to make every reasonable effort to hold creditor meetings by electronic or digital means of communication. The chair of the meeting may rely on representations by attendees to confirm their identification. 3. Initial Assessments - Directive 6R3 provides for the use of methods other than in-person assessments in extraordinary circumstances. In our firm, we are able to do almost everything via email or fax or by telephone. 4. Documents that require signature can be exchanged via email, or other electronic means, and we can provide debtors the necessary support to explain the documents via videoconference or over the phone or as otherwise required. We are exploring legal methods for the witnessing of signatures and swearing of oaths. This will be assessed on a case by case basis. There is no disruption in service. We are available to assist debtors in need and all our current clients. We have also instituted a number of internal measures for our staff for their health and safety: 1. Encouraged our staff to work remotely from home to avoid public gathering on transit or other areas; 2. Requested that firm members refrain from attending large business events outside the office; 3. Requested our landlords to have implemented enhanced cleaning and disinfecting protocols in our offices; 4. Implemented and are regularly updating policies for personnel who become ill or are concerned that they may have been exposed to the virus; and, 5. Encouraged our staff to turn to reputable sources of information, rather than rumours and unfounded speculation. If you have any questions regarding the firm’s response to COVID-19 or resources we can provide, please contact me at (604) 605-3335. We wish you and your loved ones good health and safety in these challenging times. Yours very truly, Boale, Wood & Company Ltd. Licensed Insolvency Trustee Per: David S. Wood, CIRP President  

Now What?

When you owe the government money, it can be overwhelmingly stressful.  It doesn’t matter if it is for taxes, student loans or even Medical Service premiums.  Most consumers assume that the government has an endless means available to them to collect the debt. The Government of Canada, through its various departments of the Canada Revenue Agency (CRA), are responsible for the issuance of income tax refunds, pension and old age security, GST/HST and provincial credits and other government issued income sources.  When you owe the CRA money, there is concern that any collection action will result in loss of income and will leave an individual without sufficient resources to meet their basic living expenses let alone any other debt payments. What Can They Do to Me? CRA has the right to proceed with collection action without a Court Order.  It can be as simple as issuing a Requirement to Pay to your employer (garnishee) or a Set Off Notice to the department that issues CPP benefits.  In essence the government can:

• Garnishee your wages up to 50 percent of gross earnings of employment income (usually it’s at least 30%);
• Garnishee up to 100 percent of self-employed income (especially if you owe GST or payroll deductions);
• Put a freeze on your bank account and seize the funds on deposit and continue to seize subsequent deposits;
• Withhold certain tax credits such as GST/HST refund cheques and set those credits off against the debt;
• Arbitrarily assess any unfiled income tax returns and apply penalties and interest to the debt owing; and
• If you are a homeowner, file a lien on your property that would ensure the debt is paid if the property is sold.

Why would this occur? These actions will usually be taken by CRA when the following occurs:

• The tax debtor has ignored their obligation to pay the taxes owing;
• The tax debtor has ignored all phone calls and letters from CRA requesting contact;
• The tax debtor is non-compliant in their tax filings leading to arbitrary assessments;

To avoid collection by CRA, you need to file any outstanding tax documents and continue to file your income tax returns on time each year. CRA is big on tax compliance.  It’s not illegal to owe them money but it is illegal not to file your returns. This will help you improve your situation by complying with the tax laws. It also helps you determine how much debt you owe them. Once the amount is determined, you can figure out how you’re going to pay them and also know how much you should be sending them each month for next year's tax debt so you do not continue to have debt owing year after year. Sending them the money monthly avoids the temptation to spend it and   will help stop the cycle of owing taxes every year. After your returns have been filed, start making some meaningful payments towards the debt.  The CRA may ask you to provide various documents to help them determine a suitable monthly payment. This may include an income and expense statement that outlines your other financial obligations. Expect to sacrifice some of the niceties of life, such as recreation or vacations, to get this debt under control.  This applies not to just CRA debt but also to other debt. And finally, make sure you stick to the payment plan that was agreed. CRA wants to see a concentrated effort and compliance with the income tax obligations.  Whatever you do, don’t enter into a payment arrangement that you can’t keep.  You will miss payments and CRA will start collections once again. They Want More Than I Can Reasonably Afford Despite your best intentions to pay the debt, sometimes it is not enough when you owe a lot of money to CRA.  It may be the amount of the debt is just too high or perhaps the budget does not allow for a monthly payment.  If that is the case, it is recommended you speak to a Licensed Insolvency Trustee (“LIT”) to discuss your options. LITs are debt professionals and can assess your financial situation to determine if a bankruptcy or proposal is the best choice to allow you to make a fresh start. In most cases, debt owing to CRA can be included in a bankruptcy and proposal. With a few exceptions, CRA is treated like any other creditor in insolvency proceedings and must stop their collection activity once a bankruptcy or a proposal is filed. An LIT can also provide continued support to make sure that you are not at risk for incurring future tax debt through the two mandatory counselling sessions. Beware of Scams Scammers posing as Canada Revenue Agency (CRA) employees continue to contact Canadians, misleading them into paying false debt. These persistent scammers have created fear among people who now automatically assume that any communication from someone representing the CRA is not genuine.  To be sure that it is not a scam, review this website as to what CRA will and won’t do. Contact one of the Licensed Insolvency Trustees at Boale, Wood & Company Ltd. for a free consultation.  We will be able to advise you on what solutions are available to help you address the problem. Call us.  It’s not too late. (604) 605-3335.  

Consumer insolvencies in BC increased in November 2018 overall by 1.0 percent from November 2017.  Consumer proposals increased 6.7 percent while bankruptcies decreased 7.7 percent. Consumer insolvencies in all of Canada increased 5.1 percent over the same period last year.  BC accounted for 7.92 percent of all insolvencies in Canada in November 2018. The proportion of proposals in consumer insolvencies in BC accounted for 63.73 percent during November 2018 while they accounted for 58.93 percent for all insolvencies across Canada for the same period. The proportion of proposals in consumer insolvencies in BC was 59.68 percent during the 12-month period ending November, 2018, up from 57.99 percent during the 12-month period ending November 2017.  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. While insolvencies across Canada are down overall by 5.1 percent, bankruptcies are down 3.6 percent, but proposals are up by 12.1 percent.  Proposals also make up 55.67 of all insolvencies in Canada in 2018 up from 52.4 percent in the previous twelve months. 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. For more on the the all Canada statistics, see this page.      

The latest numbers from the office of the Superintendent of Bankruptcy Canada shows a 2.5% percent decrease in the total number of insolvencies in Canada in November 2018 compared to the previous month. Bankruptcies decreased by 8.2% percent and proposals increased by 2.1% percent. Compared to a year earlier, insolvencies increased by 2.0% Other stats: For the 12 month period ending November 30, 2018, the total number of insolvencies increased 2.0 percent compared with the 12-month period ending November 30, 2017. You can read the summary and full report here.

What are my Options? Do any of these situations seem familiar?

• You’re being faced with ongoing telephone calls from your creditors harassing you;
• You’re considering cashing in your RRSP to pay your ongoing credit card payments;
• You’re selling your personal assets to get enough money to make minimum payments;
• You’re borrowing money from pay day loan companies to make your minimum payments;
• You’re making the minimum payments only on your credit card debts and don’t seem to be getting ahead;
• You’re borrowing from a cash advance from a line of credit or a cash advance from one credit card to other credit cards; or
• Your debt load continues to increase with no change in sight.

You’re not alone. There are several solutions available to solve the problem. At Boale, Wood & Company you will meet with a Licensed Insolvency Trustee (“LIT”) who will assist you in dealing with any of these situations, with a free, confidential meeting. At Boale, Wood & Company Ltd., we will find a solution that will work for your personal circumstances and your family circumstances. We will discuss all your financial options to be debt free and assist you in the development of a plan recommend the best the best option for you. Ok, So What Are My Options? At our initial meeting/assessment we will discuss all financial options to resolve your indebtedness.  Your options could be any of the following:

1. Communicate with your creditors to find a plan to pay everybody in full. We can provide you with suggestions to communicate with your creditors;
2. Budgeting assistance,
3. Refinancing your current debt or Debt Consolidation,
4. A Debt Management Program (“DMP”), provided by accredited credit counsellors,
5. A formal proposal to your creditors (Consumer proposal or a Division 1/Commercial proposal), or
6. Bankruptcy

As you will note, your last choice, as set out above is always bankruptcy.  However, depending on your circumstances, bankruptcy may be the best option. We will discuss and set up a plan and financial options that will deal all of your debts including government debt owing to CRA, Student Loans. We will discuss the protection/exemption of various assets and the interrelationship of exempt assets in B.C. (such as car with a value up to $5,000, Pensions, RRSP except contributions in the last 12 months). We will discuss the impact of net your current net income, and how this may affect you in a proposal or a bankruptcy scenario and how surplus income is calculated. To get more information on the options that would work best for you, call the friendly and knowledgeable staff at Boale, Wood & Company Ltd. today. We have offices located throughout the Lower Mainland, Fraser Valley, and the Sunshine Coast.  We also serve the Yukon Territory.  We can set up a meeting face to face, speak to you over the telephone or via email. Call us, it’s not too late. 604-605-3335  

1. Communicate with your creditors and find a plan to pay everybody in full.

Often the best solution is communication.  Everybody feels a little better and appreciates knowing what’s going on even if it’s bad news.  At least you are trying to deal with it and not trying to avoid them. Everybody wants a solution.  Prior to calling try to have a plan in place to deal with the debt.  Think about how you are going to deal with the complete debt load and make sure that your budget is realistic.  You don’t want to make payment commitments that you might not be able to fulfill. Whether it is simply asking for more time or a temporary reduction on the interest rate, it is usually better to communicate than to avoid.

2. Refinancing/ Debt Consolidation,

This is often a very misunderstood option.  It sounds good but make sure it is the right option for you. Firstly, do you qualify for a Secured Line of Credit or refinancing?  The rules have recently changed for qualifying for mortgage making it harder to qualify.  Secondly, it is important to look at the true cost of the loan over the entire term.  If you refinance your mortgage and are making payments over a 20 year period, the true cost to repay the debt can be quite high. If you are looking for a debt consolidation loan, the Bank may want a co-signor.  Be careful and try to avoid getting another person involved.  Keep in mind that even if the monthly payments are lower than what you are paying right now, the new payments might still be more than you can afford.  If you have a co-signor and find that you are unable to repay the loan, the co-signor will be fully responsible for the unpaid debt and failure to pay will affect their credit rating. Just because you are consolidating your debts in to one payment, this doesn’t resolve the indebtedness.  You still owe the same amount of money, but you simplified the monthly payment.

3. A Debt Management Program, (“DMP”)

A Debt Management program is an agreement between a debtor and the creditors that addresses terms of the outstanding debts.  A DMP is generally administered through by accredited credit counsellors.  A counsellor will work with the debtor to try to develop a plan to consolidate all unsecured non-government type debts into one monthly consolidated payment often with little or no interest.  The program is designed to pay all debts in full or a specific period, generally 5 years or less.

4. A formal proposal to your creditors (Consumer Proposal or a Division 1/Commercial Proposal),

A proposal is an offer to creditors to pay a percentage of what is owed over a specific period of time, or to extend the amount of time to pay off the debt, or a combination of both.  Creditors vote to accept or reject the proposal. There are two types of proposals:

• Consumer Proposals—available to individuals who owe less than $250,000, excluding the mortgage on your primary residence; and
• Commercial Proposals—there is no limit regarding how much money is owed.

Once all the terms of the proposal are met, the debtor is legally released from the debts included in the proposal. Both consumer or commercial proposals is a formal statutory process administered by a Licensed Insolvency Trustee (“LIT”) such as Boale, Wood & Company Ltd.  A Consumer proposal is an offer by yourself to your creditors to repay a portion of all of your debts as full and final settlement of the debt.  The term or length of time the proposal settlement can not exceed 5 years.  As a general rule, the recover of the Proposal must be better than the creditors would otherwise receive in a bankruptcy scenario.  The Proposal is developed with the LIT to deal with such issues potential wage fluctuations, seasonality, taxes and other items. Government debt, including outstanding income tax and student loans, can be included in a proposal to your creditors.  If you have a student loan and have been out of school for less than 7 years, student loans can still participate and receive dividends from the proposal, however any unpaid amount will still be collectible once the proposal has been completed.  Further, Student Loans will still be able to charge interest on the account during the proposal. A formal proposal to your creditors, filed under the Bankruptcy and Insolvency Act, provides a debtor with automatic protection from their creditors while a payment arrangement that is agreeable to both the debtor and the creditors can be formulated.  This protection is unique to the options provided under the Bankruptcy and Insolvency Act and can protect you from having your wages garnisheed, your assets seized, or bank account frozen.

5. Bankruptcy

Bankruptcy is a legal process designed to relieve honest but unfortunate debtors of their debts. It is a formal statutory process with various requirements to fulfill during the administration.  These include but are not limited to providing monthly income expense reports together with proof of income, 2 mandatory counselling sessions and assistance in providing documents to file the current and prior years income tax return. At the end of the process, the bankrupt is released from the obligation to repay the debts they had when the bankruptcy was filed (with some exceptions). Bankruptcy is often viewed as a last resort and most people have an instant reaction to just the word. The decision to file for bankruptcy should not be taken lightly.  However, sometimes bankruptcy can be the best option depending on your circumstances. The Licensed Insolvency Trustees at Boale, Wood & Company Ltd. can look at your situation and advise you of the best option for you. Call us, it’s not too late.  604-605-333    

Headline: 'People are still having a very hard time': Survey shows Albertans deepest in debt, despite highest incomes Via: CBC News