I can’t Afford to go Bankrupt

July 28, 2021

“I can’t afford to go bankrupt” – that’s a line that we have often heard over the years from people who are in trouble and struggling to find a solution for their debt crisis.  But is it true?  In the most part it is unlikely that you could be “so broke that you can’t afford to go bankrupt” for a bunch of different reasons.

First of all, the Office of the Superintendent of Bankruptcy (“OSB”) has a “Bankruptcy Assistance Programme” (“BAP”).  The BAP is supposed to skirt the usual payment requirements and participating Licensed Insolvency Trustees (“LIT”) must make their services available with alternative payment arrangements.  Having worked for a firm that provided services under the BAP most clients had top pay for the disbursements of the LIT as well as registration and court costs.

At the end of the exercise, most BAP participants actually paid most, if not all, of the LITs usual fees.  The OSB also provides a programme that’s called a Post Discharge Fee Agreement (“PDFA”) that allows first time bankrupts to extend the terms of their payments from nine to twenty-one months, while still obtaining their discharge in nine months.

Bankrupts not participating in either of the aforementioned programmes may be able to extend their payment terms with the blessing of the court, should their circumstances necessitate such an extension.  Another important issue is that there are many other laws, rules and regulations that can be useful to people at the lower end of the socioeconomic spectrum. 

The Ontario Pension Benefits Act, for example protects government and private pensions from being garnisheed, at source, for debts.  Similarly, ODSP or General Welfare Assistance or Ontario Works cannot be garnisheed.  Further, Section 4 of the Limitations Act prevents legal action being taken after the basic limitation period (two years) has expired.  Without a court order, a creditor cannot garnishee your income or your accounts.  For people who are very impoverished, and unlikely to see significant financial improvements on their horizons, filing a bankruptcy is not only costly but often times completely unnecessary.

Perhaps ironically, bigger challenges are faced by middle income earners who are having debt problems and really need to file an insolvency proceeding.  The Superintendent’s Directive 11R imposes a requirement on this group of people to pay what is known as “Surplus Income”.  The formula for calculating surplus income is based on the old Low Income Cut Off (“LICO”) – which was first developed in 1959 and updated annually using the Consumer Price Index  (“CPI”).  A problem with this methodology is that neither the LICO nor the CPI accurately reflect the real cost of living changes that face Canadians.

However, even this more exposed segment of the population has options to be able to afford the payments required under this regimen.  Bankrupts can request “Mediation” which can be used to reduce the amount calculated by using a strict formula or to extend the terms of payment.  Additionally, the courts can order alterations and amendments to the payment requirements, allowing more time to pay or reducing amounts payable or both.

If you would like more information about the need to go bankrupt, alternative options or the affordability of the process call the office at 519-646-2222 to get good information.