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When you are overwhelmed by financial problems, bankruptcy and consumer proposals can help you stabilize your financial situation. Bankruptcy and consumer proposals are effective solutions, but remember that some debts cannot be erased with these proceedings. Here is what you should know about the seven debts that cannot be discharged by bankruptcy or consumer proposal.

Debts excluded from bankruptcy and consumer proposals

    1. Alimony debt

      Alimony debt is excluded from bankruptcy and consumer proposals. The same applies for any arrears. The Bankruptcy and Insolvency Act states that the terms of an alimony agreement must be respected. Therefore, the obligations of your alimony payments must be respected before, during, and after your bankruptcy or consumer proposal. However, we recommend consulting a Licensed Insolvency Trustee about this, since judgments rendered in a divorce proceeding are not necessarily alimony.

    2. Fraud and false declarations

      Bankruptcy and consumer proposals cannot release you from debt assigned by the court following fraud, misappropriation of funds, or breach of trust, for example, the misappropriation of pension funds by the proxy of a senior.

    3. Fines, penalties, and offences

      If you are fined, penalized, or convicted of an offence, you cannot escape the resulting debts by declaring bankruptcy or filing a consumer proposal. This exception applies to traffic code violations, including parking tickets. You must, therefore, pay your parking tickets despite your bankruptcy or consumer proposal.

    4. Compensation awarded in a civil case

      If a court finds you guilty of intentionally causing bodily harm or of sexual assault, any compensation you must pay after the ruling cannot be erased by bankruptcy or a consumer proposal. This debt is non-dischargeable.

    5. Sums to which creditors have rights

      When you meet with your LIT, you must list all your creditors. If you fail to declare one of your debts, the creditor may turn against you. Essentially, if the creditor would have been eligible for compensation from your bankruptcy, you must repay your debt. However, if the creditor was advised of your bankruptcy but did not act in time, it cannot do you any harm.

    6. Student debt

      Student debt is a special case compared to other debts because it must meet certain criteria to be discharged as part of the bankruptcy or a consumer proposal. Your student debt can be discharged if seven years have elapsed between the end of your studies and your bankruptcy. You must pay special attention to “student” loans issued by financial institutions, which may actually be a personal line of credit. Also, you may be able to reduce the timeline with permission from the court based on some exceptions. Your Licensed Insolvency Trustee can help inform you about your student loan.

    7. Debts resulting from misleading statements

      Debts resulting from misleading statements must be repaid in all cases. Misleading statements can be understood as false information presented as truth to obtain an advantage. The voluntary omission of information is also considered to be a misleading statement.

      A person who lies about his or her income to obtain a personal loan will be held responsible for repaying that debt, even if he or she declares bankruptcy or files a consumer proposal. This debt cannot be excluded.

      While a creditor can invoke this exception to force you to repay your debt, the court has the last word on determining whether you made a misleading statement.

    8. Other debts

      In some situations, overpayments made by welfare or employment insurance are excluded from bankruptcy and consumer proposals. This is the case when overpayments are the result of a misleading statement made to the government.

      Also note that your endorser will not be released from the debt they guaranteed for you, even if you declare bankruptcy or file a consumer proposal.

Debts included in a bankruptcy or consumer proposal

After your release from bankruptcy or the end of your consumer proposal, you should be released from all your debt obligations, excluding any non-dischargeable debts mentioned above. The bills accumulated for services such as your phone, television, and hydro will be cleared. The same is true for your tax debt, credit card debt, personal loan debt, and late fees for professional services such as dentistry.

Our advice

It is essential that you be transparent with your Licensed Insolvency Trustee and list all your debts. Before declaring bankruptcy, pressure from your creditors can be enormous and suffocating. Your Trustee is in the best position to recommend a solution to repay your debts, which is why you must give him or her as much information as you can.

Hidden debt can have serious consequences. For example, a court could refuse to release you from bankruptcy, citing bad faith. Creditors you fail to mention to your Trustee will not be part of your bankruptcy, and they could launch recourse against you to force you to repay your debt with them.

The Licensed Insolvency Trustee is your ally and in the best position to advise you or take steps to free you from your debts! Make an appointment with a Ginsberg Gingras Trustee today. They can clarify which debts are dischargeable and which are not.

Stephan V. Moyneur

CIRP, Licensed Insolvency Trustee

Official Office: St-Jérôme
Phone: 450-990-1277

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