Non-Dischargeable Debts: 6 Types Of Debts That Are Hard To Break Free Of

Consumer proposals and bankruptcy are meant to allow people to solve their debt problems.

Under the terms of the arrangement, the total amount to be paid back is generally quite lower than the real value of the debts. Once the predetermined number of payments has been reached, the insolvent person is rid of all outstanding debt. All debt? No. Some debts “withstand”, so to speak, the consumer proposal and bankruptcy, just like Asterix’s small Gaul village managed to withstand Roman invaders.

6 Types of Non-Dischargeable Debts

1. Student loans

   Student loans are non-dischargeable debts throughout the 7-year period following the end of studies. During this stub period, the debt cannot be eliminated through a consumer proposal or a bankruptcy.
   Fortunately, some government authorities have implemented assistance programs for people who are unable to reimburse their student loan:

   • the Deferred Payment Plan (Québec);
   • the Repayment Assistance Plan (Ontario).

2. Fines and compensations for offences causing bodily harm or death

   Penalties and fines for Highway Code violations are non-dischargeable debts. The only recourse when facing debts of this nature is to apply to the court for clemency in order to try and get a reduction of the penalty or the fine.
   Compensations for offences causing bodily harm or death are also non-dischargeable, but only if the court has ruled on the intentionality of the prejudice caused.

3. Arrears in alimony

   The terms of an alimony agreement must be complied with even when filing a consumer proposal or going bankrupt. To decide if it is actually a debt of this type, it is important to take the context into account. The amounts due pursuant to a divorce judgement rendered by the court are not necessarily all considered as a part of the alimony. Amount considered part of the alimony must however be reimbursed. On the other hand, to ensure the persistence of the obligations arising from an alimony agreement at the debtor’s discharge, such an accord does not have to be validated by the court.

4. Frauds

   Debt arising out from frauds are non-dischargeable. The capital, plus interest and costs, must therefore be reimbursed by the debtor even if he or she made a consumer proposal or went bankrupt.
   Any debt resulting from an embezzlement or a breach of trust is also non-dischargeable.

5. Debts resulting from false pretences

   Debts resulting from false pretences are non-dischargeable. Such debts must therefore be reimbursed even if the debtor made a consumer proposal or went bankrupt.
   For example, a loan obtained after having intentionally omitted to mention the existence of other debt will have to be fully reimbursed.

6. Liability for a dividend to which a creditor was entitled

   When going bankrupt, the debtor has the obligation to disclose all his debts to the trustee in bankruptcy¹. Otherwise, the affected creditors will be entitled to compensation. The bankrupt will have to repay the creditors the amount they would have been entitled to under the bankruptcy.

Joint Debts

Except for the 6 types of debts previously listed, debts are generally dischargeable. That means that a consumer proposal or bankruptcy allows the debtor to eliminate his or her debts, and to therefore benefit from a brand new start. There is however another exception: joint debts with co-signer.

In the case of a consumer proposal or bankruptcy for joint debts with co-signer, the creditors will then always turn to the co-signer. Most often, that person is the spouse. The responsibility to repay the total amount of the joint debts then rests entirely on the co-signer.

In other cases, creditors will ask for an endorser before handing out a loan. If the debtor stops paying back the debt, the creditors will turn to the endorser to be reimbursed.

So in essence, a debtor that files a consumer proposal or goes bankrupt will in fact become debt free. However, his or her debts will not disappear: they will become the responsibility of the co-signer or endorser.

Tax Debts

Contrary to a very widespread idea, tax debts can be included in a consumer proposal or bankruptcy.

People with tax debts are well advised to act promptly even if they are unable to reimburse them immediately.

Contacting the Canada Revenue Agency or Revenu Québec to make certain arrangements is an option. Another is to call on a Ginsberg Gingras trustee to get professional advice free of charge.

Why Are Some Debts Non-Dischargeable?

Some debts are considered non-dischargeable under the Bankruptcy and Insolvency Act.

Consumer proposals and bankruptcy are meant to allow a fresh start to honest debtors burdened by debts honestly contracted. These processes must definitely not allow people to abuse the system and to deliberately default on their obligations.

It is imperative to maintain the integrity of such processes, as well as the public’s trust in them.

For example, without the rules regulating student loans, it would be more advantageous for students to declare a personal bankruptcy than to reimburse their loan. They would save thousands of dollars. And since they generally have very little assets at this stage of their life, chances are none of their personal property would be seized. Such a situation would be dishonest and unjust for the other students who choose to honour their commitments and to reimburse their loan.

Seek the Help of A Trustee

Consumer proposals and bankruptcy may prove to be good solutions to improve your financial situation, even though some debts are non-dischargeable.

For further information, please do not hesitate to contact a Ginsberg Gingras trustee. Together, we will be able to find a solution to your debt problems. You will finally get a fresh start and be rid of all the stress that’s weighing you down.

To make an appointment, fill out the form.

¹The term “trustee in bankruptcy” will gradually be replaced by the new designation “licensed trustee in insolvency and restructuring (LTIR)”.