Navigating the complex world of bankruptcy can be overwhelming, especially when it comes to understanding the intricacies of debts not yet due. As such, the question arises – Can You File Bankruptcy on Debts Not Due? This article aims to shed some light on this subject by explaining the concepts of contingent debt, disputed debt, unliquidated damages, and future debts.
Defining Bankruptcy in Light of the Bankruptcy and Insolvency Act
The cornerstone of bankruptcy law in Canada is the Bankruptcy and Insolvency Act (BIA). The BIA’s primary purpose is to provide an “honest but unfortunate debtor” a new beginning. This implies that a bankrupt person should be relieved from all claims due at the time of their bankruptcy filing once they are discharged.
The BIA elaborates on the claims or debts that can be proven in a bankruptcy filing. Section 121 (1) of the act mentions, “All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt.”
It is crucial to note that the debt can have a future component, but the obligation to repay that debt must have been incurred before the bankruptcy filing date. However, not all claims against you are eliminated upon filing for bankruptcy. Certain debts, such as fines, support payments, and debt resulting from fraud, among others, are not dischargeable under the BIA.
Unliquidated Debts Explained
Unliquidated debts refer to liabilities where the amount due has not been determined. For instance, if a lawsuit has been initiated but the court has not yet reached a verdict, one may potentially owe a debt, but the exact amount is uncertain. In such cases, the Licensed Insolvency Trustee (LIT) is responsible for determining if the unliquidated claim is provable in the bankruptcy. The LIT bases this decision on the available facts and may also seek legal counsel.
Understanding Contingent Debts
Contingent debts are liabilities that may or may not materialize, depending on uncertain future events. For example, if you have co-signed a loan for someone who is currently making payments, this is considered a contingent debt. The creditors will not demand payment from you unless the other person defaults on the loan. If a contingent debt were to survive bankruptcy, it would prevent you from starting afresh, which contradicts the primary purpose of bankruptcy. Therefore, the creditor is listed on your Statement of Affairs as a contingent debt.
The Concept of Future Debts
Future debts are liabilities that you have incurred but are not payable until a future date. For instance, if you have purchased furniture on a ‘don’t pay a cent event,’ even though you don’t have to make a payment for 12 months, the obligation to pay was created when you bought the furniture. If you file for bankruptcy before this debt is due, this future debt is still eliminated by bankruptcy.
Disputed Debts: What You Need to Know
Disputed debts are those obligations that you don’t believe you owe. Examples of disputed debts include a fraudulent charge on your credit card or a gym membership fee charged after you have canceled your membership. Disputed debts can be listed on your Statement of Affairs, and they are dischargeable by filing bankruptcy. Whether the disputed creditor is entitled to any bankruptcy estate proceeds depends on whether they can prove the claim to the Licensed Insolvency Trustee.
How a Licensed Insolvency Trustee Can Help
If you are uncertain about how your debts will be treated in a bankruptcy or consumer proposal, it is advisable to contact a Licensed Insolvency Trustee. They can provide you with the necessary guidance and help you understand the implications of filing for bankruptcy on debts not due.
Navigating through the complexities of bankruptcy might seem daunting, but understanding the nuances of different types of debts, including those not yet due, can help you make informed decisions. Remember, the primary goal of bankruptcy law is to provide a fresh start to individuals who are unable to meet their financial obligations. So, don’t let the fear of the unknown deter you from seeking the help you need.
