REASONS FOR DECISION

A. Nature of Proceeding

[1] Pursuant to the provisions of s. 49 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3 (the “BIA”), Lucille Plamondon and Alain Kradolfer (hereinafter referred to collectively as the “Bankrupts” and individually as “Plamondon” and “Kradolfer” respectively) each made an assignment in bankruptcy on April 20, 2010 (the “Bankruptcy”). Raymond Chabot Inc. was appointed as the Trustee (the “Trustee”) for each of them. Plamondon and Kradolfer are husband and wife. On December 19, 2011, pursuant to the provisions of s. 168.2(1) of the BIA the Trustee provided notice of its opposition to the discharge of both Plamondon and Kradolfer. This matter therefore comes before me in part as an opposed discharge hearing pursuant to the provisions of s. 172 of the BIA.

[2] Although four grounds of opposition are listed in the Notice of Opposition for each of the Bankrupts, the only ground in reality for the Trustee’s opposition was an alleged failure of the Bankrupts to comply with a requirement, imposed on the Bankrupts under s. 68 of the BIA, to pay surplus income. This is one of the facts listed in s. 173(1)(m) of the BIA. If this fact is proven, then pursuant to s. 172(2) the Court must either refuse the discharge, suspend the discharge or require the bankrupts as a condition of discharge to perform such acts, pay such moneys, consent to such judgments or comply with such other terms as the Court may direct. Pursuant to s. 172(4), the Court’s power to suspend or attach conditions to the discharge may be exercised concurrently. It is noted that even if the fact of unpaid surplus is proven, it does not automatically lead to a discharge on condition that the sums for surplus be paid. On a plain reading of these sections of s. 172(2) the Court has the discretion, even if one or more of the facts listed in s. 173 including s. 173(m) are proven, to suspend the discharge or grant conditions other than a requirement to pay.

[3] The Trustee also indicated to the Court that it seeks to have the Court fix the amount that each of the Bankrupts should be required to pay to their respective estates as surplus income pursuant to s. 68(10) of the BIA. This hearing is therefore in part an application by the Trustee pursuant to s. 68(10) of the BIA. Pursuant to the provisions of s. 192(1)(m), this Court has the power to determine its practice and procedure. In most bankruptcy estates there is very little if any funds available to fund a multitude of court proceedings and to the extent possible and consistent with maintaining the integrity of the system, the least inconvenient and most cost-efficient practice and procedure that can be used to properly determine issues on their merits should be adopted. There is nothing in s. 68(10) that prevents a trustee from applying to the Court at the opposed discharge hearing to fix the amount, if any, the bankrupt is required to pay to the estate pursuant to s. 68.

[4] Even if the Trustee had not specifically requested that I fix the surplus income requirements, in my view it is necessary for this Court, in determining whether or not a finding of fact under s. 173(1)(m) should be made, to review the facts of the case to ensure that the provisions of s. 68 of the BIA have been properly applied and that there is a requirement to pay surplus that has not been complied with by the Bankrupts. In other words, the Court cannot simply accept as a fact that s. 68 imposes a requirement to pay that has not been complied with simply because the Trustee has filed an opposition claiming unpaid surplus. It is well recognized that this Court has a supervisory role. In my view, when faced with an opposition to the bankrupt’s discharge for alleged unpaid surplus income, the Court must look at the facts to determine if the provisions of s. 68 have been properly applied and if the requirement to pay has been properly determined and quantified.

[5] Furthermore, even if this Court determines that s. 68 has been properly applied and that the requirement to pay has been properly determined and quantified such that a finding of fact under s. 173(m) should be made, it does not automatically flow that there should be a monetary condition imposed on the discharge. On an opposed discharge hearing where there is a finding of fact made under s. 173, the Court can refuse the discharge, suspend the discharge or both suspend and make a monetary or any other appropriate condition. As discussed in more detail below, this involves the application of discretion to ensure a fair balance between the right of an honest but unfortunate debtor to a fresh start free from the burden of past debt, and the right of creditors to a reasonable dividend where possible.

B. The Facts

[6] Plamondon’s date of birth is March 15, 1952 and accordingly she will be 60 years old in less than a month on March 15, 2012. Her husband Kradolfer’s date of birth is May 10, 1949 and accordingly he will be 63 years old in approximately 3 months on May 10, 2012. They are both first time bankrupts. They live in Riviere-du-Loup, Quebec and have travelled to Ottawa for the purposes of today’s hearing.

[7] There is no evidence before me of any prior history of financial problems or any evidence of irresponsible spending. The primary cause of their bankruptcy is a combination of significant, unexpected cost-overruns encountered with the construction of their home located at 6242 Shannon Lane in Blainsville, Ontario (the “Shannon Lane Property”), coupled with the loss by Kradolfer of his employment at which he had been earning a good income. With respect to the Shannon Lane Property, at some point prior to their bankruptcy, the Bankrupts had purchased this property as vacant land for the purpose of constructing their retirement home. During the construction process, soil stabilization and other issues arose that resulted in the construction budget being exceeded by approximately $250,000.00. The Bankrupts were able to complete the construction but then found themselves struggling financially. Their evidence is that they did everything they could to try to avoid bankruptcy, but when Kradolfer’s employment was unexpectedly terminated, this was the “last straw” and they felt they had no choice left but to make assignments into bankruptcy.

[8] The Shannon Lane property was released to the Royal Bank as mortgagee pursuant to its security and was sold for less than the amount required to discharge the mortgage. Now at a stage in their lives when they should be able to slow down, retire and enjoy the fruits of a lifetime of working hard, the Bankrupts have instead lost everything other than a small amount of RRSPs as disclosed on the s. 170 reports and which are exempt property. These RRSPs are wholly insufficient to fund their retirement and the Bankrupts are now facing the prospect of starting all over again.

[9] The Trustee’s evidence is that the Bankrupts have been wholly compliant with their obligations to the estate and have made every effort to satisfy their surplus income obligations as determined by the Trustee pursuant to the standards established by the Office of the Superintendent in Bankruptcy (“OSB”) which are set out in Directive 11R2-2011 (the “Superintendent’s Standards”). However, it is clear from her evidence that the Trustee feels that the application of the Superintendent’s Standards in this case works an unfairness to these Bankrupts, but that she feels she has no choice but to enforce the Superintendent’s Standards subject to a review by this Court and intervention as this Court sees fit. It is noted that this Court is repeatedly faced with this very situation.

[10] During the 21-month period during which the Trustee calculated Plamondon’s surplus income requirements, Plamondon earned $54,418 of after-tax income according to the figures provided to the Court by the Trustee. She also had non-discretionary medical expenses as a result of her medical condition and disability of $9,134 in the same period, such that her available after-tax income for this 21-month period was $49,284.00. Using this figure, Plamondon’s surplus income payment requirement was then mathematically calculated by the Trustee using the Superintendent’s Standards at $741.00 per month for a total of $15,561.00 or approximately 32% of the after-tax income available to her for all purposes in this 21-month period. It is noted that the Superintendent’s Standards are based on the Low Income Cut-Off (“LICO”) published by Statistics Canada. More will be said about this later in these reasons. No consideration was given by the Trustee to any other factor in determining Plamondon’s surplus income requirement other than the mathematical calculation set out in the Superintendent’s Standards. Plamondon has paid a total of $11,184.00 of surplus income to the estate and the balance owing according to the Superintendent’s Standards used by the Trustee is $4,377.00. It is this amount that forms the basis of the opposition by the Trustee to Plamondon’s discharge.

[11] With respect to Kradolfer, during the 21-month period during which the Trustee calculated Kradolfer’s surplus income requirements, he earned $87,222.00 of after-tax income. Of this amount $20,360.40 was a severance payment from the employment he no longer had, and $6,274.06 was his final pay cheque for the month of May 2010 from the employment that he no longer had. Kradolfer’s evidence was that he only worked a few days in the first week of May 2010 and that this payment for May 2010 was part of the severance agreement. The Trustee used the figure of $87,222.00 and, applying the mathematical calculation set out in the Superintendent’s Standards, calculated Kradolfer’s surplus income requirement at $1,311.00 per month over the 21-month period for a total of $27,737.00 or 32% of Kradolfer’s after-tax income of $87,222.00. If the two severance payments are backed out of the after-tax earnings, the actual after-tax income earned by Kradolfer during this 21-month period was $60,587.54. Therefore the surplus income requirement of $27,737.00 was approximately 46% of Kradolfer’s actual after-tax earnings in the 21-month period. Kradolfer has paid a total of $23,737.00 of surplus income to the estate and the balance owing according to the Superintendent’s Standards used by the Trustee is $3,794.00. It is this amount that forms the basis of the opposition by the Trustee to Kradolfer’s discharge.

[12] Taking into consideration the large percentage of the Bankrupts’ gross income that would go to income taxes, coupled with the large percentage of their after-tax income that the Trustee required them to pay on account of surplus income, the Bankrupts were left with only a small percentage of their gross before-tax income to meet all of their other financial obligations post-bankruptcy for the necessities of life or otherwise. Not unexpectedly, it was the Bankrupts’ evidence, fully supported by the Trustee, that they did their very best but that it was an overwhelming and highly-stressful struggle to try to meet the surplus income obligations imposed on them by the Trustee pursuant to the Superintendent’s Standards. They testified that they have a severely autistic adult son living in Toronto that they are required to help financially. They testified that during the bankruptcy they have fallen behind in rent as much as 3 months in arrears at times in order to try to meet their surplus income obligations. They testified that Kradolfer has an unexpected, unpaid, post-bankruptcy income tax liability of approximately $15,000.00 to Revenue Quebec which is in collections. They have been trying to hold off the Revenue Quebec collections pending discharge from bankruptcy so that they could then cash in their few remaining exempt RRSPs to try to satisfy this tax liability.

[13] The Bankrupts are good people. They are the textbook honest and unfortunate bankrupts deserving of a fresh start unburdened by past debt. They were candid and forthright in their evidence. They were clearly emotional describing the financial devastation of this bankruptcy and of their ongoing struggles as a result of the surplus income obligations imposed on them. Kradolfer at one point became tearful and came close to breaking down emotionally as he described their financial struggles. The Trustee clearly had a great deal of sympathy for these unfortunate Bankrupts and so does this Court.

C. Law on Surplus Income

[14] The provisions of the BIA that deal with surplus income are found in sections 68(1)-68(16).

(i) The BIA requires the OSB, by directive, to set standards for determining surplus income.

[15] Pursuant to s. 68(1) of the BIA the OSB is required, by directive, to establish standards for determining the amount of surplus income of an individual, and the amount of that surplus income that the individual is required to pay to the estate of the bankrupt. In s. 68(2) of the BIA, “surplus income” is defined as the portion of an individual’s total income that is in excess of what is required to maintain a reasonable standard of living, having regard to the standards established by the OSB under s. 68(1) of the BIA. “Total income” is defined in s. 68(2) of the BIA as being the bankrupt’s revenue from all sources including damages for wrongful dismissal received during the bankruptcy.

[16] The Superintendent’s Standards must therefore be consistent with ensuring the bankrupt can maintain a reasonable standard of living during the bankruptcy. The directive issued by the OSB to establish these standards is Directive 11R2-2011 or the Superintendent’s Standards referred to above. These standards are based on the Low Income Cut-Off or LICO referred to above and which is established each year by Statistics Canada. The Superintendent’s Standards provide a mathematical calculation, based on the LICO, of how much a bankrupt should be required to pay to the estate as surplus income. More will be said about this below.

(ii) The BIA places the onus on the Trustee to determine whether or not the bankrupt has any surplus income.

[17] Pursuant to s. 68(3) of the BIA, the onus is placed on the Trustee to determine whether or not, having regard to both the Superintendent’s Standards and the personal and family situation of the bankrupt, the bankrupt has surplus income being an amount of total income in excess of what the bankrupt requires to maintain a reasonable standard of living.

[18] Therefore, the Superintendent’s Standards are a guideline to assist the Trustee in performing its discretionary role under s. 68(3) of the BIA. In this Court, Trustees have often referred to the Superintendent’s Standards as a “guideline”, and they have often referred to the amount of surplus determined under the Superintendent’s Standards as being a “guideline amount”. It is clear in my view from the wording of s. 68(3) that the Trustee cannot simply use the Superintendent’s Standards as being the surplus income for any particular bankrupt. Instead, the Trustee is also required to have regard to the personal and family situation of the particular bankrupt for which the Trustee is making the determination, in order to determine whether or not the particular bankrupt has total income in excess of that necessary for the bankrupt to maintain a reasonable standard of living.

[19] These sections make it clear that it is the Trustee who determines whether or not there is surplus income. The Trustee is not required to nor should the Trustee blindly follow the mathematical calculation in the Superintendent’s Standards. In fact, to the contrary, the Trustee is mandated by s. 68(3) of the BIA to have regard to both the Superintendent’s Standards and the personal and family situation of the bankrupt in determining whether or not the bankrupt has surplus income in excess of that required to maintain a reasonable standard of living. Unfortunately, this does not seem to be the practice and many trustees are blindly applying the Superintendent’s Standards.

[20] In my view, the term “personal and family situation” of the bankrupt involves a broad enquiry by the Trustee into the circumstances leading to the bankruptcy, the overall past, present and future financial circumstances and prospects of the bankrupt, and any other factors that impact on the present and future financial prospects of the bankrupt in order for the Trustee to determine if the particular bankrupt actually has surplus income or total income in excess of that necessary to “maintain” a reasonable standard of living both during and after the bankruptcy. In my view when, as here in the case of Kradolfer, a significant portion of the total income received during the bankruptcy is a severance payment from the termination of employment that in part caused the bankruptcy, then the Trustee should exercise caution when reviewing the bankrupt’s personal and financial situation and present and future financial circumstances, to ensure that this income is actually surplus and not needed in order to “maintain” a reasonable standard of living both during and after the bankruptcy.

[21] The Superintendent’s Standards require the Trustee to obtain from the bankrupt a statement of monthly income and expenses. This is a useful tool for the Trustee who is also required to provide extensive financial counselling to the bankrupt and to help the bankrupt establish a budget pursuant to s. 157.1 of the BIA and OSB Directive 1R3. The first stage of the counselling under Directive 1R3 is to occur within 10-60 days. All of this provides the Trustee with a good opportunity to obtain the information necessary to properly understand the bankrupt’s personal and financial circumstances as it relates to whether or not there is any surplus income.

[22] As discussed below, the overall aim and purpose of the BIA is to provide an honest and unfortunate debtor with a fresh start free and clear of the burden of past debt balanced fairly with the creditor’s right to receive a reasonable dividend if possible. The surplus income obligations cannot result in the bankrupt not receiving a fresh start and in my view it is for this reason that the Trustee must properly consider the personal and financial circumstances of the bankrupt in determining whether or not there is any surplus income and whether or not, as set out below, any of this surplus income should be paid to the estate.

(iii) If the Trustee determines that there is surplus income, the BIA requires the Trustee to fix how much, if any, of that surplus income should be paid to the estate.

[23] If, having regard to both the Superintendent’s Standards and the personal and family situation of the bankrupt, the Trustee determines that there is surplus income as defined in the BIA, then pursuant to s. 68(4) the Trustee is required to fix the amount, if any, of this surplus income that the bankrupt is required to pay the estate. In fixing the amount, the Trustee is to have regard to the Superintendent’s Standards. The Superintendent’s Standard in Directive 11R2-2011 is a requirement to pay essentially 50% of the after-tax income earned by the bankrupt in excess of the LICO. However the Trustee is not required to nor should the Trustee blindly apply the Superintendent’s Standards. They are a guideline that the trustee must “have regard to” and they are meant to assist the trustee in determining and fixing surplus income obligations.

[24] It is a question of fact whether the bankrupt, after being given credit for his or her reasonable living expenses, has excess funds that should be made available for creditors: Re Morrow (1989) 72 C.B.R. (N.S.) 230 (N.S.T.D.); Re Michael (1980), 34 C.B.R. (N.S.) 1 (Ont. S.C.) as cited in The 2012 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz & Sarra F111(5) p.424. The cases on conditional discharges are of assistance in making the determination: McLay Co. v Wylie (1995), 31 C.B.R. (3d) 94 (Ont. Gen. Div.) as cited in The 2012 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz & Sarra F111(5) p.424. Although these cases deal with how the Court, pursuant to s. 68(10) of the BIA, should approach determining whether or not a bankrupt has surplus income that should be paid to the estate, they would also apply to the Trustee making her determinations under s. 68(3) and s. 68(4) of the BIA. The considerations which inform the determination should be the same whether it is the Trustee or the Court making the determination. The bankrupt should not have different surplus income obligations imposed on her by the Trustee than would be imposed on her by the Court. Therefore in making their determinations under s. 68(3) and s. 68(4) of the BIA, trustees should consider the many factors applicable to conditional discharges and whether or not payments should be made to the estate as a condition of discharge as these same considerations apply to whether or not a bankrupt has surplus income that should be paid to the estate.

[25] As mentioned above, one of the prime purposes of the BIA is to enable an honest but unfortunate debtor to obtain a discharge from his or her debts, subject to such reasonable conditions, if any, as the Court may see fit to impose, so that the debtor can make a fresh start: Re Posner 1960 CanLII 626 (MB QB), 3 C.B.R. (N.S.) 49 (Ont. S.C.) as cited in The 2012 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz & Sarra H25(1) p.779-80. The BIA is designed to permit a bankrupt to eventually receive a complete discharge of all his or her debts in order to re-integrate themselves free and clear of the burden of past debt: See cases cited in The 2012 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz & Sarra H25(1) p.779-80. In deciding whether or not to make a conditional order, the Court should balance the rehabilitation of the bankrupt, supported by sufficient income to provide the requirements of living for the bankrupt and his or her dependents in an appropriate manner, against the right of creditors to receive an additional dividend from the bankrupt: Marshall v Bank of Nova Scotia 1986 CanLII 1132 (BC CA), 62 C.B.R. (N.S.) 118 (B.C.C.A.) as cited in The 2012 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz & Sarra H40(2) p.799.

[26] The factors and considerations that must be taken into consideration in any particular case in order to properly balance the rights of the bankrupt against the rights of the creditors when deciding whether or not the bankrupt should make any additional payments to the estate as a condition of discharge are too numerous to comprehensively list. As well set out in the many cases decided on the issue, it is truly a case by case analysis on the merits of each case in order to achieve fairness and a proper balance between the rights of the bankrupt and the rights of the creditors. These same considerations apply to the surplus income requirements that must be determined by the Trustee under s. 68(3) and s. 68(4) of the BIA, or by the Court under s. 68(10).

[27] In determining the surplus income requirements, the Trustee should take into consideration all of the s. 173 factors, the impact bankruptcy has already had on the bankrupts, in other words have they already “lost everything” as a result of circumstances wholly or partially out of their control, the bankrupts’ prospects for the future, whether or not the bankrupts’ future income prospects are uncertain such that they need to save a bit for that rainy day, are they supporting parents, children, or overseas relatives who need the money and depend on them, is there any sickness in the family that is creating additional financial stress that will continue during and after the bankruptcy, who are the creditors, are they all institutional lenders like credit card companies or payday loan companies that knowingly extended high risk, high interest rate loans or are they suppliers of goods and services who did not extend credit and have simply not been paid, did the creditors turn down a reasonable proposal, has the Trustee realized on other assets of the bankrupt such that issues of rehabilitation of the bankrupt and balancing the rights of the bankrupt and creditors may already have been adequately addressed such that payment of additional surplus income is not reasonably or fairly necessary, did the bankrupt make settlements of property or preferential payments prior to bankruptcy and are any proceedings under s. 38 of the BIA being contemplated or pursued by the creditors, etc., etc., etc. The potential list of factors that may apply depending on the facts of a particular case and which may then need to be considered by the Trustee and by the Court in fixing the surplus income obligations is not possible to comprehensively list. A fair balancing of the rights of the bankrupt and his or her creditors is an art, not a science that can be reduced to mathematical formulas. Common sense must apply to the case by case analysis of the facts of any particular case and the application of the many factors that may apply to that analysis.

(iv) If the OSB does not agree with the Trustee’s surplus income determination, the OSB can require the Trustee to apply to court for a determination.

[28] Once the Trustee has fixed an amount that the bankrupt is required to pay, then the Trustee must inform the official receiver at the OSB. Pursuant to s. 68(5) of the BIA, if the official receiver determines that the amount required to be paid by the bankrupt is substantially not in accordance with the Superintendent’s Standards, then the official receiver can recommend an amount to the Trustee and the bankrupt. Notwithstanding the recommendation of the official receiver, the Trustee may, pursuant to s. 68(5.1) of the BIA, fix a different amount than recommended and so inform the official receiver. These sections, in my view, reinforce the fact that the Trustee is not bound by the Superintendent’s Standards and must determine the surplus income requirements through a proper exercise of discretion as set out above. The Superintendent’s Standards are a guideline and a factor for the Trustee to consider amongst the other factors.

[29] If the Trustee does not implement a recommendation made by the official receiver under section 68(5), then pursuant to s. 68(10) the official receiver may request that the Trustee apply to the Court to fix the amount that the bankrupt is required to pay, and if the Trustee receives such a request from the official receiver, the Trustee is required to apply to the Court. Pursuant to s. 68(10), the Trustee may also apply on its own to the Court to fix the surplus income requirements if the Trustee has not followed the recommendation of the official receiver, or if there has been an unsuccessful mediation under s. 68(6), or if the bankrupt has failed to pay the amount of surplus income that the Trustee determined and fixed in accordance with s. 68 of the BIA.

(v) Provision for Mediation if the Bankrupt and the Trustee do not agree on the amount to be paid for surplus income or if a creditor does not agree.

[30] Pursuant to s. 68(6), if the Trustee and the bankrupt do not agree on the amount, if any, that the bankrupt should pay to the estate as surplus income, then the Trustee shall make a request for mediation to the official receiver at the OSB. This Court is aware that this provision has not been without debate by trustees and representatives of the OSB who conduct the mediations. The practice has been for trustees and some representatives of the OSB to consider the Superintendent’s Standards as determining the mandatory amount that trustees must collect from bankrupts without discretion. At one point, I was invited to a training session for OSB representatives and there was a live debate in the room amongst the many OSB representatives present who chair mediations, as to whether or not trustees had any discretion to waive or reduce the surplus income requirement that the Superintendent’s Standards would require in any case. Some felt that the Trustee had that discretion; some felt they did not.

[31] In the many cases that have come before me with unpaid surplus, it appears that most trustees believe that they are required to determine and collect surplus based solely on the mathematical formula set out in the Superintendent’s Standards without discretion. There appears to have been inconsistencies experienced with mediations as it relates to trustee discretion and the Superintendent’s Standards. Many trustees appear to inform bankrupts that the surplus income requirements calculated using the mathematical formula in the Superintendent’s Standards are mandatory amounts that bankrupts are required to pay by law.

[32] As set out above, this is not the case at all. Many, if not most, bankrupts are unsophisticated, unrepresented and unaware of the factors that apply to a proper balancing of their rights as against creditors’ rights when it comes to the surplus income determination. When attempting to resolve disputes with bankrupts over their surplus income obligations, trustees must keep this in mind. There is a certain inequality of bargaining power that trustees should take reasonable steps to ensure does not result in bankrupts agreeing to a surplus income requirement because they have been led to believe they have no choice. Similarly, this Court would expect that OSB representatives conducting mediations would take reasonable steps to ensure bankrupts are treated fairly and are not led to believe that they have no choice but to agree with the Superintendent’s Standards. Bankrupts should know that they have the right to disagree, that this will result in a mediation at which they also have a right to disagree, and that if no agreement is reached and they do not pay, that it is the Court under s. 68(10) that will ultimately decide whether they have surplus income that should be paid to the estate and if so how much, and that they will have a right to make representations to the Court.

[33] Pursuant to s. 68(7) of the BIA, creditors also have a right to require the Trustee to apply to the OSB for mediation if the creditor does not agree with the Trustee’s determination of the surplus income requirements, if any, that should be imposed on the bankrupt.

(vi) The Court’s jurisdiction as it relates to surplus income.

[34] Pursuant to s. 68(10) of the BIA, the Trustee may apply to the Court to determine and fix the bankrupt’s surplus income obligations. The official receiver at the OSB can also require the Trustee to apply to Court to determine and fix these obligations. The factors to be applied by the Court on such an application are as set out above.

[35] In my view as previously mentioned, there is nothing in the wording of s. 68(10) of the BIA that prevents the Trustee from making the application at the same time as the opposed discharge hearing under s. 172 of the BIA.

[36] In my view as also previously mentioned, on an opposed discharge hearing when this Court is considering whether or not a finding of fact under s. 173(1)(m) should be made, the Court must necessarily determine whether or not the provisions of s. 68 of the BIA have been properly applied. Even if there is a finding of fact under s. 173(1)(m) of the BIA that there is surplus income properly determined as owing under s. 68 of the BIA that has not been paid by the bankrupt, it does not automatically follow that the Court must make the bankrupt’s discharge conditional on paying this amount. The Court has discretion under s. 172(2) of the BIA to refuse the discharge, suspend the discharge, or impose monetary or any other condition or conditions. In other words, in an appropriate case through a proper application of all of the factors applicable to opposed discharge hearings, the Court can suspend the discharge rather than imposing a monetary condition based on the unpaid surplus. If the Court determines that the provisions of s. 68 have not been properly applied and that a different amount should be determined or fixed for surplus, then if there are no findings of fact under s. 173 the Court can grant an absolute discharge if that is the appropriate result in the particular case through a proper exercise of discretion.

D. The Superintendent’s Guidelines and the Use of the LICO

[37] The Superintendent’s Standards in Directive 11R2-2011 are specifically stated to be based on the Low Income Cut-Offs (“LICO”) released by Statistics Canada. As described above and in s. 68 of the BIA, the Standards established by the Superintendent are supposed to leave the bankrupt with sufficient income to maintain a reasonable standard of living. With this in mind, the use of the LICO by the OSB is troubling to this Court and has recently resulted in a large number of opposed discharges based on alleged unpaid surplus income as determined using the Superintendent’s Standards. The surplus income requirements were amended in September of 2009. Previously, a first-time bankrupt who had surplus income as determined by the trustee was required to make payments for 9 months, with the trustee having discretion to increase the time required to pay up to an additional 12 months. Now as a result of the 2009 amendments, a first- time bankrupt who is required to pay surplus income as determined under s. 68 of the BIA is not entitled to an automatic discharge under s. 168.1 of the BIA until the expiry of 21 months, and trustees pursuant to the Superintendent’s Standards are collecting surplus for these 21 months. The period for second-time bankrupts is 36 months. Bankrupts can apply for an earlier discharge under s. 168.1(2) of the BIA at which hearing the Court could also address the surplus income obligations as set out above. However, this rarely happens.

[38] This Court predicted in September 2009 that there would be a decrease in the number of opposed discharges for the next 21 months, followed by a significant increase in opposed discharges 21 months later based on alleged unpaid surplus calculated and imposed by trustees based on a rigid application of the Superintendent’s Standards which are based on the LICO. Unfortunately what was predicted has occurred.

[39] A review of information concerning the nature of the LICO and which is publicly available on the Statistics Canada website, reveals that the LICO is the level of income, determined by Statistics Canada, for which a family would be in dire straights and struggle financially to meet expenses associated with the basic necessities of life for food, shelter and clothing. It also reveals that the LICO is often used to define the poverty level in Canada in the absence of any other publicly available definition of poverty. In other words, many consider the LICO as the best publicly available definition of poverty in Canada. As explained on the Statistics Canada website, the approach to determining the LICO is to estimate the level of income at which a family would be expected to spend 20 percentage points more than the average family on food, shelter and clothing. Statistics Canada has apparently determined that the average family spends 43% of their income on food, shelter and clothing and therefore the LICO is based on a low income family spending 63% of their income on the these basic necessities.

[40] It is noted that Statistics Canada has stated its position that the LICO is not meant to be a poverty standard but rather a low income standard. In September 1997, the use of the LICO as the poverty standard was sufficiently widespread that the then Chief Statistician of Canada, Ivan P. Fellegi, published an article entitled On Poverty and Low Income. This article is publicly available as an archived document on the Statistics Canada website and excerpts from it remain quoted verbatim to this day on the Statistics Canada website in its explanations to the public about the LICO. In this article Mr. Fellegi stated that the LICO “…reflect a well-defined methodology which identifies those who are substantially worse off than the average”. He concluded the article by stating:

“In the absence of politically-sanctioned social consensus on who should be regarded as ‘poor’, some people and groups have been using the Statistics Canada low-income lines as a de facto definition of poverty. As long as that represents their own considered opinion of how poverty should be defined in Canada, we have no quarrel with them: all of us are free to have our own views. But they certainly do not represent Statistics Canada’s views about how poverty should be defined.”

[41] In my view, given that the Superintendent’s Standards are meant to be a guideline to assist trustees in their discretionary determination of surplus income which is defined in s. 68(2) as being a level of total income in excess of that required to maintain a reasonable standard of living, the use of a mathematical formula that essentially calculates surplus income as 50% of after-tax income in excess of the LICO is troubling. It begs the question, how can it be said that 50% of what any bankrupt earns in excess of the LICO (a measure of low income and financial struggle that many use as a de facto definition of poverty) is an amount in excess of what is required to maintain a reasonable standard of living? Since the fall of 2011 (after the 21-month point from the 2009 amendments), this Court has dealt with some very disturbing examples of the unfairness that a rigid application of the Superintendent’s Standards can have on a bankrupt. This case is an example, although by no means the worst example, that this Court has seen. Many unpaid surplus oppositions that have come before me since the fall of 2011 have been at levels which have caused significant financial difficulty to the bankrupt during the bankruptcy and are impossible of compliance.

[42] This Court hopes that the Superintendent will review Directive 11R2-2011, as well as the questionable use of the LICO, and make appropriate changes so that the directive can be a more useful tool for trustees and this Court than it has been.

E. Application of the Surplus Income Requirements to the Facts of this Case

[43] Applying to the facts of this case the factors set out above and which are applicable to determining surplus income obligations, I find that Plamondon’s surplus income obligations should be fixed at $11,184.00 and Kradolfer’s should be fixed at $8,737.00. As Plamondon has already paid to the trustee the full amount of her surplus income obligations and there being no evidence of any other reason for which she should not receive an absolute discharge, I therefore grant Plamondon an absolute order of discharge.

[44] With respect to Kradolfer, as he has paid to the trustee sums in excess of his surplus income obligations as fixed by this Court, I direct the Trustee to forthwith return to Kadolfer any amounts received by the Trustee from Kradolfer on account of surplus income in excess of his surplus income obligation of $8,737.00 as fixed by this Court. There being no evidence of any other reason for which he should not receive an absolute discharge, I hereby grant Kradolfer an absolute order of discharge.

February 29, 2012

John D. Dempster

Deputy Registrar

COURT FILE NO.: 33-1348693

33-1348706

DATE: 20120229

SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF

LUCILLE PLAMONDON AND ALAIN KRADOLFER

OF THE CITY OF OTTAWA

IN THE PROVINCE OF ONTARIO