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Bankruptcy Misconduct and Obligations
The bankruptcy system is in place to help honest debtors out of an unfortunate situation. However there is potential for the system to be abused and as such the Bankruptcy and Insolvency Act sets out certain kinds of bankrupt misconduct in S. 173(1) (see a copy here: http://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/ ).
The most common forms of bankrupt misconduct are
- The bankrupt continued to trade or to borrow after realizing that he/she could not pay his/her debts;
- The bankrupt caused or contributed to the bankruptcy, through recklessness, extravagance or negligence with respect to his/her financial affairs;
- The bankrupt, gave undue preference to one creditor when unable to pay all of his/her debts
- The bankrupt was guilty of fraud or fraudulent breach of trust;
- The bankrupt failed to make the legally required payments to the trustee;
- The bankrupt chose bankruptcy over a proposal when they could have made a proposal to his/her creditors to repay part of the debts;
- The bankrupt failed to respect his/her obligations as described in The Act
The bankruptcy obligations are set out in the Bankruptcy and Insolvency Act in S157.1 and 158. They are as follows
A bankrupt must:
- Declare all property to the trustee;
- Deliver all credit cards to the trustee for cancellation;
- Deliver all financial documentation to the trustee
- Disclose any property or assets that have been disposed of;
- Attend an examination when required to do so;
- Attend, when required, the meeting of creditors;
- Attend two legally required financial counselling sessions;
- Cooperating with the trustee.
What are the consequences of Bankruptcy Misconduct?
Failing to meet any of your bankruptcy obligations or engaging in any of the other forms of bankrupt misconduct can result in consequences. What the specific consequences for bankruptcy misconduct will be are determined on a case-by-case basis. Bankruptcy misconduct may lead to a refusal or suspension of the bankrupt’s discharge, meaning you cannot start to rebuild your credit. In less severe cases a conditional discharge will be applied, meaning a bankrupt is discharged so long as they meet certain conditions, such as filing their taxes on time for the next three years, or continuing to report on their income.
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