Difference between pages "Introduction to Debtors' Options (10:IV)" and "Dealing with Debt (10:V)"

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{{LSLAP Manual TOC|expanded = creditors}}
{{LSLAP Manual TOC|expanded = creditors}}


Being in debt is obviously stressful for debtors. Debtors should be made aware that measures can be taken against overeager creditors. Although creditors may choose to not initiate legal action, a '''debtor should not assume that they can ignore their responsibilities.''' The debtor may try to communicate with the creditor(s) in hopes of reaching an agreement about repayment, and to avoid potentially costly legal battles. However, this is only to be done when the debtor wishes to acknowledge the debt. 
== A. Introduction ==


Under the ''Limitation Act'', SBC 2012 c. 13. a creditor generally cannot succeed in pursuing a debtor after two years from the last payment or acknowledgement of the debt. Communications with creditors that acknowledge the debt will initiate a new two year time horizon in which a creditor is able to pursue the debtor. To avoid acknowledging a debt, it is important that the following phrase be included in the letter: “This communication is provided solely for the purpose of [state purpose of letter] and does not constitute an acknowledgement of the alleged debt described (above).” This should be carefully considered when a debtor is approaching the end of a two year timeline in which they will be relinquished of legal responsibility for the debt at issue. Since this change to the limitation period, several major creditors  have been pursuing debtors through in house collections more aggressively, rather than sending the accounts to third party agencies. The limitation change may also be leading creditors to pursue debtors in court with greater frequency.  
:'''NOTE:''' The following applies to individuals only.  


If an acknowledgement of the debt occurs, both the debtor and the creditor must be realistic about the situation. Both parties must assess the costs and delay involved in any litigation. In such negotiations, the latter factors may work in favour of the debtor.   
Before giving or receiving advice dealing with debt, ensure that the debtor, in fact, is liable for the alleged debts. Be sure to determine who the actual creditor is. When a creditor assigns an account to a third party agency the third party does not become the creditor. There are situations, however, where third parties purchase accounts from creditors and thereby become the creditors themselves. Creditor remedies can differ depending on the type of creditor, in particular if a debt is owed to the government.   


A debtor may wish to seek legal advice before discussing or disputing a debt with a creditor, but this is not always necessary. If the debtor believes they do not owe the debt they should consider legal advice. If the debtor believes they owe the money but disputes the amount claimed, they may also want to consider legal advice. However, if the debtor simply cannot meet the payment terms, it is recommended that they seek credit counselling. See [[Dealing with Debt (10:IV) | Section IV. Dealing With Debt]].
Most people do not seek advice until long after they have become overburdened with debts, however, getting help sooner rather than later will  leave people with more options available to them. Financial counselling may be of assistance to explore which options will work best.


Where a creditor is pressuring a debtor for payment, a debtor may send a “without prejudice” letter to the creditor explaining their position and/or offering a settlement. See [[{{PAGENAME}}#F. Settlements | Section III.F: Settlements]], below for further information. When writing a Without Prejudice letter it is critical to include the following phrase: “This communication is provided solely for the purpose of [state purpose of letter] and does not constitute an acknowledgement of the alleged debt described above.”
:'''NOTE: Many counsellors and trustees provide an initial consultation at no cost. Consumers should be aware that unless they are going to meet with a lawyer they need not pay for an initial consultation.'''


A debtor cannot seek to avoid defending an action in court where that action takes place in another province on the grounds that the court lacks jurisdiction. An action under s 29 of the ''COEA'' to enforce an extra-provincial default judgment may proceed where the debtor was  served but chose not to offer any defence to the original statement of claim. The creditor simply registers a judgment from another province in B.C., and it becomes a B.C. judgment. Furthermore, as a result of the decisions in ''[https://www.canlii.org/en/ca/scc/doc/1990/1990canlii29/1990canlii29.html?autocompleteStr=Morguard%20Investments%20v%20De%20Savoye%2C%20%5B1990%5D%203%20SCR%201077&autocompletePos=1 Morguard Investments v De Savoye'', [1990<nowiki>]</nowiki> 3 SCR 1077] and ''[https://www.canlii.org/en/ca/scc/doc/2003/2003scc72/2003scc72.html?autocompleteStr=Beals%20v%20Saldanha%2C%20%5B2003%5D%203%20SCR%20416%2C%202003%20SCC%2072&autocompletePos=1 Beals v Saldanha'', [2003<nowiki>]</nowiki> 3 SCR 416, 2003 SCC 72], American and other international default judgments can also be enforced in B.C.
== B. Debtors’ Assistance Referrals and Resources ==


The process for enforcing a foreign judgment is simplified where the judgment originates from one of the reciprocating states listed in the COEA: http://www.bclaws.ca/civix/document/id/loo95/loo95/courtorderenflist. Judgments from one of the foregoing reciprocating states can simply be registered in the B.C.S.C.  
The Credit Counselling Society is a non-profit organization that assists people who are experiencing difficulties with debts. They provide free and confidential counselling with highly trained counsellors. They can answer questions over the phone or by online chat, Monday – Saturday, with extended hours.  


If the judgement does not originate from a reciprocating state, a creditor must bring an action on the judgment or on the original cause of action instead. This process requires a trial on the judgment or original action, where the court will determine whether to enforce the foreign judgment.
:'''NOTE: Exercise caution when hiring unregulated companies that promise to "reduce" a consumer's debt. Effective April 1, 2016, any debt repayment agent and any corporation that collects and/or settles debt in BC should be registered with the Consumer Protection Agency (the Credit Counselling Society is a licensed organization).  For information on your rights relating to debt collection, refer to the Debt Collection tab on the [http://www.consumerprotectionbc.ca/ Consumer Protection Agency website].''' Please see the ''Business Practices and Consumer Protection Act,'' s 127 for more information on debt repayment agents.'''


:'''NOTE:''' There have been judgments for the creditor where the creditor pursues the debtor after the two-year timeline. This may happen where the creditor is inexperienced or neglectful, the debtor does not defend themselves, or the period between payments is not reviewed. If the judgment has been issued by the court, it may be more cost-effective to try and settle the matter with the creditor instead of challenging it in court.
'''Credit Counselling Society'''
{{ResourcesLSLAP
| address = 330 - 435 Columbia Street <br /> New Westminster, B.C. V3L 5N8
| phone = 1-888-527-8999
| online = [http://www.nomoredebts.org Website]
}}


== A. Legal Advice for Debtors Under Secured Transactions ==
The Financial Consumer Agency of Canada (“FCAC”) publishes a great deal of useful information on consumer’s rights as they relate to financial  institutions, including information on opening personal banking accounts and guidelines for garnishing joint accounts: see http://www.fcac-acfc.gc.ca. You should be advised that credit unions in B.C. are governed by the provincial Financial Institutions Commission (“FICOM”). See http://www.fic.gov.bc.ca for further details.


The information in this section is specific to the defendant’s point of view, but is most usefully read in conjunction with [[Creditors%27 Remedies against Debtors (10:II) | Section II: Creditors’ Remedies]]. If a student needs more information, that section may help to complete the picture.  
The Public Legal Education and Information Network's “Clicklaw” web site has a helpful section titled “Debt”. Articles and information on  various topics relating to consumer protection, debt and Small Claims Court in British Columbia can be found online at: http://www.clicklaw.bc.ca.  


Where the debtor is in default under a security agreement, s 56 of the PPSA provides that the secured party has against the debtor the rights and remedies provided in the security agreement (provided such do not derogate those rights given to the debtor by the PPSA) as well as those specifically provided by the Act.  
Information on how to deal with debt collectors and collection agencies and harassment can be found on the Clicklaw website or through Consumer Protection BC online at: http://www.consumerprotectionbc.ca.


Sections 58 and 59, contain rules for seizing and disposing of collateral. These sections provide that, unless the security agreement states otherwise, where the debtor defaults on their payment, the creditor may elect to take possession of the collateral pursuant to the contract, dispose of the collateral and then sue for any amount still owing. Section 67, provides for a more limited set of remedies where the collateral takes the form of consumer goods – known as the “seize or sue” rule. Formerly, under legislation repealed by the PPSA, all creditors could only seize or sue but not both. The principle of “seize or sue” still applies to “consumer goods” (see [[Creditors%27 Remedies against Debtors (10:II)#6. Seizure | Section II.A.6.: Seizure]] and [[Creditors%27 Remedies against Debtors (10:II)#7. Disposal of Collateral | Section II.A.7: Disposal of Collateral]]); it no longer applies to commercial goods. The PPSA defines “consumer goods” as those goods that are used or acquired  for use primarily for personal, family or household purposes. “Commercial goods” are those goods used for commercial purposes.  
The Office of the Superintendent of Bankruptcy in Canada, an agency of Industry Canada, assists debtors by providing them with many useful online resources such as “Dealing with Debt: A Consumer’s Guide” and “Debtor’s Frequently Asked Questions”. A full directory of licensed trustees in bankruptcy is available on their website: http://www.ic.gc.ca/app/osb/tds/search.html?lang=eng. A licensed trustee in bankruptcy will  provide a free confidential assessment of your financial affairs and advise you of the merits and consequences of filing a consumer proposal or bankruptcy.


=== 1. Notice ===
For further information the Office of the Superintendent of Bankruptcy can be contacted at:


Subject to the circumstances where notice is not required as per s 59 (17) (i.e. for perishable collateral, collateral requiring disproportionately high storage costs relative to its value, etc.), the requirements for notice are outlined in ss 59(6) and (10): the secured party or receiver, as the case may be, must provide at least 20 days’ notice of an intention to dispose of the collateral to parties including the debtor and any other creditor. The clinician should check to make sure that the debtor received notice in time and in the correct form. See [[Creditors%27 Remedies against Debtors (10:II)#8. Notice to Dispose of Collateral | Section II.A.8: Notice to Dispose of Collateral]] for a complete account of the notice requirements that must be met under the PPSA.
'''Office of the Superintendent of Bankruptcy'''


:'''NOTE:''' The forms of notices under the PPSA depend on a number of variables, including the nature of the security and the terms of the security agreement. Creditors or debtors seeking advice concerning the validity of notices should be referred to a lawyer.  
{{ResourcesLSLAP
| address = 2000 - 300 West Georgia Street <br /> Vancouver, B.C. V6B 6E1
| phone = (877) 376-9902 <br /> Fax: (604) 666-4610
| online = [http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home Website]
}}


=== 2. Limitation of the Right of Seizure ===
Also refer to section F below, ''Settlements''.


With respect to collateral which is a “consumer good,” where the debtor has paid at least two-thirds of the total amount secured, the creditor may not seize the good without first obtaining a court order.
== C. Communicating with Creditors when Unable to Make Contractual Payments ==


=== 3. Rights of a Debtor on Realization ===
:'''NOTE:''' Before communicating with creditors, debtors should be aware of the consequences of acknowledging a debt as a result of the ''Limitation Act'' SBC 2012 c 13. Under the recently revised Act, for debts last acknowledged from June 1, 2013 onwards, after two years since the last acknowledgement of a debt by the debtor, a creditor has no legal recourse for pursuing the unpaid debt. Therefore, by instructing a  debtor to acknowledge a debt, even implicitly, a clinician will create a renewed two year time frame for the creditor to initiate legal action against the debtor. See note above, at the start of Section III, for further information. 


The PPSA preserves the debtor’s (but not the secured party’s) rights and remedies under other statutes that are not inconsistent with the ''PPSA'', as well as the specific rights and remedies provided in the security agreement, ss 17, 17.1 and 56(2)(b).
:'''NOTE:''' Debtors should also be aware that if a judgement has been rendered against them it can be enforced for 10 years after the date of judgement (s 7). Refer to the ''Limitation Act'' for exceptions to this rule (s 23).  


=== 4. Rights of Redemption and Reinstatement ===
Depending on a consumer’s circumstances, they may need to contact their creditors to ask for assistance in getting through financially difficult times. Most people truly want to honour their commitments; however, they may not be able to do so at this time.  If someone needs help with determining what their budget is and if they have surplus income to offer their creditors a reduced payment, the Credit Counselling Society is able to help consumers at no cost: 1-888-527-8999.


Under s 62, a debtor has redemption rights. Any person entitled to notice of a pending disposition of collateral may “redeem” the collateral  by tendering to the secured party fulfilment of the obligations secured by the collateral plus the reasonable expenses incurred by the secured party associated in seizing the collateral or otherwise preparing it for disposition. The aforementioned obligations may simply be the amount in arrears; however, it is more often the case that an acceleration clause applies, and that the obligations will be the total amount of the debt. Where the security agreement contains an acceleration clause, the debtor may apply to court for relief from the consequences of default  or for an order staying enforcement of the security agreement’s acceleration provision.
If the debtor has enough surplus income in their budget to repay their debt, they may wish to contact their creditors in writing and offer reduced payments until they are in a position to make contractual payments again. '''This is not a legal arrangement.''' A sample letter requesting reduced payments can be found on CCS’s website at http://www.nomoredebts.org/debt-help/dealing-with-creditors/debt-letters.html.  


Where the collateral is a “consumer good”, the calculation of the obligation secured and the obligation that must be tendered is varied. The  debtor may “reinstate” the security agreement by paying only the monies actually in arrears – negating the operation of any acceleration  clause. The debtor may waive this right but any such agreement must be in writing after default. Note that the number of times the debtor may  reinstate the security agreement is limited depending on the period of time for repayment set out in the security agreement; however, the frequency of reinstatement may be varied by agreement between the parties.
The steps involved in this reduced payment are:
#determine the amount(s) owed and to whom (verify with the creditors rather than relying on the debtor);
#determine how much money is available to pay to creditors, keeping the basic standard of living in mind;
#consider if the debtor has assets, bank accounts or investments at risk;
#consider the nature of the debt and if someone else would be impacted if the debtor is unable to make full payment, e.g. a joint credit card;
#work out a payment plan for the creditors on a pro rata basis;
#write the creditor a short letter outlining your situation and providing proof of reduced financial capacity, e.g. EI stub;
#send or fax the above letter with supporting documentation and retain proof of the creditor receiving said letter (e.g. fax transmission report), retain a copy for your file;  
#update creditor periodically, e.g. if debtor's situation stays the same or improves and if they’re able to resume contractual payments.  


=== 5. Execution ===
:'''NOTE:''' Contact the Credit Counselling Society for free help with this process if needed. The creditors may feel the reduced payments are not acceptable, but would likely not pursue alternative legal action if this is all the debtor can afford at this time. Communication with the creditors is vital, especially if a consumer has no ability to make payments at this time.


See [[Creditors%27 Remedies against Debtors (10:II)#2. Execution | Section II.B.2: Execution]].
== D. Debt Consolidation and Refinancing ==


== B. Legal Advice for Debtors Who are Garnished ==
Creditors will often offer refinancing or debt consolidation as the solution to the debtor’s financial problem. The interest rate may be higher for the consolidation. Terms and conditions will determine total interest paid and the payment period. If making payments in the first place is the problem, consolidation loans may not be the solution. All creditors should be treated on a pro rata basis; if the consolidation only satisfies a particular creditor, the debtor should ensure they are at least able to meet the minimum payments owing to all other creditors. 


The details of how an order for garnishment is obtained are found in the creditor’s remedy portion of the chapter, but debtors should be  reminded that hardship may be a defence to garnishment. Therefore, a pre or post-judgment garnishment order may be varied where it would be  unfair to the judgment debtor; it is generally easier to have a pre-judgment order varied.  
== E. Voluntary Debt Repayment Programs ==


Under ss 3 or 4 of the ''COEA'', a judge has the discretion to set aside a garnishing order once the debtor has made an application. A judge will consider:
When someone has some ability to repay their debts, but is unable to meet the minimum payment requirements of their creditors, contact the Credit Counselling Society for help determining if the Debt Management Program (DMP) at the Society might be an option. This is an agreement between a debtor, to make set, reduced monthly payments, and their creditors, who in return agree to accept reduced payments and who often suspend or reduce ongoing interest charges. A client agrees not to incur further debt while on the program. If a debtor defaults from the program, creditors may proceed with any and all remedies available to them. The debtor should contact the Credit Counselling Society for more information at 1-888-527-8999.


'''For pre-judgment orders only:'''  
:'''NOTE:''' Though non-profit, the Credit Counselling Society does charge a small fee to administer the Debt Management Program (DMP). While  counselling is free, CCS charges a one time setup fee of no more than the average monthly payment to creditors to a maximum of $75 upon entering the DMP.  Once a debtor has entered intot he program and begins making payments, and only upon written acceptance by creditors, CCS charges 10% of a debtor's deposit to a maximum of $75 per month. CCS will consider reducing or waiving fees where they would become a barrier to debtors needing the help of a DMP.


#the strengths and weaknesses of the defendant’s defence to the claim.  
== F. Settlements ==


'''For both pre and post-judgment orders:'''
Depending on the consumer’s circumstances, their creditors may be willing to accept a settlement on a portion of what is owed. If a consumer has funds available, they can approach their creditors in writing to accept a onetime lump sum payment. In exchange, the creditors agree to report the debt as “settled’ to all credit reporting agencies. It is essential that the consumer get this agreement in writing from the creditors before sending any money for the settlement.


#whether the judgment leaves the debtor with an inordinately low cash flow;
Debtors should be advised that some agencies that advertise “debt settlement” services may take advantage of debtors. Debtors should be aware  of agencies that demand upfront fees before a settlement is negotiated. During the pay period of a settlement there is no protection from  legal action or garnishes. Contact the Credit Counselling Society for help with the settlement process if needed. '''Please consult the Financial  Consumer Agency of Canada’s warning regarding debt reduction companies at:'''
#whether there is a risk that the grant or continuance of the order will cause an injustice to the debtor;
#whether there is a possibility of abuse of process by the creditor; and
#whether the garnishment of certain payments, such as social assistance benefits, run counter to public policy


Furthermore, ss 3(5) and 4(4) of the ''COEA'' describes the limits to which a debtor’s wages may be garnished. Thus, if a debtor has a low income or has  savings they depend on for the necessities of life, they can have the amount that is being garnished (or proposed to be garnished) reduced, the terms of the order varied, or the garnishment ended. A person who is subject to a Notice of Attachment under the Family Maintenance Enforcement Program can also try to have the amount that is being ‘garnished’ reduced. Additionally, a garnishing order from a civil action has to be renewed monthly, while a garnishing orderfor maintenance does not.
http://www.fcac-acfc.gc.ca/eng/about/news/pages/ConsAlert-ConsAvis-0.aspx?itemid=170


If the debtor receives income from a statutory benefit that is exempt from garnishment (e.g social assistance or COVID-19 benefits), they should be advised as to how to protect their money after it is paid to them. '''The right of offset allows banks to seize deposited funds from an account at that  institution to cover a loan or account in default. If funds which are exempt from garnishment are deposited into a regular account that is commingled with other funds, they will not be protected from seizure by the financial institution. Their income should be safe if it is paid by  direct deposit into an account at an institution to which they do not owe any money.''' No other deposits should ever be made into this account.  It is also helpful to speak to a branch manager so that they understand the purpose of the account. '''A debtor should be advised that they have  a right to open a personal bank account at a chartered bank, even if they do not have a job or do not have money to put in the account right away.''' However, the applicant can be refused if the bank employee suspects fraud or experiences harassment from the applicant. For further  information, see: http://www.fcac-acfc.gc.ca and navigate through the website by clicking on Consumers > Resources > Publications > Banking > Opening a personal banking account: understanding your rights.
== G. Government Debt ==


:'''NOTE:''' This right to open a personal account does not extend to credit unions. Credit unions are regulated under provincial legislation rather than the federal act and they have wider powers to deny applicants. For further information, visit http://www.fic.gov.bc.ca.
The government is the most powerful creditor in Canada and has unique remedies available to it. For example see [[Creditors%27 Remedies against Debtors (10:II)#6. Garnishment of Statutory Benefits | Section II.B.6: Garnishment of Statutory Benefits]]. There is also a category of government entities called “tax payer support entities.” For debts owed to these agencies the six year limitation period still applies. Commercial crown corporations of self-sufficient entities do not belong to this category. Unpaid ambulance fees and Medical Services Plan premiums (which were eliminated starting January 1, 2020) are examples of tax payer support entities.


== C. Harassment by Debt Collectors ==
== H. Services a Trustee Provides Under the Bankruptcy and Insolvency Act ==


The ''Business Practices and Consumer Protection Act'', SBC 2004, ch 2 [''BPCPA''] provides for the licensing and regulation of debt collectors, which is carried out by Consumer Protection BC. The statute provides that jurisdiction is determined by the location of the debtor. Under the statute, Consumer Protection BC has wide powers of investigation.
The first appointment with a licensed insolvency trustee in BC is always free.  During this appointment, the Trustee should outline the implications and information a consumer needs to consider before taking any action.  This is the time to ask questions to understand the process and long-term effect on your credit.  A Trustee should be willing to take the time to explain everything thoroughly as there is no backing out once someone has signed the documents to assign themselves into bankruptcy. The same limitation does not exist with consumer proposals. '''For more information on how a licensed insolvency trustee helps with debt, refer to the Office of the Superintendent of Bankruptcy video series at'''


=== 1. Unreasonable Collection Practices ===
http://www.ic.gc.ca/iec/site/bsf-osb.nsf/eng/br03567.html


A collector must not communicate with a debtor, a member of the debtor’s family, a relative, a neighbour or the debtor’s employer in a manner  or with a frequency as to constitute harassment. The following constitutes harassment:
=== 1. Consumer Proposal ===
*a) using threatening, profane, intimidating or coercive language;
*b) exerting undue, excessive or unreasonable pressure; and/or
*c) publishing or threatening to publish a debtor's failure to pay (''BPCPA'', s.114).  


A collector cannot communicate with a debtor at the debtor’s place of employment unless one of the following conditions is met:
Depending on the nature and amount of the debt(s) and the consumer’s ability to pay, a consumer proposal should be considered.  Creditors may recover more money in consumer proposals than in bankruptcy.  However, there are windfalls that arise in bankruptcies that can result in unexpected recoveries.  A consumer proposal is a legal arrangement with creditors to repay a portion of the amounts owing.  Assets are not usually jeopardized (as they may be in bankruptcy) and the interest stops accruing as long as payments are being made.  Legal action is not effective while the consumer proposal arrangement is in place.
 
Filing a consumer proposal is not free. If the CP is accepted by the creditors, the first $1,500 is paid to the trustee. The first $1,500 is deducted before calculating the distribution to creditors. Consumers are also expected to pay the administrator 20% of the moneys distributed to creditors under the consumer proposal.  There may also be more fees [''Bankruptcy and Insolvency General Rules,'' CRC, c 368, s 129(1)].  Please consult a Trustee for more detailed information.  '''For more information on consumer proposals, refer to the Office of the Superintendent of Bankruptcy in Canada's  description of consumer proposals at'''
https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br01976.html


*a) the collector does not have the home address or telephone number for the debtor and the collector contacts the debtor solely for the purpose of requesting the debtor's home address or telephone number or both;
:'''NOTE:''' Due to COVID-19, the following relief measures are in place for consumer  proposals:
*b) the collector has attempted to contact the debtor at the debtor’s home address or telephone number, but the collector has not contacted the  debtor in any of these attempts (the collector is limited to one verbal attempt at the debtor’s place of employment (s 116(2)), meaning one  call even if the debtor doesn’t answer or hangs up); or
*From March 13 to December 31, 2020, debtors are allowed to miss up to 3 additional proposal payments before the consumer proposal will be deemed annulled
*c) the collector has been authorized by the debtor to communicate with the debtor at the debtor’s place of employment (s 116 (1)).
*The time for holding meetings of creditors (ss 51, 66.15 and 102 of the BIA) and mediations (s 105 of the BIA) is extended by the time of the Suspension Period (April 27, 2020 to June 30, 2020, or 65 days)
*The Trustee’s obligation to apply to court for a hearing following a bankrupt’s failure to comply with a mediated surplus agreement under s 170.1(3) is extended by the time of the Suspension Period


When the collector is contacting the debtor, they must indicate the name of the creditor with whom the debt was incurred, the amount of the  debt, and the identity and authority of the collector to collect the debt from the debtor (s 116 (3)).  
=== 2. Personal Bankruptcy ===


The collector must only contact a  debtor through writing if the debtor provides a mailing address and notifies the collector in writing that they wish to be contacted only by writing. (s 116 (4)). Be aware that ignoring written communications could result in a collector starting legal proceedings, notice of which would be sent via writing, so a debtor should always be reading the communications and carefully considering if and how they should respond.
Personal Bankruptcy is governed by the BIA, and is based on the premise that the debtor is completely unable to pay their debts, even at a  reduced rate, and does not have assets to liquidate (debtor is insolvent). Bankruptcy is one option to deal with a heavy debt burden. The record of a bankruptcy stays on a person’s credit record for a '''minimum''' of six years from the day the debts are discharged for a first-time bankrupt. This increases to 14 years for a second-time  bankrupt. This does not necessarily mean that credit will be denied, only that the bankruptcy will be a factor that a potential creditor will consider when deciding whether or not to extend credit to that person. Certain  professionals (such as lawyers, accountants, and mortgage brokers) may be required to report their bankruptcy to their professional organization. The BIA does provide that no person may be terminated just for filing bankruptcy.


In collecting or attempting to collect payment of debt, a collector must not supply any false or misleading information; misrepresent the purpose of communication; misrepresent the identity of the collector or, if different, the creditor; or use, without lawful authority, a summons, notice, demand, or other document that suggest or implies a connection with any court inside Canada (s.123).  
The debtor is required by law to engage a trustee to administer their bankruptcy.  Personal bankruptcy using a trustee may cost the debtor approximately $1685 (including $85 per counselling session, of which two are mandatory for a first-time bankruptcy and GST).  Usually, the trustee will require a minimum payment to initiate the proceedings; however, the first appointment with a Trustee is free.  The timelines for automatic discharge, in addition to being subject to fulfilment of the terms and conditions of the bankruptcy, are dependent on both bankruptcy history and the individual’s surplus income (as prescribed by the Superintendent of Bankruptcy standards – Directive 11R2). For monthly surplus income under $200, a bankrupt is not required to pay any amount to the bankrupt’s estate (Directive 11R2, 5(6)), and for monthly surplus income equal to or greater than $200, a bankrupt is required to 50% of their surplus income (Directive 11R2, 5(7)). For the 2020 version of Directive 11R2 and example calculations, visit https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html


If a creditor does not obey the ''BPCPA'', the debtor may report the creditor to [http://www.consumerprotectionbc.ca Consumer Protection BC].  
If all the conditions of bankruptcy have been met, there are no facts for which a discharge may be refused pursuant to s 173 of the BIA, and no objections have been filed by creditors or the Superintendent of Bankruptcy Canada;
*A first-time bankrupt with surplus income payable less than $200 is automatically discharged after nine months;
*A first-time bankruptcy with surplus income greater than or equal to $200 is automatically discharged after 21 months;
*A second-time bankruptcy with surplus income less than $200 is automatically discharged after 24 months;
*A second-time bankruptcy with surplus income greater or equal to than $200 is automatically discharged after 36 months.  


=== 2. Limits on Right of Seizure ===
The average monthly surplus income is calculated at different times (Directive 11R2, 7(1)) depending on whether there have been any material changes in the bankrupt’s financial circumstances. Examples for calculating the average monthly surplus income can be found at https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html. The period of the discharge may also be extended for certain prescribed reasons under the BIA. Consult the Office of the Superintendent of Bankruptcy or trustee. 


Under s 122, no collector, whether on their own behalf or on behalf of another, directly, indirectly, or through others, shall:
==== a) Debts That Bankruptcy Will Not Discharge ====
*a) unless there is a court order to the contrary, remove from the debtor’s private dwelling any personal property claimed under seizure, distress, or repossession, in the absence of the debtor, the debtor’s spouse, the debtor’s agent, or an adult resident in the debtor’s dwelling;
*b) seize, repossess or levy distress against any chattel not specifically charged or mortgaged, or to which legal claim may not be made under a statute, court judgment, or court order; or
*c) remove, seize, repossess, or levy distress against any chattel during a day or during the hours of a day when such removal, seizure,  repossession or distress is prohibited by regulations under this Act.


=== 3. Consequences of Contravention of the Business Practices and Consumer Protection Act ===
A debtor should know that filing for bankruptcy will not discharge some obligations, such as:
*an amount owing on a fine, penalty or restitution order imposed by a court in respect of an offence or debt arising out of a recognizance or bail;
*an award of damages by a court in civil proceedings in respect of bodily harm intentionally inflicted or sexual assault (including wrongful death resulting therefrom); 
*a court order or a separation agreement regarding alimony or maintenance;
*an amount obtained under false pretences while acting in a fiduciary capacity; 
*a debt resulting from obtaining property or services by false pretences or by fraudulent misrepresentation (other than a debt arising from an equity claim);
*any debt or obligation for federal and provincial student loans where the date of bankruptcy occurs before the date on which the bankrupt ceased to be a full or part-time student or, as of June 18, 1998 through an amendment to the Act, within 7 years after the date on which the bankrupt ceased to be a full or part-time student (BIA, s 178(1)(g)).


Where there is evidence of misconduct by the debt collector, the Director may suspend, cancel, or refuse to issue their licence (s 146(1)). Such conduct includes (s 146(2)):
The full list of exceptions may be found in s 178(1) of the BIA.  Questions about bankruptcy, including specific questions regarding Canada Student Loans, may be directed to a licensed insolvency trustee or the Superintendent of Bankruptcy, at 1-877-376-9902.
*a) contravening this Act or regulations;
*b) failing to meet the minimum requirements for a licence;
*c) contravening a condition of a license;
*d) engaging in a pattern of conduct by the debt collector that shows that they are unfit to have a licence; or  
*e) being convicted of an offence under Canadian law for conduct that shows they are unfit to have a licence.


=== 4. Legal Advice for a Harassed Debtor ===
==== b) Assets That May be Retained by the Bankrupt in B.C. ====


If there may be a violation of the ''Business Practices and Consumer Protection Act'', the debtor should do the following:
The bankrupt may retain household furnishings and appliances valued at up to $4,000 and any other goods or property exempt from execution under provincial and federal statutes (COEA, s 71(1); Court Order Enforcement Exemption Regulation, B.C. Reg. 28/98; BIA, s 67(1) and relevant amendments).  
*a) find out the name of the collector and/or agency;  
*b) record the exact words or practice followed by the debt collector or the agency; and  
*c) detail the time and dates of the calls or visits.  


With the above information the debtor should contact Consumer Protection BC for the name of the complaints manager for the collection agency the debtor is dealing with. This complaints manager will work with the debtor to resolve the complaint, including disciplinary action, if appropriate. Their website is http://www.consumerprotectionbc.ca and includes resources regarding consumer and debtor rights, as well as dispute resolution. It also includes a form for registering a complaint with Consumer Protection BC.  
See [[Creditors%27 Remedies against Debtors (10:II)#3. Exemptions from Seizure | Section II.B.3: Exemptions from Seizure]] for a list of what the ''COEA'' allows a debtor to retain.  


Finally, if the debtor suffered damages or inconvenience as a result of the agency’s collection practices, a Small Claims action may be commenced (s 171, 172).  
All RRSPs and RRIFs are exempt from seizure in a bankruptcy (except for contributions made in the year preceding bankruptcy).  


== D. Credit Reporting Agencies ==
Any material transaction made within the past 5 years is reviewable. If a preference was given to a creditor, the trustee may act on the  transaction. Lastly, any tax refund for the year of bankruptcy or any prior year becomes part of the bankruptcy, and will go to a trustee for  the benefit of the creditors., or it may be seized by the government to fulfil a government debt. 


Businesses offering goods or services on credit often rely on credit bureau reports for financial and prior debt information on their customers. See ''Business Practices and Consumer Protection Act, ss'' 106-112.
:'''NOTE:''' If the debtor (except anyone in commercial activities (self-employed or business) or in  jail) chooses a trustee and is rejected  (due to a fee charge) because they are unable to pay, they should contact the Office of the Superintendent of Bankruptcy (“OSB”), and ask to participate in the Bankruptcy Assistance Program. The debtor must obtain a written refusal from 2 trustees and, if they qualify for the  program, will then be assigned a trustee in the referral program for a reduced fee (not for free). This program is not available to everyone that cannot afford to pay. Further, it does not exclude non-exempt assets such as GST and income tax refunds from seizure. Information can be  found at the [http://www.servicecanada.gc.ca/eng/goc/bankruptcy_assistance.shtml Bankruptcy Assistance Program website] or by calling the OSB’s national number at 1-877-376-9902.  


The ''Business Practices and Consumer Protection Act'' regulates the activities of the credit bureaus in order to minimize unfair treatment of the party seeking credit. Federal legislation, such as the ''Personal Information Protection and Electronic Documents Act'', SC 2000, c 5 [''PIPEDA''] and the ''Privacy Act'', RSC 1985, c P-21 also outline the requirements for organizations in their use, collection, and disclosure of personal information in their business practices. Credit information that these bureaus can disclose is the most common type of personal information, and includes one’s:
:'''NOTE:''' A debtor who is on a low end fixed income, such as a fixed income pension, with circumstances unlikely to change may have no need to declare bankruptcy as they would be, in essence, judgment-proof. Refer to [[{{PAGENAME}}#C. Communicating with Creditors when Unable to Make Contractual Payments | section C above, Communicating with Creditors when Unable to Make Contractual Payments]].
*a) name, date of birth and address;
*b) current and former marital status;
*c) current and former place of work;
*d) payment habits; and
*e) debts owing.  


'''A credit reporting agency cannot give out an individual’s personal credit report without that individual’s consent.''' When one seeks credit, they will be asked to consent to the lender obtaining a credit report or a credit check. (After consent is given, the lender can  obtain a “soft check” periodically meaning they can view the report relating to their loans).   
== I. Student Loan Debt ==


Certain information cannot be included in a credit report, e.g., criminal charges (unless the individual was convicted), convictions more than six years old, and information about race, religion or political affiliation (BPCPA, s 109(1)).
The law surrounding student loans and grants is constantly changing, and varies greatly between provincial jurisdictions. Students should visit the federal and provincial student loan websites to get up to date information about repayment assistance. The information found below is up to date as of July of 2020.


Credit reporting agencies’ records are not always accurate and up to date. The quality and accuracy of the credit information depends on the credit information provided by the credit-granting companies who sign up with the credit reporting agencies. If an individual finds incorrect information on their file, they can report the error to the agency that provided the information to have it corrected. If an individual has proof that their credit report contains an error and they are unable to resolve it with the creditor directly, the individual should contact the credit reporting agencies who are reporting the incorrect information.  
=== 1. Federal Student Loan Debt ===


The agencies will assist them in finding a resolution. '''Any individual who is a victim of identity theft should immediately file a police report'''. The ''BPCPA'' allows individuals to provide a 100 word explanation to the reporting agency, which is to be kept and reported with their file (s.111); this may be a useful provision if a business has reported a disputed claim regarding yourself, or if you are a victim of identity theft. Any victim of identity theft is recommended to  post a comment on their credit report. This notifies creditors of the fact that the identity theft has taken place, and prevents additional credit being granted without a thorough review by the creditor. It is an offence (punishable by a fine of up to $10,000 or imprisonment for up to 12 months) to knowingly supply false or misleading information to a reporting agency (s 112).  
The National Student Loan Service Centre (NSLSC) is responsible for consolidating all federal student debt in Canada. In certain circumstances, students can apply for the Repayment Assistance Plan (RAP) and receive payment relief. Successful applicants may receive temporary interest  relief, permanent interest relief, and in the case of a student with a disability a portion of the principal amount of their loan may be forgiven. The level of assistance a student will receive is dependent on their income level, the size of their family, and whether they have a disability.  


Consumers may obtain their own credit report for free at least once a year by telephoning the credit bureaus directly or completing the form available on their websites Alternatively, a consumer can obtain an instant credit report by using a credit card to pay a one time fee.  
For further information on getting repayment assistance for Federal student loans, see http://www.canlearn.ca/eng/loans_grants/repayment/help/index.shtml.


There are currently two main credit reporting agencies in Canada, listed below.  
:'''NOTE:''' Due to COVID-19, effective March 30, 2020, all Canada Student Loans and Canada Apprentice Loans repayments will be suspended until September 30, 2020. No payments are required on student and apprentice loans during this time, pre-authorized debits will be stopped, and no interest will accrue on these loans.


'''Equifax'''
=== 2. Provincial Student Loan Debt ===


Toll-free: 1-800-465-7166
BC has a student loans service program called Student Aid BC. For further information on how to get repayment assistance for BC Provincial Student Loans, see https://studentaidbc.ca/repay/repayment-help.


Website: http://www.equifax.ca
:'''NOTE:''' Due to COVID-19, effective March 30, 2020, all British Columbia student loan borrowers will temporarily have their repayments suspended until September 30, 2020. During this time, no payment will be required, and interest that currently applies to the federal portion of student loans will not accrue. Repayment will be paused automatically, so borrowers do not need to apply to have their repayment suspended.


'''TransUnion'''
Toll-free: 1-800-663-9980 (English); 1-877-713-3393 (French)
Website: http://www.transunion.ca
:'''NOTE:''' Individuals should check their credit history regularly. Industry specialists suggest once per year. Credit reporting agencies will send a person a copy of their credit history by regular mail for free. As each agency operates in a different matter, individuals are encouraged to request their credit history from both agencies, as they will likely be different.


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{{LSLAP Manual Navbox|type=chapters8-14}}

Revision as of 00:01, 21 September 2020

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by the Law Students' Legal Advice Program on August 10, 2020.
LSLAP Manual
LSLAP Manual
This page is from the
Law Students' Legal
Advice Program Manual.
See the full contents.
LSLAP Manual
Introduction
Chapters
10. Creditors and Debtors
 · I. Introduction

 · II. Governing Legislation and Resources
 · III. Creditors' Remedies
 · IV. Debtors' Options
 · V. Dealing with Debt
 · Appendix A: Relevant Forms

 · Appendix B: Examination Checklist
v • d • e



A. Introduction

NOTE: The following applies to individuals only.

Before giving or receiving advice dealing with debt, ensure that the debtor, in fact, is liable for the alleged debts. Be sure to determine who the actual creditor is. When a creditor assigns an account to a third party agency the third party does not become the creditor. There are situations, however, where third parties purchase accounts from creditors and thereby become the creditors themselves. Creditor remedies can differ depending on the type of creditor, in particular if a debt is owed to the government.

Most people do not seek advice until long after they have become overburdened with debts, however, getting help sooner rather than later will leave people with more options available to them. Financial counselling may be of assistance to explore which options will work best.

NOTE: Many counsellors and trustees provide an initial consultation at no cost. Consumers should be aware that unless they are going to meet with a lawyer they need not pay for an initial consultation.

B. Debtors’ Assistance Referrals and Resources

The Credit Counselling Society is a non-profit organization that assists people who are experiencing difficulties with debts. They provide free and confidential counselling with highly trained counsellors. They can answer questions over the phone or by online chat, Monday – Saturday, with extended hours.

NOTE: Exercise caution when hiring unregulated companies that promise to "reduce" a consumer's debt. Effective April 1, 2016, any debt repayment agent and any corporation that collects and/or settles debt in BC should be registered with the Consumer Protection Agency (the Credit Counselling Society is a licensed organization). For information on your rights relating to debt collection, refer to the Debt Collection tab on the Consumer Protection Agency website. Please see the Business Practices and Consumer Protection Act, s 127 for more information on debt repayment agents.

Credit Counselling Society

Online Website
Address 330 - 435 Columbia Street
New Westminster, B.C. V3L 5N8
Phone 1-888-527-8999


The Financial Consumer Agency of Canada (“FCAC”) publishes a great deal of useful information on consumer’s rights as they relate to financial institutions, including information on opening personal banking accounts and guidelines for garnishing joint accounts: see http://www.fcac-acfc.gc.ca. You should be advised that credit unions in B.C. are governed by the provincial Financial Institutions Commission (“FICOM”). See http://www.fic.gov.bc.ca for further details.

The Public Legal Education and Information Network's “Clicklaw” web site has a helpful section titled “Debt”. Articles and information on various topics relating to consumer protection, debt and Small Claims Court in British Columbia can be found online at: http://www.clicklaw.bc.ca.

Information on how to deal with debt collectors and collection agencies and harassment can be found on the Clicklaw website or through Consumer Protection BC online at: http://www.consumerprotectionbc.ca.

The Office of the Superintendent of Bankruptcy in Canada, an agency of Industry Canada, assists debtors by providing them with many useful online resources such as “Dealing with Debt: A Consumer’s Guide” and “Debtor’s Frequently Asked Questions”. A full directory of licensed trustees in bankruptcy is available on their website: http://www.ic.gc.ca/app/osb/tds/search.html?lang=eng. A licensed trustee in bankruptcy will provide a free confidential assessment of your financial affairs and advise you of the merits and consequences of filing a consumer proposal or bankruptcy.

For further information the Office of the Superintendent of Bankruptcy can be contacted at:

Office of the Superintendent of Bankruptcy

Online Website
Address 2000 - 300 West Georgia Street
Vancouver, B.C. V6B 6E1
Phone (877) 376-9902
Fax: (604) 666-4610


Also refer to section F below, Settlements.

C. Communicating with Creditors when Unable to Make Contractual Payments

NOTE: Before communicating with creditors, debtors should be aware of the consequences of acknowledging a debt as a result of the Limitation Act SBC 2012 c 13. Under the recently revised Act, for debts last acknowledged from June 1, 2013 onwards, after two years since the last acknowledgement of a debt by the debtor, a creditor has no legal recourse for pursuing the unpaid debt. Therefore, by instructing a debtor to acknowledge a debt, even implicitly, a clinician will create a renewed two year time frame for the creditor to initiate legal action against the debtor. See note above, at the start of Section III, for further information.
NOTE: Debtors should also be aware that if a judgement has been rendered against them it can be enforced for 10 years after the date of judgement (s 7). Refer to the Limitation Act for exceptions to this rule (s 23).

Depending on a consumer’s circumstances, they may need to contact their creditors to ask for assistance in getting through financially difficult times. Most people truly want to honour their commitments; however, they may not be able to do so at this time. If someone needs help with determining what their budget is and if they have surplus income to offer their creditors a reduced payment, the Credit Counselling Society is able to help consumers at no cost: 1-888-527-8999.

If the debtor has enough surplus income in their budget to repay their debt, they may wish to contact their creditors in writing and offer reduced payments until they are in a position to make contractual payments again. This is not a legal arrangement. A sample letter requesting reduced payments can be found on CCS’s website at http://www.nomoredebts.org/debt-help/dealing-with-creditors/debt-letters.html.

The steps involved in this reduced payment are:

  1. determine the amount(s) owed and to whom (verify with the creditors rather than relying on the debtor);
  2. determine how much money is available to pay to creditors, keeping the basic standard of living in mind;
  3. consider if the debtor has assets, bank accounts or investments at risk;
  4. consider the nature of the debt and if someone else would be impacted if the debtor is unable to make full payment, e.g. a joint credit card;
  5. work out a payment plan for the creditors on a pro rata basis;
  6. write the creditor a short letter outlining your situation and providing proof of reduced financial capacity, e.g. EI stub;
  7. send or fax the above letter with supporting documentation and retain proof of the creditor receiving said letter (e.g. fax transmission report), retain a copy for your file;
  8. update creditor periodically, e.g. if debtor's situation stays the same or improves and if they’re able to resume contractual payments.
NOTE: Contact the Credit Counselling Society for free help with this process if needed. The creditors may feel the reduced payments are not acceptable, but would likely not pursue alternative legal action if this is all the debtor can afford at this time. Communication with the creditors is vital, especially if a consumer has no ability to make payments at this time.

D. Debt Consolidation and Refinancing

Creditors will often offer refinancing or debt consolidation as the solution to the debtor’s financial problem. The interest rate may be higher for the consolidation. Terms and conditions will determine total interest paid and the payment period. If making payments in the first place is the problem, consolidation loans may not be the solution. All creditors should be treated on a pro rata basis; if the consolidation only satisfies a particular creditor, the debtor should ensure they are at least able to meet the minimum payments owing to all other creditors.

E. Voluntary Debt Repayment Programs

When someone has some ability to repay their debts, but is unable to meet the minimum payment requirements of their creditors, contact the Credit Counselling Society for help determining if the Debt Management Program (DMP) at the Society might be an option. This is an agreement between a debtor, to make set, reduced monthly payments, and their creditors, who in return agree to accept reduced payments and who often suspend or reduce ongoing interest charges. A client agrees not to incur further debt while on the program. If a debtor defaults from the program, creditors may proceed with any and all remedies available to them. The debtor should contact the Credit Counselling Society for more information at 1-888-527-8999.

NOTE: Though non-profit, the Credit Counselling Society does charge a small fee to administer the Debt Management Program (DMP). While counselling is free, CCS charges a one time setup fee of no more than the average monthly payment to creditors to a maximum of $75 upon entering the DMP. Once a debtor has entered intot he program and begins making payments, and only upon written acceptance by creditors, CCS charges 10% of a debtor's deposit to a maximum of $75 per month. CCS will consider reducing or waiving fees where they would become a barrier to debtors needing the help of a DMP.

F. Settlements

Depending on the consumer’s circumstances, their creditors may be willing to accept a settlement on a portion of what is owed. If a consumer has funds available, they can approach their creditors in writing to accept a onetime lump sum payment. In exchange, the creditors agree to report the debt as “settled’ to all credit reporting agencies. It is essential that the consumer get this agreement in writing from the creditors before sending any money for the settlement.

Debtors should be advised that some agencies that advertise “debt settlement” services may take advantage of debtors. Debtors should be aware of agencies that demand upfront fees before a settlement is negotiated. During the pay period of a settlement there is no protection from legal action or garnishes. Contact the Credit Counselling Society for help with the settlement process if needed. Please consult the Financial Consumer Agency of Canada’s warning regarding debt reduction companies at:

http://www.fcac-acfc.gc.ca/eng/about/news/pages/ConsAlert-ConsAvis-0.aspx?itemid=170

G. Government Debt

The government is the most powerful creditor in Canada and has unique remedies available to it. For example see Section II.B.6: Garnishment of Statutory Benefits. There is also a category of government entities called “tax payer support entities.” For debts owed to these agencies the six year limitation period still applies. Commercial crown corporations of self-sufficient entities do not belong to this category. Unpaid ambulance fees and Medical Services Plan premiums (which were eliminated starting January 1, 2020) are examples of tax payer support entities.

H. Services a Trustee Provides Under the Bankruptcy and Insolvency Act

The first appointment with a licensed insolvency trustee in BC is always free. During this appointment, the Trustee should outline the implications and information a consumer needs to consider before taking any action. This is the time to ask questions to understand the process and long-term effect on your credit. A Trustee should be willing to take the time to explain everything thoroughly as there is no backing out once someone has signed the documents to assign themselves into bankruptcy. The same limitation does not exist with consumer proposals. For more information on how a licensed insolvency trustee helps with debt, refer to the Office of the Superintendent of Bankruptcy video series at

http://www.ic.gc.ca/iec/site/bsf-osb.nsf/eng/br03567.html

1. Consumer Proposal

Depending on the nature and amount of the debt(s) and the consumer’s ability to pay, a consumer proposal should be considered. Creditors may recover more money in consumer proposals than in bankruptcy. However, there are windfalls that arise in bankruptcies that can result in unexpected recoveries. A consumer proposal is a legal arrangement with creditors to repay a portion of the amounts owing. Assets are not usually jeopardized (as they may be in bankruptcy) and the interest stops accruing as long as payments are being made. Legal action is not effective while the consumer proposal arrangement is in place.   Filing a consumer proposal is not free. If the CP is accepted by the creditors, the first $1,500 is paid to the trustee. The first $1,500 is deducted before calculating the distribution to creditors. Consumers are also expected to pay the administrator 20% of the moneys distributed to creditors under the consumer proposal. There may also be more fees [Bankruptcy and Insolvency General Rules, CRC, c 368, s 129(1)]. Please consult a Trustee for more detailed information. For more information on consumer proposals, refer to the Office of the Superintendent of Bankruptcy in Canada's description of consumer proposals at https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br01976.html

NOTE: Due to COVID-19, the following relief measures are in place for consumer proposals:
  • From March 13 to December 31, 2020, debtors are allowed to miss up to 3 additional proposal payments before the consumer proposal will be deemed annulled
  • The time for holding meetings of creditors (ss 51, 66.15 and 102 of the BIA) and mediations (s 105 of the BIA) is extended by the time of the Suspension Period (April 27, 2020 to June 30, 2020, or 65 days)
  • The Trustee’s obligation to apply to court for a hearing following a bankrupt’s failure to comply with a mediated surplus agreement under s 170.1(3) is extended by the time of the Suspension Period

2. Personal Bankruptcy

Personal Bankruptcy is governed by the BIA, and is based on the premise that the debtor is completely unable to pay their debts, even at a reduced rate, and does not have assets to liquidate (debtor is insolvent). Bankruptcy is one option to deal with a heavy debt burden. The record of a bankruptcy stays on a person’s credit record for a minimum of six years from the day the debts are discharged for a first-time bankrupt. This increases to 14 years for a second-time bankrupt. This does not necessarily mean that credit will be denied, only that the bankruptcy will be a factor that a potential creditor will consider when deciding whether or not to extend credit to that person. Certain professionals (such as lawyers, accountants, and mortgage brokers) may be required to report their bankruptcy to their professional organization. The BIA does provide that no person may be terminated just for filing bankruptcy.

The debtor is required by law to engage a trustee to administer their bankruptcy. Personal bankruptcy using a trustee may cost the debtor approximately $1685 (including $85 per counselling session, of which two are mandatory for a first-time bankruptcy and GST). Usually, the trustee will require a minimum payment to initiate the proceedings; however, the first appointment with a Trustee is free. The timelines for automatic discharge, in addition to being subject to fulfilment of the terms and conditions of the bankruptcy, are dependent on both bankruptcy history and the individual’s surplus income (as prescribed by the Superintendent of Bankruptcy standards – Directive 11R2). For monthly surplus income under $200, a bankrupt is not required to pay any amount to the bankrupt’s estate (Directive 11R2, 5(6)), and for monthly surplus income equal to or greater than $200, a bankrupt is required to 50% of their surplus income (Directive 11R2, 5(7)). For the 2020 version of Directive 11R2 and example calculations, visit https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html

If all the conditions of bankruptcy have been met, there are no facts for which a discharge may be refused pursuant to s 173 of the BIA, and no objections have been filed by creditors or the Superintendent of Bankruptcy Canada;

  • A first-time bankrupt with surplus income payable less than $200 is automatically discharged after nine months;
  • A first-time bankruptcy with surplus income greater than or equal to $200 is automatically discharged after 21 months;
  • A second-time bankruptcy with surplus income less than $200 is automatically discharged after 24 months;
  • A second-time bankruptcy with surplus income greater or equal to than $200 is automatically discharged after 36 months.

The average monthly surplus income is calculated at different times (Directive 11R2, 7(1)) depending on whether there have been any material changes in the bankrupt’s financial circumstances. Examples for calculating the average monthly surplus income can be found at https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html. The period of the discharge may also be extended for certain prescribed reasons under the BIA. Consult the Office of the Superintendent of Bankruptcy or trustee.

a) Debts That Bankruptcy Will Not Discharge

A debtor should know that filing for bankruptcy will not discharge some obligations, such as:

  • an amount owing on a fine, penalty or restitution order imposed by a court in respect of an offence or debt arising out of a recognizance or bail;
  • an award of damages by a court in civil proceedings in respect of bodily harm intentionally inflicted or sexual assault (including wrongful death resulting therefrom);
  • a court order or a separation agreement regarding alimony or maintenance;
  • an amount obtained under false pretences while acting in a fiduciary capacity;
  • a debt resulting from obtaining property or services by false pretences or by fraudulent misrepresentation (other than a debt arising from an equity claim);
  • any debt or obligation for federal and provincial student loans where the date of bankruptcy occurs before the date on which the bankrupt ceased to be a full or part-time student or, as of June 18, 1998 through an amendment to the Act, within 7 years after the date on which the bankrupt ceased to be a full or part-time student (BIA, s 178(1)(g)).

The full list of exceptions may be found in s 178(1) of the BIA. Questions about bankruptcy, including specific questions regarding Canada Student Loans, may be directed to a licensed insolvency trustee or the Superintendent of Bankruptcy, at 1-877-376-9902.

b) Assets That May be Retained by the Bankrupt in B.C.

The bankrupt may retain household furnishings and appliances valued at up to $4,000 and any other goods or property exempt from execution under provincial and federal statutes (COEA, s 71(1); Court Order Enforcement Exemption Regulation, B.C. Reg. 28/98; BIA, s 67(1) and relevant amendments).

See Section II.B.3: Exemptions from Seizure for a list of what the COEA allows a debtor to retain.

All RRSPs and RRIFs are exempt from seizure in a bankruptcy (except for contributions made in the year preceding bankruptcy).

Any material transaction made within the past 5 years is reviewable. If a preference was given to a creditor, the trustee may act on the transaction. Lastly, any tax refund for the year of bankruptcy or any prior year becomes part of the bankruptcy, and will go to a trustee for the benefit of the creditors., or it may be seized by the government to fulfil a government debt.

NOTE: If the debtor (except anyone in commercial activities (self-employed or business) or in jail) chooses a trustee and is rejected (due to a fee charge) because they are unable to pay, they should contact the Office of the Superintendent of Bankruptcy (“OSB”), and ask to participate in the Bankruptcy Assistance Program. The debtor must obtain a written refusal from 2 trustees and, if they qualify for the program, will then be assigned a trustee in the referral program for a reduced fee (not for free). This program is not available to everyone that cannot afford to pay. Further, it does not exclude non-exempt assets such as GST and income tax refunds from seizure. Information can be found at the Bankruptcy Assistance Program website or by calling the OSB’s national number at 1-877-376-9902.
NOTE: A debtor who is on a low end fixed income, such as a fixed income pension, with circumstances unlikely to change may have no need to declare bankruptcy as they would be, in essence, judgment-proof. Refer to section C above, Communicating with Creditors when Unable to Make Contractual Payments.

I. Student Loan Debt

The law surrounding student loans and grants is constantly changing, and varies greatly between provincial jurisdictions. Students should visit the federal and provincial student loan websites to get up to date information about repayment assistance. The information found below is up to date as of July of 2020.

1. Federal Student Loan Debt

The National Student Loan Service Centre (NSLSC) is responsible for consolidating all federal student debt in Canada. In certain circumstances, students can apply for the Repayment Assistance Plan (RAP) and receive payment relief. Successful applicants may receive temporary interest relief, permanent interest relief, and in the case of a student with a disability a portion of the principal amount of their loan may be forgiven. The level of assistance a student will receive is dependent on their income level, the size of their family, and whether they have a disability.

For further information on getting repayment assistance for Federal student loans, see http://www.canlearn.ca/eng/loans_grants/repayment/help/index.shtml.

NOTE: Due to COVID-19, effective March 30, 2020, all Canada Student Loans and Canada Apprentice Loans repayments will be suspended until September 30, 2020. No payments are required on student and apprentice loans during this time, pre-authorized debits will be stopped, and no interest will accrue on these loans.

2. Provincial Student Loan Debt

BC has a student loans service program called Student Aid BC. For further information on how to get repayment assistance for BC Provincial Student Loans, see https://studentaidbc.ca/repay/repayment-help.

NOTE: Due to COVID-19, effective March 30, 2020, all British Columbia student loan borrowers will temporarily have their repayments suspended until September 30, 2020. During this time, no payment will be required, and interest that currently applies to the federal portion of student loans will not accrue. Repayment will be paused automatically, so borrowers do not need to apply to have their repayment suspended.


v • d • e
 
Chapters 8-14
Employment Insurance  · Employment Law  · Creditors and Debtors  · Consumer Protection  · Auto Insurance (ICBC)  · Motor Vehicle Law  · Mental Health Law
Chapter Eight:
Employment Insurance
Chapter Nine:
Employment Law
Chapter Ten:
Creditors' Remedies and Debtors' Assistance
Chapter Eleven:
Consumer Protection
Chapter Twelve:
Auto Insurance (ICBC)
Chapter Thirteen:
Motor Vehicle Law
Chapter Fourteen:
Mental Health Law
© Copyright 2023, The Greater Vancouver Law Students' Legal Advice Society.


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