September 5, 2017

There are a number of different considerations for Canadians facing the prospects of filing for bankruptcy around Christmas time.

Obviously there is the stress of everything that is happening in such a short period of time.   Christmas is probably the most stressful time of the year for all families, perhaps even those that do not celebrate Christmas.  Food and grocery expenses typically not only rise but also peak.  Most families enjoy lavish meals and food prices are often already inflated due to the lack of local produce.

Gift giving bears heavily on family budgets.  Children see it as an opportunity to acquire new clothes and updated technology, phones, computers, etc.  For the vast majority retailers Christmas is the busiest time of the year.  So even for those whose family traditions don’t extend to the celebration of Christmas they are still caught up in the stress of trying to find a parking spot.

On top of all that some companies shut down for extended period over the Christmas break putting pressure on family incomes.  Canadians carry more consumer debt than people in any other country and the bills still need to be dealt with.  Regardless of the time of the year collection letters and calls keep coming and legal action continue to be implemented.  On average 4.4 out of every thousand Canadians will use the services of a bankruptcy trustee, even during the holiday season.

So faced with mounting pressure from all the converging stressors of the season should you procrastinate until after Christmas or hurry up and file before the celebrations?

The answer is still not simple:  For some people Christmas represents a time of renewal, a time during which families become closer and more understanding.  For some people Christmas is a time of dread – fearing a period of reduced income and increased expenses, which can lead to a greater reliance on the use of credit.

According to Trans Union 70% of bankrupts have good credit scores at the time they file for bankruptcy.  Some people take the attitude that they “might as well use their credit cards to give the kids a Christmas before throwing in the towel”.  Others just want to start the new-year off fresh and view this as a time to shed the stressors of the past year and start out with a clean slate.

But what are the practical ramifications from an administrative perspective?

Your trustee will file at least one income tax return for the year of your bankruptcy and for the year prior, if still outstanding.  Any income tax return that results will go to your trustee for distribution amongst your creditors.  So if you file for bankruptcy on or after January 1st of 2015 the trustee will receive both your 2014 and 2015 income tax refunds, if any.  If you file before the end of the year the trustee will only receive your 2014 income refund, if any.

Some people worry about continued use of their credit cards after becoming aware of their pending insolvency and the possibility of retribution from their creditors.  However, the courts have ruled that it is not an offence for a debtor to continue to use credit cards in the normal course after becoming aware of the possibility of a pending bankruptcy.  However, it would be offensive for the debtor to suddenly increase their limits and purposely run the cards up by stockpiling or taking cash advances, and such behaviour could result in sanctions.