Bennett on Consumer Bankruptcy. Frank Bennett
1. Contact a Trustee
Once bankruptcy is chosen, contact a trustee. A trustee is licensed from the federal government under the Bankruptcy and Insolvency Act to assist and prepare the papers for bankruptcy on behalf of individuals, partnerships, and corporations. The consumer debtor can contact a trustee at several different sources. Many large accounting firms throughout Canada have divisions or separate corporations dealing with bankruptcy and related matters. As such, they will have a corporate licence to deal with bankruptcies. Larger accounting firms may not have a department that deals with consumer bankruptcies. Intermediate and smaller accounting firms and even smaller partnerships and sole proprietors will have licences from the federal government to administer bankruptcies. These firms will be able to handle a consumer bankruptcy.
Alternatively, the consumer debtor may be referred to a trustee through his or her own accountant or lawyer, or the debtor may have heard about a particular trustee through online advertising, free newspapers, word of mouth, and in the Yellow Pages online or in print. While all trustees are qualified and have the same licence, some trustees deal with specialty areas while others do not. For example, a sole practitioner may deal only with consumer bankruptcies whereas a large accounting firm may not deal with consumers at all, but with business restructurings, or perhaps both. Where possible, it is always best to go to a trustee that has been recommended by another person: lawyer, accountant, or friend.
When selecting a trustee, it is important to feel compatible with the person with whom the consumer debtor is working. The trustee’s role is to assist the debtor in this bankruptcy process and to make sure that the debtor goes through the bankruptcy process with as less discomfort as possible. However, the trustee is not the consumer debtor’s friend. The trustee is an officer of the court under the Act to represent both the consumer debtor and the creditors. In other words, the trustee must be even-handed with both the consumer debtor and the creditors. The trustee has a job to perform that may conflict with the consumer debtor’s expectations. Sometimes, personality conflicts may arise and once the bankruptcy proceedings have started, it is very unlikely that the consumer debtor can switch to another trustee.
For the average consumer bankruptcy, going to a recommended professional may not amount to much difference. But in more complicated matters, an individual will want the relationship to be compatible rather than confrontational. If the consumer debtor has or anticipates problems with respect to taking bankruptcy protection, the consumer debtor should see a lawyer first.
The consumer debtor should also shop around for the cost of the trustee’s services. While all the trustees have the same duties to perform, some charge more. For consumer bankruptcies, the fees and disbursements, or costs, could range from $1,500 to about $3,000. The cost varies depending on the number of visits that the debtor makes to the trustee’s office, the duration of those visits, the experience of the people handling the case, the number of creditors that have to be notified, the problems relating to the debtor’s assets, the determination of exempt assets, the level of income, and other factors. Often, the consumer debtor does not have all the bills, invoices, and statements needed to prepare the forms. Obtaining these documents may take some additional time and therefore increase the fees.
These costs are paid from the consumer debtor’s bank account if there are sufficient monies to cover them, or they can come from the sale proceeds of the debtor’s assets or from third party guarantors. The amount of costs is also controlled under the Act. The trustee must have its costs reviewed or taxed by the registrar when it applies for its own discharge. Some trustees allow the consumer debtor to pay a monthly sum until the bill is paid. If the consumer debtor does not pay the full amount of the bill by the discharge date (nine months from the date the papers are filed with the Official Receiver), the trustee may oppose the application in which case the discharge will be delayed. While courts frown on this practice, the consumer debtor should be aware that his or her discharge may be delayed if he or she does not pay the trustee in full, on time.
Once the consumer debtor has made the initial contact with the trustee, the trustee or his or her assistant requires the debtor to meet and review all the assets and liabilities. That means the consumer debtor will be asked many questions about —
• what the consumer debtor had (i.e., assets the debtor did own over the last five years, but has since sold or transferred or gave away to other persons);
• what the consumer debtor has (i.e., assets the debtor presently owns, uses, or has an interest in); and
• what the consumer debtor might have in the future (i.e., monies the debtor may receive by way of salary, wages, or other remuneration, on an insurance claim, other lawsuits, or through an inheritance).
These questions are designed to disclose assets that may be available for realization from which the proceeds would be distributed to the creditors. From this information, the trustee prepares a Statement of Affairs. The completion of the forms is discussed later in this book.
Some questions point out possible problems that the consumer debtor may have with the creditors or in dealing with some of the assets. For example, the consumer debtor may want to know if he or she can keep a vehicle or whether the debtor will lose his or her investments in an RRSP. These are difficult questions which the trustee may not be able to answer readily. It is at this point in time (i.e., when some questions remain unanswered) that it is best to hire or retain a lawyer to assist, hopefully before the consumer debtor takes bankruptcy protection. If the trustee points out some difficulties, the consumer debtor should seek legal advice first from a lawyer. For example, if the consumer debtor has high earnings, the trustee will require the debtor to pay a portion of his or her earnings monthly to the trustee for all the creditors or if the consumer debtor has transferred the car to his daughter within the last three weeks, the daughter may have to transfer it back or pay the trustee the value.
Whether or not the consumer debtor will be aware of these problems is a different matter. If the trustee does not tell the consumer debtor that there are problems, then these problems may arise while the debtor is in bankruptcy or when the debtor wants to get out of bankruptcy or get discharged. This is the reason a consumer debtor may want to see a lawyer first before going bankrupt as the consumer debtor may decide not to go bankrupt at that time, or at any time.
If the trustee recognizes complications in an interview, then the trustee may suggest a consultation with a lawyer. At that time, the lawyer may point out the problems in dealing with certain assets that the consumer debtor owns as well as with the types of creditors that may be hostile and adverse throughout the bankruptcy process. Unlike the trustee, the consumer debtor can tell the lawyer everything about his or her personal affairs on a confidential and private basis. Communications between the consumer debtor (the client) and the lawyer are protected by law, and the lawyer must not breach that confidence. In fact, what the consumer debtor says to the lawyer is privileged and confidential and generally, with the exception of fraud and locating assets, no one can make the lawyer divulge that information and the legal advice given without the consumer debtor’s consent. However, such privilege does not extend to third parties, such as spouses, friends, and accountants, who attend the lawyer’s office with the consumer debtor.
2. File an Assignment
If the consumer debtor wishes to proceed with the bankruptcy process, the debtor eventually signs a form called an “Assignment.” The Assignment form is a one-page document that transfers all the debtor’s assets to the trustee under the Bankruptcy and Insolvency Act. It is the document that puts the consumer debtor into bankruptcy by his or her own hand (voluntarily). An example of this form is shown in Chapter 12.
In addition to the Assignment, the consumer debtor also signs a Statement of Affairs, a “pertinent information sheet,” and a Personal Income and Expense Statement. The Statement of Affairs, also shown in Chapter 12, is the document that sets out all the consumer debtor’s assets and all the liabilities with full particulars. In the liabilities section, the consumer debtor names all the