Do I have to Cancel my Contracts in Bankruptcy?
This is an issue where the system and the law is in favour of the debtor.
There are two issues impacting the question of Do I have to Cancel my Contracts in Bankruptcy?
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Issue #1 – Can creditors cancel a contract if a person is in bankruptcy?
Most people who file bankruptcy have contracts such as a lease of a car; furniture; a cell phone agreement; cable TV; phone service; natural gas utilities; or electrical utilities.
These contracts will not be cancelled just because a person files bankruptcy so long as the payments are kept up to date.
This is a relatively new law, which went into effect on September 18, 2009.
Issue #2 – Can I cancel any of my contracts in a bankruptcy or a consumer proposal?
Let’s consider Jim’s predicament.
Jim was laid off from his job 8 months ago.
He now has a new job but is only making 2/3 of what he previously earned.
In addition, in the eight months he was out of work, his debt increased to $60,000.
He makes $3,000 a month now and can afford to make payments on a consumer proposal and on his mortgage, but he does not have the cash flow to continue payments of $700.00 a month on his car lease.
Jim’s trustee suggested that he cancel the vehicle lease and get a less expensive car.
Jim arranged to get a different car and went back to see the trustee.
He told the trustee that he has a less expensive car now and was certain he could afford the payment on a consumer proposal.
The trustee said that he would draw up a consumer proposal, incorporating what was discussed.
He told Jim that since Jim lived in BC, where there is a seize or sue law that the leasing company would probably not pick up the vehicle, at the request of Jim, because that would extinguish their right to sue Jim for non-payment of the lease.
The trustee advised Jim that he would advise the leasing company to pick up the vehicle.
The trustee emphasized to Jim that he must not drive the leased vehicle and must not make any payments on it since that would reaffirm the debt and Jim would be responsible for the lease payments.