Bennett on Consumer Bankruptcy. Frank Bennett

      

      BENNETT ON CONSUMER BANKRUPTCY

      A Practical Guide for Canadians

      Frank Bennett, LAWYER

       Self-Counsel Press

       (a division of)

      International Self-Counsel Press Ltd.

      USA Canada

       Copyright © 2014

       International Self-Counsel Press

       All rights reserved.

      Preface

      I wrote a companion book for the small- and medium-sized business debtor called Bennett’s A–Z Guide to Bankruptcy: A Professional’s Handbook published by CCH Canadian Limited in Toronto. That book is similar to this one dealing with the same topics except from a business perspective. This book is devoted entirely to consumer and small-business debtors who want to take advantage of the favourable rules for consumers. It explains the bankruptcy process and alternatives available to the consumer debtor.

      Canadian bankruptcy laws continue to change. For the first-time consumer debtor, bankruptcy is an easy solution to overwhelming debt problems. For individuals who wish to repeat bankruptcy proceedings, there are more restrictions, although not severe, when using the bankruptcy system.

      According to the statistics kept by the Office of the Superintendent of Bankruptcy, in the year 2001, 92,836 Canadian consumers took bankruptcy protection. There were 79,453 consumer bankruptcies and 13,383 consumer proposals. Parliament has enacted laws which encourage consumers to make deals, or proposals as they are called, to the creditors rather than go fully bankrupt. With a declining economy, and with events following September 11, 2001, there were likely to be increases in consumer insolvencies. We live in an inflated economy, and at any given time, consumers cannot pay their credit card accounts and mortgage payments even with much lower interest rates. The recession of 2008 is continuing. In the year 2012, 118,398 consumers took bankruptcy protection. Of this number, 71,495 filed for bankruptcy and 46,903 filed consumer proposals.

      People incur financial difficulties for many different reasons including marital strife or divorce, loss of job or plant closure, over-extension on credit cards, death of a key person in a business, and the bankruptcy of their businesses. Our bankruptcy laws are not onerous; in fact, they encourage individuals and companies to take protection from creditors who are pressing collection of their accounts. Being bankrupt does not have serious consequences for most individuals. Being bankrupt does not even mean that the debtor loses all his or her assets. In fact, with good legal advice, some assets can be protected against creditors. It’s important to see a lawyer first if you are considering filing for bankruptcy. Sometimes, certain assets can be protected; sometimes, the lawyer may advise you not to take protection.

      Parliament changed the main bankruptcy laws somewhat in 1992, again in 1997, and then again in 2009 to encourage consumers and small-business debtors to make proposals to creditors rather than go bankrupt. The mechanical procedures for both proposals and bankruptcy were streamlined. Bankruptcy is no doubt the popular remedy. It is still very easy for a person to go bankrupt and it is still very easy for an individual to get discharged without too much difficulty or hardship. The system does not penalize the honest but unfortunate debtor, but it does free the debtor from most of his or her debts. However, there are few advantages for consumers to make proposals.

      In this book, I give basic information to consumer and small- business debtors about the bankruptcy system. Lawyers, accountants, and financial planners and counsellors may find the book a good primer to Canada’s bankruptcy laws. In an office setting, I would take the individual consumer debtor through one or two interviews before recommending whether first, the client is a candidate for protection, and second, if so, how to go about it. I always ask the client for three pieces of paper: first, a list of assets; second, a list of debts or liabilities; and lastly, a list of questions. These lists focus the client on the problem at hand. With this information, I can give legal advice about the effects of bankruptcy on each of the assets and liabilities, as well as give answers to all the questions posed. Sometimes, the consumer debtor does not want to go into bankruptcy, and in these cases, some form of proposal or restructuring with the creditors may be possible.

      It sounds easy. For most people, bankruptcy is a quick and easy solution to debt problems.

      For the most part, individuals —

      • want to know when they can get their credit cards back;

      • want to know when it’s over; and

      • do not care about the forms and formality, they just want to get credit again.

      I hope that I take the mystique out the bankruptcy process and that more people will better understand how the system can work for them.

      In preparation of this edition, I wish to thank Irving Burton, Jordan Rumanek, and Karen Adler, experienced trustees in bankruptcy in Toronto for their thoughtful comments and suggestions. I also wish to thank Eileen Velthuis, my critical editor who asked many skill-testing questions in her review of the book.

      Frank Bennett, Toronto

      Chapter 1

      What Is Bankruptcy?

      This book offers a review of the bankruptcy process for individuals, primarily consumer debtors, who are in financial difficulty. This book does not review the bankruptcy process for small-business corporations. (Corporations cannot be consumers, but small-business persons may be able to take advantage of consumer bankruptcies and proposals; more on that later.) For readers who are interested in small corporate bankruptcies, see Bennett’s A–Z Guide to Bankruptcy: A Professional’s Handbook published by CCH Canadian Limited in Toronto.

      In this chapter, the individual who may be facing bankruptcy can review the general outline of the bankruptcy process. It raises questions, the answers with which the consumer should consider before going into bankruptcy. Subsequent chapters expand each of the specific areas, and more. While bankruptcy is considered a last resort remedy for financial woes, the individual should first consider all remedies in dealing with debt including re-financing assets such as residential homes and condominiums; obtaining credit counselling; entering into some form of consolidation plan or order to pay something over time; making of a consumer proposal under the Bankruptcy and Insolvency Act to his or her creditors; or some other informal arrangement with his or her creditors. As a result of amendments to bankruptcy legislation over the last 20 years, these options can be more viable than going straight into bankruptcy.

      Bankruptcy is for individuals who have significant debt. An individual shouldn’t necessarily consider bankruptcy for amounts under $100,000. First-time bankrupts get a “get out of jail free card” right away. Over a lifetime, they will not get the same concession if they file again. Repeat bankruptcy is on the rise with consumers and for individuals who may have some assets of value and for individuals who are self-employed, it is best to see a lawyer first before seeing a trustee in bankruptcy. While all lawyers have professional training and must be licensed by the Law Societies across Canada to practise, the individual should seek counsel from a lawyer who has experience in the bankruptcy and insolvency field. The initial or subsequent visit to review the individual’s financial affairs may lead one not to file for bankruptcy at all, but rather to negotiate some other settlement. In addition, the individual may have a valuable asset that may be lost in a bankruptcy. As will be discussed, the trustee in bankruptcy works for both the debtor and the creditors. The trustee is also an officer of the court and responsible to the court and to the Office of the Superintendent