Seeking a bankruptcy discharge due to the passage of time?

Mason (Re), 2024 NSSC 25
Is the passage of time a sufficient basis to seek a bankruptcy discharge?

Overview: In this case, the Court considered a request to discharge a bankruptcy that had been outstanding for 20 years, citing the passage of time, the disinterest of creditors (some of whom may no longer exist), the discontinuance of the corporate Trustee (possibly as a result of a merger), among other reasons. The Court ruled the passage of time, or surmountable inconvenience, did not relieve the debtor of the obligations which bind others who file in like circumstances.  Those obligations are not onerous - they apply to all.

Mason, now 49, filed for his first bankruptcy in 2000, when he was 25 years old.  He was deemed discharged on January 1, 2001. Ten months later, he filed a second time, allegedly based on advice from a Trustee.  He filed with a different Trustee from the first. His declared debts totalled $13,145—$4,200 was to CRA and all but $1,000 of which were unsecured. He said he was unemployed and his only income was $340 per month in child support payments.

Almost eight months after filing, the second Trustee issued its report under s. 170 of the Bankruptcy and Insolvency Act. It disclosed that Mr. Mason had not attended his second counselling; had not filed income and expense information; and had not provided information required to file pre-and-post bankruptcy 2001 tax returns.  In September 2002, the Alberta Court adjourned the bankruptcy discharge application sine die and granted the Trustee leave to seek its discharge.

The Trustee submitted its notice of deemed taxation and deemed discharge (Form 15) on December 12, 2003. It disclosed that there were zero receipts (and in fact the Trustee was “down” $200 from filing fees), and that there was still no information by which to file tax returns. The status quo remained for almost 20 years, during which time Mason went on to own at least two homes. It was not until he came to Nova Scotia that the matter raised its head again, apparently as the result of a TransUnion credit report.  Mason had the bankruptcy file transferred to Nova Scotia pursuant to s. 187(7) of the BIA.

By March 2023, Mason was making approximately $98,000 a year and his debts totalled $31,800. In November 2023, he sought sought his discharge, with only a nominal one day’s suspension and with no further payment or action. He cited the passage of time, the disinterest of creditors (some of whom may no longer exist), the discontinuance of the corporate Trustee (possibly as a result of a merger), the modest amount in issue in the bankruptcy to begin with, and the cost and difficulty of compliance with his BIA obligations now. The issue before the Court was whether the factors cited by Mason outweighed the systemic interests in debtor compliance with the duties imposed on him by the BIA.

The Court concluded that they did not, and found that compliance is not unduly onerous upon Mason, with appropriate direction from the Court, and an alternate disposition would send an inappropriate message that “if you wait long enough, you can get a ‘free’ bankruptcy”. A bankrupt earns the right to a discharge by his or her forthrightness and by performing the duties imposed on him or her by the BIA. If a debtor can go into bankruptcy as a convenient means of evading just obligations that he or she has incurred and obtain a discharge without difficulty, bankruptcy becomes an abuse. It is incumbent upon the court to guard against laxity in granting discharges so as not to offend against commercial morality. In exercising its discretion, the Court must look carefully at the causes of the bankruptcy and the attitudes and actions of the bankrupt both before and after bankruptcy in determining whether a discharge should be granted.

The passage of time, surmountable inconvenience, and the disinterest of creditors do not relieve the debtor of the obligations which bind others who file in like circumstances.  Those obligations apply to all.  They involve verification of income for the requisite period, payment of applicable surplus, realization of non-exempt assets, attendance at counselling sessions, filing of year-of-bankruptcy tax returns, and other duties as the circumstances of the estate require. In Mason’s case, there were no alleged non-exempt assets, and his income appeared to have been below the applicable threshold for the period applicable to a second bankruptcy. It was also telling that despite Mason’s bankruptcies essentially being on the heels of each other, he claimed he did not realize the obligations incumbent upon him. He did not demonstrate, nor did he assert any historical, cognitive limitations, aside from the stress of his marital breakdown. There was no reasonable basis for his assertion that he “thought he did what he needed to do.”  It was wilful blindness at best, and dereliction to the point of abdication at worst. The rules don’t cease to apply because you ignore them (or by saying for reasons amorphous that you “thought” you complied with them) for a long enough period.

The Court concluded that a conditional order was appropriate in the circumstances. Mason would have to find a Trustee prepared to take his file, even if on terms unsatisfactory to him. Payment of $5,000 to the estate, or such greater amount as agreed by Mason and a Trustee, was also an appropriate balancing of interests—and preservation of systemic integrity—in these circumstances. Finally, he was ordered to complete two counselling sessions. When those steps are ultimately completed, the Court noted that he would receive an absolute discharge.

Judge: Raffi A. Balmanoukian, Registrar in Bankruptcy

Counsel: Matthew Moir and Jessica Rose of Weldon McInnis for Mr. Mason