CONSUMER HOT TOPICS Brian Veres, CA,CIRP Craig A. McMahon Angela Lock, CIRP

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1 CONSUMER HOT TOPICS Brian Veres, CA,CIRP Partner BDO Canada Limited Craig A. McMahon Associate Field Law Angela Lock, CIRP Trustee Grant Thornton Limited

2 STUDENT LOANS Brian Veres, CA,CIRP Partner BDO Canada Limited

3 STUDENT LOANS AN OVERVIEW Legislation is designed to balance the rights of lenders with those of students Student loans are a common debt many debtors that we work with have substantial student loans It can be difficult to provide debtors with certainty regarding student loans given current legislation

4 STUDENT LOANS AND THE BIA Treatment of student loans are defined in S. 178(1)(g) of the BIA Current BIA provisions state that a student loan will fall under the provisions of S.178 if the student ceased to be a part-time or full time student within 7 years of the date of the bankruptcy Critical date is when the student ceased to be a part-time or full-time student not the date that the student loan was granted

5 MULTIPLE STUDENT LOANS A problem arises for those debtors who have attended school more than once in the past and have obtained more than one student loan How are the provisions of the BIA to be interpreted in these situations? That is, does the date that the student last attended full or part-time schooling result in all separate loans falling into S. 178, or are the loans to be treated separately for purposes of S.178?

6 MULTIPLE STUDENT LOANS Jurisprudence varies by province. Newfoundland, New Brunswick, Nova Scotia, and Saskatchewan use the multiple date model. That is, these provinces separate the student loans for purposes of S.178. British Columbia, Quebec, and Alberta use the last date that the student was a part or full-time student these provinces do not separate the student loans for purpose of S.178. There are no cases on this issue from the Supreme Court

7 TAKE AWAY FOR PRACTITIONERS In light of jurisprudence, practitioners may want to advise debtors that the courts in Alberta use the last date model for student loans and refer the debtor to insolvency counsel.

8 CALCULATING THE 7 YEAR PERIOD RE: SIMS The student is deemed to have ceased part or full-time studies on the last day of the month that he or she attended school The Sims decision is based on the provisions of Canada Student Loans Act and Regulations The onus is on the debtor to provide evidence as to their last day of studies

9 HARDSHIP PROVISIONS S.178 (1.1) A discharged bankrupt with student loans can apply to the court for relief from their student loans 5 years after ceasing to be a part or full-time student In order to obtain relief, the debtor must show to the court that they have acted in good faith regarding their student loans and that they will continue to experience financial difficulty such that they will be unable to repay the student loan

10 TAKE AWAY FOR PRACTITIONERS When the Trustee assists the debtor in the S. 178(1.1) application, the court will assess the conduct of the debtor That is, did the debtor apply for interest relief? Did the debtor correspond with the student loan lenders and make payments when they could? Basically, did the debtor make all reasonable efforts to pay back their student loans?

11 TAKE AWAY FOR PRACTITIONERS Another argument for the relief application is that, if the application is not successful, then the debtor may be forced to file an assignment in bankruptcy sometime in the future in order do deal with their student loans

12 HARDSHIP PROVISIONS - PRACTICALITIES In the 5 year period that the debtor cannot apply for the hardship relief, they may not be able to remain creditor proof from their student loans This is because in order to access many social benefits, they must file a personal tax return. But student loans can seize their tax refunds and GST credits when the returns are processed

13 STUDENT FINANCING VS. STUDENT LOANS Many debtors that we meet with have significant unsecured debt that they used to acquire their education, but the debt itself is not student loans. For example, a student line of credit The courts are clear that these types of debts do not fall within the provisions of S However, jurisprudence indicates that the court will grant a conditional order of discharge in these circumstances

14 TAKE AWAY FOR PRACTITIONERS For debtors who have used unsecured debt to pay for their education that do not fall under the criteria for student loans, the debtor may have to comply with a conditional order of discharge May not be a significant issue because these debtors are likely to file a proposal as opposed to an assignment

15 HIGH INCOME TAX BANKRUPTCY Craig A. McMahon Associate Field Law

16 SECTION REMINDER $200,000+ of personal income tax debt Does not include GST or payroll (if sole proprietor) Does not include derivative assessments (i.e. directors liability or non-arm s length transfers) representing 75%+ of total unsecured proven claims

17 SECTION REMINDER If yes, application needed: 1 st time bankrupt: If no surplus income, then 9 months If surplus income, then 21 months 2 nd time bankrupt: If no surplus income, then 24 months If surplus income, then 36 months Any other bankrupt, 36 months

18 SECTION (4) FACTORS (a) Circumstances of the bankrupt at the time the personal income tax debt was incurred; (b) Efforts made by the bankrupt to pay the personal income tax debt; (c) Whether the bankrupt made payments on other debts while failing to make efforts to pay the personal income tax debt; and (d) Bankrupt s financial prospects for the future.

19 TODAY'S CONTESTANTS Re Hagerman 2014 SKQB 185 Tax Debt: $248,000 Percent of Total Claims: 84% Re Weinmeyer 2015 SKQB 44 Tax Debt: $390,000 Percent of Total Claims: 75%+ Re Farr 2014 SKQB 214 Tax Debt: $574,000 Percent of Total Claims: 95% Re Drosdovech 2014 BCSC 1757 Tax Debt: $730,000 Percent of Total Claims: 98% Re Foerster 2014 BCSC 1565 Tax Debt: $911,000 Percent of Total Claims: 75%+ Re Rivers 2014 BCSC 1800 Tax Debt: $2,100,000 Percent of Total Claims: 100%

20 RECENT TREATMENT FACTORS Circumstances: Self-employed vs. T4 employee Re Weinmeyer, Re Farr Tax arose from failing to pay or subsequent reassessment and can t afford large tax bill Re Weinmeyer, Re Farr Participant or facilitator in a tax scheme (i.e. RRSP stripping) Re Foerster, Re Rivers, Re Drosdovech

21 RECENT TREATMENT FACTORS Circumstances continued Poor tax advice (not a scheme) Re Farr Sold capital asset and paid other creditors / bought a house free and clear Re Hagerman Tax protestor / OPCA litigant Re Drosdovech

22 RECENT TREATMENT FACTORS Efforts to pay Voluntary (substantial) Re Hagerman, Re Farr Involuntary (garnishees) Re Farr (128% of principal tax debt), Re Drosdovech No ability to pay Re Weinmeyer Foisted unilateral contract Re Drosdovech ($5,000 on $730,000 paid $100/month)

23 RECENT TREATMENT FACTORS Payments to others Nominal (cell phone, utilities, credit cards) Re Weinmeyer, Re Farr Substantial Re Hagerman (paid all creditors and bought a house free and clear) Re Foerster (settled debts with spouse, bought business equipment) Re Drosdovech

24 RECENT TREATMENT FACTORS Financial Prospects for the Future Age and health Re Farr (70 years old, osteoarthritis in both knees) Employment and income Re Farr (can t work until surgery on knees) Re Weinmeyer (40 year old DJ) Re Foerster (secure, friendly employer) Re Drosdovech (teacher with wife who is a veterinarian) Re Rivers (intentionally underemployed)

25 RECENT TREATMENT FACTORS Financial Prospects for the Future Assets post-bankruptcy Re Farr (living in a 1970 s trailer and driving a 1976 truck) Re Hagerman (house with non-exempt equity of $213,000 owned free and clear) Are they rehabilitated? Re Drosdovech (not rehabilitated, will continue tax avoidance schemes)

26 RESULTS Re Farr 2014 SKQB 214 Tax Debt: $574,000 Condition: 1 year suspension Re Weinmeyer 2015 SKQB 44 Tax Debt: $390,000 Financial Condition: $24,000 Re Foerster 2014 BCSC 1565 Tax Debt: $911,000 Financial Condition: $136,000 Re Drosdovech 2014 BCSC 1757 Tax Debt: $730,000 Financial Condition: $120,000 Re Rivers 2014 BCSC 1800 Tax Debt: $2,100,000 Financial Condition: $200,000 Re Hagerman 2014 SKQB 185 Tax Debt: $248,000 Financial Condition: $213,000

27 TAKEAWAYS Review the Bankrupt's position vis-à-vis s factors at the outset of the bankruptcy (or as soon as you know it qualifies) and then again as the application nears; Before an application, the Trustee should: ready the bankrupt for the process and identify the things that they need to address; and give thought to the factors and appropriate discharge conditions.

28 TAKEAWAYS CONTINUED Before an application, the Bankrupt should: ensure compliance with all duties in the bankruptcy (fight battle on one front); communicate directly with CRA to see if see if they can address the factors and rehabilitation (both financial and filing); see if they can negotiate a settlement on the financial condition with CRA prior to Court (control the process); and prepare an affidavit supporting their position, addressing the factors and answering any outstanding issues that CRA and/or the Trustee may have.

29 TRUSTEE FEES Angela Lock, CIRP Trustee Grant Thornton Limited

30 HOW DO TRUSTEES GET PAID? Tariff From non-exempt assets Hourly Voluntary Fees

31 ISSUES No non-exempt assets Tariff & Interim Draws need for reform Voluntary Payments Minimum fees versus surplus payment Asking for additional payment due to attendance at court Ordinary vs Summary Administrations

32 EXPERIENCES Ramdhanie Case The common- law debtor objecting based on fees Careful wording of proposals