In recent years, we have heard stories from debtors and others that some debtors have been encouraged by disreputable debt consultants to not disclose the true value of their assets to their Licensed Insolvency Trustee when filing for a consumer proposal or a bankruptcy. This is a very big mistake. The consumer proposal process, like all forms of debt compromise proceedings under the Bankruptcy and Insolvency Act are governed by strict rules of disclosure. A consumer proposal is a legal process overseen by an LIT and it must be a “fair” compromise with the debtor’s creditors. To be fair to both the debtor and the creditors, the LIT must consider all of the assets and projected income of the debtor. Making false declarations to an LIT is an offence under the Bankruptcy and Insolvency Act
The Bankruptcy and Insolvency Act is designed to help the honest but unfortunate debtor go through a process, make payments based on a person’s ability to pay, and then make a fresh financial start. In doing so, it also requires that the debtor be fair and honest and make the required disclosures of assets and income.
If the debtor makes a false statement, this could be considered an offence under the Bankruptcy and Insolvency Act which can mean that you end up paying a fine or worse, going to jail.
Let’s go through a real-life example.
Robert Petrick (the “bankrupt”) and his wife made voluntary assignments in bankruptcy on July 15, 2016. The Trustee monitored the debtor throughout the bankruptcy process but felt that there were issues that the court needed to consider before the debtor was granted a full discharge from bankruptcy (had the debts fully extinguished). So, the Trustee went to the court to outline what had happened during the bankruptcy and that the bankrupt had not filled his duties while bankrupt. These duties included things such as providing information to the Trustee about his monthly family income or giving documents to the Trustee to confirm what he owned. The Trustee was concerned that he was trying to hide assets from his creditors.
While overseeing the bankruptcy, the Trustee conducted various searches that uncovered numerous vehicles and firearms that belonged to the Bankrupt. These assets were not disclosed to the Trustee even though the debtor had signed an affidavit swearing that he had told the Trustee everything about what assets he owned (the “Undisclosed Assets”).
In reviewing the issues of the case, the court found that the bankrupt did disclose some bank account information to the Trustee after the first court order, but the Court accepted the Trustee’s argument that the Bankrupt had several other undisclosed accounts. The court also found that the bankrupt had failed to produce information about the sale of various motor vehicles, firearms and RESP accounts. While the bankrupt acknowledged that he understood what was required of him, he subsequently failed to follow through with the appropriate disclosure of information.
Because the bankrupt was ordered by the court on October 19, 2016 to disclose all of his assets to the Trustee and failed to do so, he was found in contempt of court and jail time was threatened. Going to jail is a very unpleasant experience so the court gave him a second chance and gave him more time to come clean about everything that he owned.
However, the bankrupt still did not do all the things the court ordered. So once again the Trustee had to go to court and this time the court sentenced the debtor to four months in jail for contempt of court on February 24, 2017.
The court concluded that the bankrupt made no meaningful attempt to remedy the contempt order and thus he was sent to jail for the ordered time.
Accessing the power of the Bankruptcy and Insolvency Act to eliminate your debt can be a very freeing experience. It allows those struggling with debt to make a fresh financial start. But the process is closely regulated for all parties: Trustee, creditors and the debtor. Being truthful and upfront with your LIT is important.
As we always say, don’t take advice from someone who does not have a license to operate – they may just be making things up!