A recent Article in the Globe and Mail featured the picture of a prominent, Toronto-based bankruptcy lawyer who was going bankrupt for the second time in his career. It told of his extravagant lifestyle and his ability to walk away from large debts to Revenue Canada and his child’s private school. The underlying message was that the bankruptcy process is being used by wellheeled, crafty professionals to painlessly whitewash their debts. Some truth – but not the full story. Any consideration of going bankrupt must be balanced by a review of the practical ramifications.
The credit world has a long memory and, while almost all debts are forgiven upon discharge from bankruptcy, the credit record remains tainted for 6 years. Credit in Canada is the almost exclusive domain of two credit agencies, Equifax and TransUnion. Virtually every credit-granting institution utilizes their services.For 6 years following a bankruptcy the credit report will prominently show a notation of the date of bankruptcy and the debts legally forgiven in the bankruptcy. It is extremely difficult to obtain a credit card during these 6 years and no credit card means no ability to do such everyday things as rent a car. The removal of a notation of bankruptcy has always been non-negotiable from the credit agencies’ perspective. That practice is now being challenged. In Haskett vs. Equifax, the Ontario Court of Appeal has signaled that a bankruptcy debt notation on a credit report may amount to a wilful misrepresentation by the credit bureau. The final outcome of this case will have important ramifications.Understanding the credit bureau system and the practical effects of bankruptcy allows both debtor and creditor to make informed decisions in the face of insolvency. As an alternative to bankruptcy, many creditors, including Revenue Canada, often welcome a proposal to compromise the debt at a percentage of the total owing. The amount offered can be modest and the proposal can be made either inside the Bankruptcy Act or outside the Act (thereby avoiding exposure to bankruptcy).Mills and Mills LLP regularly advises on insolvency matters and can help you manage this risk.