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For the average 62,317 debtors that file a consumer bankruptcy in Canada each year, they will obtain a fresh start with the discharge of their debt. However, for approximately 21 individuals each year (a low of 8 in 2018) their discharge from bankruptcy will be refused by the court. (OSB annual statistics for 2013 to 2018).
The generally understood purposes of the Bankruptcy and Insolvency legislation as applied by the courts include providing for financial rehabilitation and to permit an honest and unfortunate debtor to obtain a discharge from their debts. A discharge from bankruptcy is not a right but is determined based on the facts of each case. The court has the discretion to refuse a discharge from bankruptcy. Where the court issues an order refusing the discharge, a time period may also be fixed on when the bankrupt can reapply to court for their discharge.
A brief summary of some of the more common and less common factors noted in reported cases where the discharge was refused by the Courts is reviewed here.
Cause of bankruptcy and/or conduct during bankruptcy.
The court refused the discharge of a 2nd time bankrupt who failed to disclose a compensation order given at the sentencing on his first bankruptcy where he was convicted of three counts of fraud. (Re Hofmann, SKQB, 2008). The discharge was also refused for a 1st time bankrupt where the court felt he was “too flippant and lacking in regard for the process, as well as having been evasive and less than truthful with both the trustee and the Court.” (Re Zuk, ONSC, 2006)
Tax driven bankruptcy.
A self-employed accountant convicted of various offences under the Income Tax Act with a tax driven 1st and 2nd bankruptcy was refused a discharge with a period of three years before reapplying. (Re Crischuk, BCSC 2013). In another 2nd bankruptcy in which CRA was the only creditor of a former accountant and licensed trustee in bankruptcy, the Court refused the discharge and lifted the stay to permit CRA to proceed to enforce their rights. (Re Berenbaum, ONSC, 2011).
An average of 12,109 individuals file a repeat bankruptcy each year, of which approximately 1,333 or 2% have 2 or more previous bankruptcies. In 2018, there were in fact 1,224 individuals filing for the 3rd time, 121 filing for the 4th time and 17 filing their 5th or more bankruptcy. (OSB average annual statistics for 2013 to 2018 for previous bankruptcies). The courts have taken the position that debtors with three or more bankruptcies are not entitled to an absolute discharge. However, a refusal is granted in less than 1% of these cases.
Less common factors.
Appeal or application from prior adjourned or conditional order of discharge.
In Bank of Montreal vs Giannotti, the bank successfully appealed an order granting a combined suspended and conditional order of discharge from bankruptcy. The Court determined the bankrupt was not “honest with the trustee or the bankruptcy court” and refused the discharge. (Re Bank of Montreal vs Giannotti, ON CA, 2000). The Court also overturned a prior adjourned discharge on resubmission by a 3rd time bankrupt to obtain his discharge. The discharge was refused with leave to reapply in one year. (Re Lynn, MBQB, 2011).
Failure to live within means.
The courts have refused a discharge where the bankrupt does not show rehabilitation and continues to live beyond their means. A 73-year old widow with low income applying to the court for discharge for the second time from her 4th bankruptcy was refused a discharge for failing to live within her means. (Re Dennison, SKQB, 2013). The court also refused a discharge of a 3rd time bankrupt who not only failed to live within her means but continued to obtain credit during her bankruptcy. (Re Nevin, BCSC, 2009). In both cases the court ordered that the bankrupts not reapply for discharge for a period of at least two years.
Repeat bankruptcy – 4 or more filings.
Although individuals filing bankruptcy for the 5th or more time are relatively rare, those filing for the 4th time have been steadily increasing from 81 in 2013 to 121 in 2018. For Mr. Ongo, filing his 5th bankruptcy at 54 years old, the Court refused his discharge with leave to reapply in 10 years. (Re Ongo, NSSC, 2018). Although there are reported cases of 4th time bankrupts receiving a discharge, it is rare. In Re Mulligan the Court granted a 15-year suspension (Re Mulligan, BCSC, 2007). A more recent decision reported in an article in Law Times reported the 4th time bankrupt was granted a 12-month suspended discharge. (“Man discharged from his fourth bankruptcy”, September 17th 2019, by Aidan Macnab).
If an individual is considering bankruptcy where any of these factors exist, they may wish to obtain legal advice prior to filing. Your licensed insolvency trustee will be able to assist you with locating a lawyer specializing in insolvency.