In the complex world of finance, bankruptcy is a term that often carries negative connotations. However, it is sometimes the only viable solution for individuals or businesses with debts they cannot meet. While bankruptcy can provide a fresh start, it comes with a set of obligations that must be respected. Failure to fulfill these obligations can lead to serious consequences. This article explores the obligations of a bankrupt individual, what is considered misconduct, how such misconduct is reported, and the potential consequences of such behavior.
Understanding the Duties of a Bankrupt Individual
When an individual is declared bankrupt, they are subject to certain duties and responsibilities stipulated in the Bankruptcy and Insolvency Act.
These duties include:
- Disclosing all property to the Licensed Insolvency Trustee (LIT): The bankrupt individual must provide a complete list of their assets to the LIT. This includes all properties, financial documents, and any assets that have been sold or given away.
- Delivering all credit cards to the LIT: All credit cards held by the bankrupt individual must be handed over to the LIT for cancellation.
- Attending required meetings and examinations: The individual must attend a meeting of creditors and financial counselling sessions, as well as any examinations required by the LIT or the court.
- Cooperating with the LIT: The bankrupt individual must fully cooperate with the LIT during the bankruptcy proceedings.
Failure to adhere to these responsibilities can result in severe penalties and may hinder the discharge from bankruptcy.
Misconduct in Bankruptcy: What Does it Entail?
Misconduct in bankruptcy is a serious matter and can include a variety of actions. For instance, if the bankrupt individual continues to trade or borrow money after realizing they cannot meet their debt obligations, this is considered misconduct.
Other examples include:
- The individual causing or contributing to their bankruptcy through reckless speculation, an extravagant lifestyle, gambling, or negligence regarding their financial affairs.
- The individual giving undue preference to one of their creditors despite being unable to pay their debts.
- Fraud or fraudulent breach of trust.
- Failure to make the payments required by law to the LIT.
- Choosing bankruptcy when the individual could have made a proposal to repay part of their debts.
- Failure to respect the obligations mentioned above.
Reporting Misconduct: How it’s Done
Misconduct in bankruptcy is a serious issue. Creditors, LITs, and the Office of the Superintendent of Bankruptcy (OSB) can oppose the bankrupt’s discharge if they believe that the individual has committed one or more acts of misconduct. The court will review the opposition and render a decision.
The Repercussions of Misconduct in Bankruptcy
The consequences of misconduct in bankruptcy are determined on a case-by-case basis. These may include refusal or suspension of the bankrupt’s discharge or the granting of a conditional discharge. Below are summaries of some cases where the conduct of bankrupt individuals was deemed inappropriate, and the resulting judgments handed down by the court.
Case Summary #1: Misuse of Credit Card Advances
In one case, a bankrupt individual in Manitoba had taken cash advances totaling $159,364 from his credit card in the 14 months prior to filing for bankruptcy. These funds were used for home renovations for his ex-spouse’s house. The court ordered a conditional discharge upon the payment of $27,000 and imposed a suspension period of 24 months from the date of the order.
Case Summary #2: Rash and Hazardous Speculations
In another case in Alberta, the debtor used credit cards to pay down other debts, mortgage, and personal expenses. The court ordered the debtor to pay back $10,000 to the Licensed Insolvency Trustee.
Case Summary #3: Misuse of High-Equity Properties
An Ontario case involved individuals who accumulated liabilities while encumbering high-equity properties with sham trust agreements. The court ordered the bankrupt to pay 100% of proven claims plus LIT fees, imposed a three-year credit ban, a three-year gambling ban, and a 12-month suspension.
Case Summary #4: Abuse of Credit
In another Ontario case, a bankrupt individual used at least $136,019 in credit over a six-month period for large purchases. The court ordered the bankrupt to pay 50% of proven claims with minimum monthly payments of $400, post-bankruptcy tax compliance, a five-year unsecured credit ban, and a 12-month suspension.
Case Summary #5: Fraudulent Transactions
In a Quebec case, a debtor made false statements and failed to report significant assets on her bankruptcy balance sheet. The court suspended the debtor’s discharge until she repaid $100,000 to the trustee.
Case Summary #6: Failure to Pay Creditors
In another Quebec case, a debtor received a hefty sum as compensation for a taxi permit but failed to pay back his creditors, instead sending the money to his family and gambling a portion of it. The court refused the debtor’s discharge due to his lack of credibility, accountability, and remorse.
In summary, while bankruptcy is sometimes the only option for those drowning in debt, it carries with it a set of responsibilities that must be respected. Failure to do so can lead to severe consequences, including refusal of discharge and legal penalties. It is therefore crucial for those considering bankruptcy to understand these obligations fully and to seek professional advice from a Licensed Insolvency Trustee.
