The Chapter 7 Discharge
A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004.
The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management. 11 U.S.C. §;727; Fed. R. Bankr. P. 4005.
A Consumer Proposal Can Settle Your Debts
“I was maxed out on several lines of;credit. Then I started missing payments. I decided to see a;trustee;about filing for;bankruptcy. She reviewed my finances and explained the option of a;consumer proposal. We came up with a reasonable;offer for my;creditors. Now my monthly payments are much more affordable, and I get to keep all my property.
A;consumer proposal;is an offer you make to your creditors to settle your debts. The offer can be to pay them a percentage of what you owe, to extend the time to pay them, or both. If your creditors accept the proposal, you pay them under the terms of the consumer proposal, typically for a period of three to five years. If you meet the;conditions;in the proposal, you will be legally released from your debts except for a few types of debt, such as support payments.
A consumer proposal is a formal, legally binding process overseen by a licensed insolvency trustee. Its less severe than bankruptcy, since you get to keep your assets and it wont hurt your;;for as long as going bankrupt does.;
When you make a consumer proposal, you stop making payments directly to your creditors. If your proposal is accepted, you start making payments to the insolvency trustee. The trustee distributes the money to your creditors under the terms in the proposal. All of the money must be paid out under the consumer proposal within five years.;
Only a licensed insolvency trustee can file a consumer proposal
How Do Banks Become Insolvent And The Importance Of Deposit Insurance
If banks can create money, then how do they become insolvent? After all surely they can just create more money to cover their losses? In what follows it will help to have an understanding of how banks make loans and the differences between the type of money created by the central bank, and money created by commercial banks.
Insolvency can be defined as the inability to pay ones debts. This usually happens for one of two reasons. Firstly, for some reason the bank may end up;owing;more than it;owns or is owed.;In accounting terminology, this means;its assets are worth less than its liabilities.
Secondly, a bank may become insolvent if it cannot pay its debts as they fall due, even though its assets may be worth more than its liabilities. This is known as cash flow insolvency, or a lack of liquidity.
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The Proposal Must Be Filed By A Licensed Insolvency Trustee
Under the;law in Canada, only a licensed insolvency trustee can file a consumer proposal.
Consumer proposal proceedings begin when you meet with an insolvency trustee to discuss your financial situation. The trustee reviews your income, expenses, assets and liabilities to confirm that youre insolvent. This information is set out in the consumer proposal, along with your;offer;of partial payment. The trustee prepares the proposal in the required form and files it with the;government office that oversees insolvencies.;
After the consumer proposal is filed, the trustee sends a copy to each of your creditors. From this point on, the trustee will deal directly with the creditors on your behalf.
The first meeting is typically free
Usually, the first meeting with an insolvency trustee is free. If you work with a trustee to make a consumer proposal, youll need to pay them. The fees trustees can charge are regulated by the federal government. To find a licensed insolvency trustee in your area,;search this database.;
File The Consumer Proposal
Once youve finalized the consumer proposal, the licensed insolvency trustee files it with the;government office that oversees insolvencies. The trustee is responsible for ensuring that the consumer proposal is prepared in the correct form.;
After the consumer proposal is filed, the insolvency trustee distributes the proposal to your creditors.
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How Funds Are Recovered And Distributed
To help creditors recover some of what they are owed, non-exempt property owned by the bankrupt as of the date of the bankruptcy, or acquired prior to the bankruptcy discharge, may be seized and sold by the LIT. Exempt property includes property protected by applicable provincial and federal laws , property held by the bankrupt in trust for another and, in some cases, goods and services tax payments.
In addition, the LIT determines the bankrupt’s “surplus” income, i.e., the amount beyond what the bankrupt requires to maintain a reasonable standard of living. The bankrupt must pay this amount to the estate for distribution to the creditors after the costs of administration are deducted.
After the LIT has sold all of the bankrupt’s property, he or she must prepare a final statement of receipts and disbursements and a dividend sheet. The dividend sheet contains a list of creditors who will receive dividends and the amount to which they are entitled. You will be paid the dividends to which you are entitled before the bankruptcy file is closed, which is before the discharge of the LIT.
Once the secured claims have been settled, the dividends are distributed in the order set out in section;136 of the
These prior claims are subject to certain conditions and this list is not exhaustive.
The law gives priority to the claims of preferred creditors over those of other unsecured creditors.
Being Discharged From Bankruptcy
When a debtor receives a discharge order, they are no longer legally required to pay the debts specified in the order. What’s more, any creditor listed on the discharge order cannot legally undertake any type of collection activity ;against the debtor once the discharge order is in force.
However, not all debts qualify to be discharged. Some of these include tax claims, anything that was not listed by the debtor, child support or alimony payments, personal injury debts, and debts to the government. In addition, any secured creditor can still enforce a lien against property owned by the debtor, provided that the lien is still valid.
Debtors do not necessarily have the right to a discharge. When a petition for bankruptcy has been filed in court, creditors receive a notice and can object if they choose to do so. If they do, they will need to file a complaint in the court before the deadline. This leads to the filing of an adversary proceeding to recover money owed or;enforce a lien.
The discharge from;Chapter 7 is usually granted about four months after the debtor files to petition for bankruptcy. For any other type of bankruptcy, the discharge can occur when it becomes practical.
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What Is The Difference Between Bankruptcy And Insolvency
The world of bankruptcy is filled with jargon that the layperson might struggle to understand. At JPP Law, we know that the decision to declare bankruptcy is often filled with much stress and feelings of being overwhelmed. So, the fact that the terminology can also be confusing only adds to the distress of the situation.
Given that, we want to take an opportunity to answer the question, What is the difference between bankruptcy and insolvency?
If youve been contemplating declaring bankruptcy, and youre bewildered by what is meant by bankruptcy and solvency, let us help you out. We hope that you will have a clearer idea about whether bankruptcy is right for you by learning more about this process.
What If Im Insolvent
If you are financially overwhelmed and sure you cant pay your debts, you should contact a non-profit debt counsellor or debt management company that can help you review your balance sheet. Even if you dont have enough income to pay your debts, a debt manager can try to negotiate a settlement that will partially repay what you owe and avoid a bankruptcy filing.
You can also try to negotiate with creditors on your own. If you owe a large credit-card debt, contact the card issuer and explain your situation. Though the debt holder is under no obligation to offer a workout plan, reduce your debt or trim you interest rate, its in their best interests to try. So, you might be able to reach an agreement if you can convince the creditor that its either an agreement or default.
Remember, if you reach an agreement that involves debt forgiveness, you might be liable to pay taxes on the amount the creditor writes off. However, the Internal Revenue Service allows insolvent and bankrupt taxpayers to reduce cancelled debt by their insolvency amount.
For example, if a creditor agrees to settle a $20,000 debt with a $5,000 payment from you, you would have cancelled debt income of $15,000. But if you only had $3,000 in assets at the time you reached the agreement, you would insolvent in the amount of $12,000 . You would then report $3,000 in income on your taxes .
If you are unclear about this, contact a nonprofit credit counseling agency or a tax professional.
What Type Of Creditor Are You
If a business goes bankrupt and owes you money, your debt is listed with all other debts according to a specific scale. That scale determines the order in which debts are to be paid. Typically, bankruptcy debt is determined to be preferential, secured or unsecured, in that priority order.
- Preferential or preferred creditors can include employees of the company who are owed wages as well as tax authorities.
- Secured creditors are those that have liens on the debtors property .
- Unsecured creditors;are those that provided the company goods or services, such as suppliers and contractors.
Don’t Rush Into Bankruptcy Too Quickly
Bankruptcy works well to wipe out debt; however, you’re only entitled to receive a bankruptcy dischargethe order that wipes out your debtevery so often. So it’s a good idea to examine whether now is the time or whether you might need to file sometime in the future. Specifically, you can receive a Chapter 7 discharge:
- once every eight years, or
- six years after a Chapter 13 bankruptcy filing.
During the waiting period, you might find yourself facing an even more severe financial problem. For instance, if you’re suffering from an illness and accumulating medical debt, you’ll probably want to hold off until your condition stabilizes. Also, be aware of other common problems that can crop up, including unemployment, eviction, foreclosure, and car repossession.
If you already filed a Chapter 7 bankruptcy, you wouldn’t be able to do so again. A creditor could garnish your wages , levy the funds in your bank account, or take valuable property. Less effective Chapter 13 bankruptcy options would likely be available. Depending on how long it had been since you filed Chapter 7, you might not be entitled to another discharge. And, not only would you’d have to have sufficient income to qualify, but you’d be required to pay all of your discretionary incomethe amount left over after subtracting allowed living expensesover a three- to five-year repayment period.
Learn about the timing involved in multiple bankruptcy filings so you know when you can file again.
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Don’t File When You Are About To Receive Substantial Assets
You should reconsider filing bankruptcy if you are about to receive an inheritance , a significant income tax refund, a settlement from a lawsuit, or repayment of a loan you made to someone else. Why? Because once you receive the funds, you might not be bankruptespecially if you could use this money to settle with creditors and get out of debt on your own. If you find yourself in this situation, consult with a bankruptcy attorney to discuss your options.
The Consequences Of Bankruptcy On A Car Loan
Bankruptcy will not have an impact on a car loan that has already been granted, provided that the conditions of loan repayment are respected. As long as you continue to make payments, you will keep your vehicle. Having filed for bankruptcy will bear no consequences on your car loan. However, the Licensed Insolvency Trustee will have to determine whether the vehicle can or cannot be seized in order to repay your other debts.
In Quebec, a vehicle is exempt from seizure if it meets one of the following criteria:
- It is necessary to maintain income and ensure daily living needs.
- It is necessary for active job searching.
- It is necessary for care required by your state of health.
- Public transportation does not adequately compensate for the loss of the vehicle.
In Ontario, any vehicle with a value of less than $6,600 is exempt from seizure. If none of the above criteria are applicable, your vehicle could be seized. However, it will not automatically be. The trustee will compare the value of the vehicle with the debt to be paid. If a reasonable amount of money can be recovered, the vehicle could be seized to repay part of your debts. If not, you would most likely be allowed to keep the vehicle.
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‘i Dare You To Do That’ Says Ny Gov Cuomo
Senate Majority Leader Mitch McConnells suggestion last;week that hed rather let states go bankrupt than see Congress rescue their coronavirus-decimated budgets raises the question: What would a state bankruptcy look like?
It would first;require Congress to amend;the federal bankruptcy code, which has never allowed state governments to declare bankruptcy. Municipalities broadly defined as a;town, city, county or other subdivision of a state, like a school district or independent authority have been allowed to declare bankruptcy since 1937, but for states the only option would be defaulting on their debts.
Its unlikely McConnell;will be able to convince the rest of Congress to go along with amending the bankruptcy code. His comments were met with swift and harsh backlash. ;
You want to send an international message that the economy is in turmoil? Do that, said New York Democratic Gov. Andrew Cuomo at a press conference Friday. Allow states to declare bankruptcy legally because you passed the bill. It’ll be the first time in our nations history that that happened. I dare you to do that.
On Thursday, fellow Republican Rep. Peter T. King of New York likened McConnell to Marie Antoinette.
Stern notes that states can already legally abrogate bond or pension obligations when its reasonable and necessary . This would take the form of a state negotiating with specific creditors to reduce the debts while still paying them in the interim.;
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Criminal/penal Case Court Nos: 500
Following his separation, a man sold his house and spent the $85,000 in equity at the casino. His credit-card debts went from $1,500 to more than $137,000 in nine months. Among other things, he purchased construction materials, furniture and electrical appliances. At the time of his bankruptcy, he had no assets. He attributed his bankruptcy to his separation and gambling.
Summary of offences of the bankruptFootnote 2
- Bankrupt used deceit, falsehood or other fraudulent means to defraud various credit-card companies of different amounts of money.
The bankrupt was found guilty of 14 counts of fraud. He was sentenced to 12 months, to be served in the community, with the following conditions:
- remain at home 24 hours a day for the first four months, and between 11:00;p.m. and 7:00;a.m. for the next eight months;
- refrain from going to casinos;
- perform 150 hours of community service within eight months.
In addition, 12 months of probation and prohibition against going to casinos will begin at the end of the sentence.
No Bankruptcy Discrimination In Government Issued Licenses
Under the law, no governmental unit may deny, revoke, suspend, or refuse to renew a license of a person who has filed for bankruptcy because:
- the person filed for bankruptcy
- was insolvent before the bankruptcy discharge, or
- has not paid a debt that has been discharged or will be discharged in a pending bankruptcy.
Similar to the protection for employment actions, the licensing protection extends to people who are associated with someone who has filed for bankruptcy.
This is important if you have a job which requires you to maintain a professional license. However, there are a few very limited exceptions relating to the agriculture industry.
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