Bankruptcy and COVID-19
How is my Bankruptcy Affected by the COVID-19 Coronavirus?
On March 25, 2020, the Office of the Superintendent of Bankruptcy (“OSB”) issued temporary guidance to Licensed Insolvency Trustees (“LITs”) entitled LIT Flexibility During the COVID-19 Pandemic:
“LITs are encouraged to exercise their professional judgment in using as much flexibility as possible to avoid unintended harm or prejudice in the current circumstances” and “to determine where flexibility within existing rules can be of most benefit to individual consumer and commercial debtors impacted by the pandemic.”
Also on March 25, 2020, various federal Acts were amended by a Bill entitled An Act respecting certain measures in response to COVID-19. There were no amendments to the Bankruptcy and Insolvency Act (the “Act”) and all provisions relating to bankruptcy remain in effect without additional relief for debtors affected by the COVID-19 pandemic.
While in the bankruptcy process, an individual is subject to many duties. The full list is contained in Section 158 of the Act, but for most people, there are 5 key responsibilities:
Deliver assets to the LIT and help the LIT convert the assets into money for the benefit of the creditors.
Provide income tax information to the LIT for the year of bankruptcy, and the prior year if the return hasn’t already been filed.
Attend two financial counselling sessions.
Submit monthly income and expense reports with proof of all sources of income, proof of non-discretionary expenses (e.g. spousal or child support, childcare, and expenses related to a medical condition), and bank statements.
For surplus income if the household income exceeds the standard;
To repurchase non-exempt assets that haven’t been surrendered to the LIT; and/or
To offset the LIT’s costs of administering the bankruptcy estate.
The impact of COVID-19 on the first 4 responsibilities of a bankrupt are likely to be minimal because:
Often there are few, if any, assets that are surrendered to the LIT and in the cases when there are, face-to-face contact is minimal.
The LIT can obtain most income tax information online directly from CRA, and what isn’t available from CRA can be submitted to the LIT by email, fax, text message, or through the mail.
While in-person financial counselling is preferable, the sessions can be completed by video or telephone, and the timing for completion is flexible – the 1st stage counselling can be completed between 10 and 90 days following the start of the bankruptcy, and the 2nd stage counselling can be done any time before discharge.
Most monthly income and expense reports and the supporting documents are already submitted to the LIT electronically.
COVID-19’s impact on the bankruptcy process will be greatest in its effect on an individual’s ability to make the payments that are required. Fortunately, there is flexibility with respect to payments.
Surplus income payments vary based on actual net (or take home) income. If your income has been reduced because of a reduction in hours or a layoff, your required monthly payment will drop.
Payments to repurchase assets can be deferred until a later date when income returns to normal, or the asset can be delivered to the LIT for liquidation.
Payments to offset the LIT’s costs of administration are not determined by a provision of the Act, but by an agreement between the LIT and the bankrupt. Accordingly, the LIT and the bankrupt can agree to adjust the payment terms.
To answer your questions about how bankruptcy is affected by the rapidly changing economic conditions, and to support you through any personal financial challenges you may be facing, we’ll be hosting regular online office hours. During these online Q&A sessions, there’s no agenda except to address your concerns and answer your bankruptcy questions.
To join, click: https://meetings.ringcentral.com/j/2507129919.
The Next Online Bankruptcy Q&A Session is Scheduled for:
Friday, April 24, 2020 – 12:00 – 1:00 pm PDT
We’re here to help, and we look forward to “seeing” you online to provide answers to all your financial questions. We have faith in our public health care system, our federal and provincial governments, and the strength of the Canadian economy and our financial institutions. Together we will get through this.