Government debt forgiveness

March 9, 2018

Are you thinking about government debt forgiveness? Advertisements are everywhere “see if you qualify for debt relief” touts one google headline, “government debt relief programs” says another. Even Licensed Insolvency Trustees are involved, albeit not by design, in the deception.

Yes, read that last bit again: we used to be called “Trustees in Bankruptcy” but the name was thought to be unappealing and took away a competitive edge over competition with companies touting debt relief “without bankruptcy”.

After some debate, and pressure from lobbyists, the name “Trustee in Bankruptcy” was changed to “Licensed Insolvency Trustee”. The change was still not well received by the public because it has caused even more confusion in the debt solutions marketplace. When people attend at a Licensed Trustee’s office they may not have bankruptcy in their mind and might feel duped into going to the office, under the pretext they weren’t meeting a “Bankruptcy Trustee”.

Bankruptcy Trustees, or Licensed Insolvency Trustees, (a rose by any other name…) are highly regulated by the federal government, even our advertising is regulated, fees are regulated and solutions are generally limited to those provided in the Bankruptcy and Insolvency Act.

Types of government loan forgiveness that are available:

Some student loans may be forgiven under the indigent clause (Section 12.) of the Canada Student Loans Act. This will apply to people who have deceased or are permanently disabled. It will not apply to all bank issued student loans or lines of credit only those guaranteed by the government.

All debts have a limitation on collections, subject to certain conditions. For instance, in Ontario Section 4 of the Limitation Act sets two years as the basic limitation period, which means that creditors cannot rely on a statute to (sue you to) collect debts after two years. The government is also subject to limitation periods, typically the absolute limitation of fifteen years.

Debt settlements, in Ontario only Licensed Insolvency Trustees, Lawyers, Licensed Collection Agencies (including Credit Counselling Agencies that are licensed under the Collection and Debt Settlement Services Act) can provide debt settlement services. Debt settlements work best when the creditors legal options have run out, such as with statute barred debts.

Death, by dying you may still escape payment of your creditors provided there is no money in your estate. You can still circumvent paying your creditors by ensuring that you have a designated beneficiary of your insurances and pension investments (talk with your financial adviser – not one at the bank they are usually lacking in qualifications) or by adding a joint tenant to real property (discuss with your lawyer).

Voluntary agreements with individual creditors may be endorsed by the courts to provide you with relief and in some provinces, you may be able to set up a voluntary payment arrangement through the courts called a “Consolidation Order”.

The courts provide other, alternative, relief when it can be proven that you don’t owe the debt or perhaps the debt arose out of a fraudulent act.

The Bankruptcy and Insolvency Act is a federal government statute that codifies relief through the following options:

Summary Bankruptcy: The most common bankruptcy filing in which the value of property salable by the trustee is less than $15,000.

Ordinary Bankruptcy: An ordinary bankruptcy is not as ordinary as it sounds there are significantly less ordinary bankruptcies filed than there are summary proceedings. Ordinary bankruptcies are for corporations and individuals who have significant assets, with realizable values of over $15,000.

Consumer Proposal: Consumer proposals are summary proceedings that, like summary bankruptcies, have a capped value. Provided the total value of your debts, not including a mortgage on a principal residence, are less than $250,000 you could file a consumer proposal.

Division One Proposal: If the total amount of your debts exceeds the $250,000 threshold set for consumer proposals or if you are setting up a proposal for a corporation, you may file a Division One Proposal which has no upper debt threshold.

Companies’ Creditors Arrangement Act (“CCAA”): A CCAA is for complex company insolvency administrations, although, essentially, more similar than different from a Division One Proposal, it is not as codified and driven almost entirely by the courts. A debtor company must have at least $5,000,000 in debt to qualify.