Obligations of the Bankrupt: The Consequences of Disregard
Filing for bankruptcy doesn’t absolve a debtor of all responsibilities. There are certain obligations bankrupt individuals must respect. Failure to do so can lead to serious consequences. This article discusses these obligations, what constitutes misconduct, how it’s reported, and the potential aftermath.
The Bankrupt’s Duties
As outlined in the Bankruptcy and Insolvency Act, a bankrupt individual has certain responsibilities they must fulfill. These include:
- Disclosing all property to a Licensed Insolvency Trustee (LIT).
- Handing over all credit cards to the LIT for annulment.
- Providing all finance-related documents to the LIT.
- Reporting any property or assets that have been sold or gifted.
- Attending examinations, creditors’ meetings, and financial counselling sessions when required.
- Cooperating fully with the LIT.
Misconduct: What It Entails
Various forms of misconduct are associated with bankruptcy. The most common are:
- Continued trading or borrowing despite an inability to settle existing debts.
- Reckless speculation, extravagant lifestyle, gambling, or negligent handling of financial affairs leading to bankruptcy.
- Showing undue preference to a particular creditor despite inability to pay off debts.
- Fraud or fraudulent breach of trust.
- Failing to make the necessary payments to the LIT.
- Opting for bankruptcy instead of proposing repayment plans to creditors.
- Not respecting the obligations as outlined above.
Reporting Misconduct
Misconduct is usually reported by creditors, LITs, and the Office of the Superintendent of Bankruptcy (OSB) when they suspect that the bankrupt individual has committed one or more acts of misconduct. The court then reviews the case and makes a decision.
The Fallout of Misconduct
The consequences of misconduct vary on a case-by-case basis. However, it could lead to refusal, suspension, or granting of a conditional discharge of the bankrupt’s debts.
Case Summaries
Below are summaries of some recent cases where the conduct of bankrupt individuals was deemed inappropriate, resulting in specific judgments by the court:
Case: OSB Opposition to Debtor’s Discharge (2022)
Background
This debtor used over $159,000 in cash advances for home renovations prior to filing for bankruptcy. He also transferred significant assets to his ex-spouse within a year-and-a-half of his filing.
Misconduct and Court Decision
The debtor’s discharge was made conditional upon the payment of $27,000 and suspended for a period of 24 months.
Case: Kainth, Inder Jeet Singh (2022)
Background
The debtor withdrew over $26,000 in cash advances from his credit cards to pay off his mortgage, other debts, and family expenses.
Misconduct and Court Decision
The debtor was ordered to pay the sum of $10,000 to the LIT, by making minimum monthly instalments of $500.00, commencing April 15, 2023.
Case: OSB Opposition to debtor’s discharge (2022)
Background
The debtor accumulated liabilities while encumbering high-equity properties with sham trust agreements.
Misconduct and Court Decision
The court ordered the debtor to pay 100% of proven claims plus LIT fees, a three-year credit ban, a three-year gambling ban, and a 12-month suspension.
In conclusion, when bankrupts fail to respect their obligations, they face severe consequences. It’s essential for anyone considering, or who has filed for, bankruptcy to fully understand their responsibilities and the potential ramifications of misconduct.
