The Office of the Superintendent of Bankruptcy is responsible for overseeing insolvencies across Canada and has a section on Bankruptcy Abuse and Fraud.
One of the biggest reasons for the Canadian insolvency laws is to allow unfortunate individuals a chance for a new financial start, without being weighed down by prior debts.
In some cases, however, people want to know how to protect their belongings from being seized when going bankrupt and sold to have the proceeds distributed to the creditors. Some people consider if they could pay a family member instead of paying off a credit card bill before declaring bankruptcy.
Bankruptcy Fraud Examples – Offences Under the Bankruptcy and Insolvency Act
Most Canadian debtors who declare bankruptcy are honest but unfortunate debtors who are trapped in debt. Unexpected situations can arise such as a job loss, divorce or illness that make declaring bankruptcy a necessity to get a fresh financial start. Unfortunately, there are also people who want to take advantage of the Canadian bankruptcy laws to purchase things they cannot afford or obtain credit that they shouldn’t have access to. Planning to declare bankruptcy after racking up a large amount of debt is a crime and is known as bankruptcy fraud. Bankruptcy fraud can come in different forms, although the intent is always the same – purchasing items with the intention of filing bankruptcy instead of paying off the debt or hiding assets from the Trustee.
Some of the most common bankruptcy fraud offences that occur under the Bankruptcy and Insolvency Act (BIA) and the Criminal code:
Living beyond your means;
Continuing to obtain more debt and credit when you are aware you will be unable to repay the debt;
Making large purchases on credit in the months before declaring bankruptcy;
Fraudulently disposing of property before filing bankruptcy;
Obtaining credit through false representations;
Lying to the Trustee about your assets, income or debts;
Refusing to answer the Trustee’s questions;
Making preference payments to family or friends.
How are Bankruptcy Fraud Offences Discovered?
When you declare bankruptcy there are several checks that are designed to spot an offence under the BIA. When you meet with a Licensed Insolvency Trustee (the only debt relief expert who can file a bankruptcy under the BIA) they will ask you for sworn statements regarding your salary, monthly expenses and windfalls you have received or expect to receive. Windfall payments could include lottery winnings or receiving a cash payment from a family member or friend. You must provide your Trustee with documents to back up your statements about your debt and income.
If you have made a recent large payment on credit your Trustee might suspect fraud. Creditors, banks, neighbors and family members can report any fraudulent behavior they expect. Committing bankruptcy fraud is a serious offence and bankrupts who have committed fraud will be investigated by the RCMP and could face arrest and criminal charges.
Creditors Role in Detecting Bankruptcy Abuse & Fraud
Creditors often play a critical role in reporting bankruptcy fraud in Canada. Creditors can report bankruptcy fraud by:
Having knowledge of assets or transactions that the bankrupt failed to disclose.
The creditor may contact the Licensed Insolvency Trustee to report that the bankrupt failed to disclose important information; Having knowledge of preferential payments that the bankrupt has made. For example, if a creditor is aware that the bankrupt made a payment to their family member that hurt the interests of the creditor (or any other creditor) they must report this to the Trustee, who will investigate; The creditor can oppose the bankrupt’s discharge, along with the reasons for opposing the discharge. If the creditor suspects misconduct or fraud on the part of the bankrupt, they can oppose their discharge from bankruptcy, which will result in an investigation by the bankruptcy court. If a creditor in a bankruptcy case suspects any form of fraud or misconduct, they will be required to report the suspected fraud to the Trustee or the Office of the Superintendent of Bankruptcy.
Disclose Everything to Your Trustee
Bankruptcy is intended to give you a fresh start. In exchange you must report your income, debt and assets to your Trustee. If you fail to disclose information to your Trustee, it will not only complicate and extend your bankruptcy case, it could also result in you being charged with a bankruptcy fraud offence.
If you fail to disclose assets, for example, your creditors could object to your discharge and report a bankruptcy fraud offence. If your omission to your Trustee is considered fraudulent you could face serious criminal charges. Penalties for failing to disclose information to your Trustee could be imposed by the Bankruptcy and Insolvency Act as well as the Criminal Code.
Filing bankruptcy can be stressful and honest mistakes do happen. If you have honestly failed to disclose important information to your Trustee, contact your Trustee immediately and they will help you proceed in correcting the error.
Where Can I Report Bankruptcy Fraud?
If you suspect that someone is committing bankruptcy fraud you should report this information to the OSB (Office of the Superintendent of Bankruptcy). You can reach the OSB at 1-877-376-9902. The OSB will record your complaint and a bankruptcy analyst will review your complaint. The analyst will conduct an investigation and if possible will follow up with the relevant parties.
What Happens If I am Found Guilty of Bankruptcy Fraud?
Bankruptcy fraud is a serious offence and the penalties for committing bankruptcy fraud will be determined on a case by case basis. Many people who attempt to commit bankruptcy fraud believe their fraud will not be discovered. However, the OSB and Trustees are trained to spot fraud and are very good at doing so. If you are investigated for bankruptcy fraud you will likely have to pay any debts or purchases that arose through your fraud. You could also be convicted in which case you will face large fines, as well as possible jail time.
If you are convicted of a bankruptcy fraud offence, declaring bankruptcy or a consumer proposal in the future will likely not be possible. Your current bankruptcy will also be reviewed and you will find it very challenging to receive your automatic bankruptcy discharge.