SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
ESTATE NO.: 31-1066749
HEARD: 20130314
RELEASED: 20131010
In the Matter of the Bankruptcy of Valika Marika Kunkel
of the Town of Vaughan, in the
Province of Ontario
Summary Administration
APPEARANCES:
J. Lester Davies - for the Bankrupt fax 416-512-1212
Timothy Geary - the Trustee fax 416-927-7727
William Monson - opposing creditor fax 416-855-5690
BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy
HEARD: March 14, 2013
REASONS FOR DECISION
I. Contested Discharge
1A Discharge hearing was scheduled by the Trustee in this case where the bankrupt made a voluntary assignment on May 6, 2008. She had been previously gone bankrupt in 2000, having received an absolute discharge on February 11, 2002.
2I regret that case presented a number of difficulties and raised the number of questions in my mind which, together with my other responsibilities have resulted in an inordinate delay in the release of these reasons.
3Normally an individual bankruptcy where the total claims are less than $75,000 should be resolved either without the need for a discharge hearing or at the initial hearing.
4Instead there have been affidavits filed numerous examinations held and motions argued in the interim the health of the bankrupt has deteriorated.
5I had intended to do a more detailed analysis of the problems in this case but I believe the interests of all parties would be better served by the release of a decision in a somewhat abbreviated form at this time. Nevertheless I am setting out portions of this case to serve as somewhat of a cautionary tale.
II. The Debt
6The affidavit evidence filed by the bankrupt with respect to a 2011 motion brought by the opposing creditor, seeking production of various documents relating to her financial affairs, helps to places matter perspective.
7With respect to the service of the notice of motion the affidavit indicates:
The motion record was served upon me at my place of employment. Notwithstanding Mr. Monson knows that I am represented by a lawyer, Mr. Monson arrange for someone to attend at my place of employment to serve me with the motion materials rather than serving them upon my lawyer. I verily believe that this was done in order to maximize the amount of embarrassment to me.
8The affidavit asserts that the bankruptcy arose out of a single debt owing to Mr. Monson.
“This debt was with respect to rental payments incurred by myself and my husband in 2002 and 2003. Mr. Monson did not take legal action to enforce payment of this debt until November, 2009.”
9Ontario’s limitation for suing on a contractual debt such as this is now two years. However as the debt arose prior to January 1, 2004 the previous six-year limitation period was applicable.
10Mr. Monson has conducted his case on a self-represented basis throughout. Before me he appeared to be familiar with bookkeeping and accounting terms and procedures. He prepared numerous books of materials highlighted and setting out points of argument that he wished to bring to the court’s attention.
11The trustee in bankruptcy took the position that a surplus income obligation in the amount of $10,000 was outstanding and that payment of that amount was the only financial condition he recommended with respect to the discharge of the bankrupt.
12The parties estimated the matter would take 90 minutes for the contested discharge hearing. Ultimately the matter before me took about four hours to be argued.
III. Creditor Self-help?
13Unlike a typical bankruptcy in this case virtually all of any net recovery by the trustee would go to a single creditor.
14That creditor therefore had a real incentive to leave no stone unturned. Mr. Monson assembled documentation going back to 2003 in an effort to demonstrate that the bankrupt’s evidence and she moved out on July 1, 2003 was inaccurate and that (based on a 2003 Toronto Hydro move-out meter reading] she actually moved out on September 1, 2003. Mr. Monson’s claim with respect to arrears of rent was admitted by the trustee for the sum of $38,000.copies of rent cheques from 1996 were introduced in support of that claim which were asserted together with repairs to the premises for $16,068 and legal fees of sounds $7261.04
15In 2010 a motion was brought by Mr. Monson to appeal other items reflected in a partial disallowance of his claim.
16Ultimately the trustee allowed the sum of $61,329.04 with respect to all the claims of Mr. Monson.
17Motions were brought for production of various documents and production eventually was made with Mr. Kunkel being permitted to review the documentation at the trustee’s premises. The court file has a stack of Counsel Slips bearing at least ten different hearing dates.
IV. Office of Superintendent of Bankruptcy
18In 2010 an appeal was brought by Mr. Monson seeking to annul a mediation settlement agreement. It is initially unclear to me how that was ultimately disposed of but obviously the matter was continuing when it got before me.
19It appears that the OSB mediator who conducted a section 68(6) mediation with respect to the determination of surplus income payable denied the request by Mr. Monson to have the mediated agreement reached between the trustee and the debtor nullified and a second mediation conducted to enable him to participate.
20The mediator in a report dated December 10, 2010 concluded her report with a request that the trustee ensure that “the bankruptcy Court is also notified as to the reasons why the mediation was conducted only between the trustee and debtor pursuant to the trustee’s request under section 68(6). By review of the various reasons set out in the arbitrators in the Mediators report indicates that the failure to identify a section 173(m) ground [being failure to comply with requirement to pay imposed under section 68] as a ground of the opposition” meant that the creditor did not have the right to participate in the mediation regardless of that ground and the other matters raised the Mediators conclusion that the notice of appeal was out of time seems on its face to be valid. The letter reads:
“The creditor ignores the fact that his request pursuant to section 68 (7) made on June 15, 2010 is two years after the trustee’s notification of the surplus income recommendation dated June 11, 2008 and not within the 30 day time frame as contemplated by section 68 (7)”
21On January 18, 2011 the Outreach and Complaints division of the OSB, wrote to Mr. Monson in response to his letter “expressing concerns regarding the actions of the trustee, and of the Office of the Superintendent of Bankruptcy in the matter of mediation.”
22That letter read in part:
“In our recent telephone conversation you indicated that you would set a court date for December 13, 2010 to bring your concerns to the court. It is our understanding that this hearing was adjourned to a later date. As discussed our office will not be responding to your requests while the matter is before the courts.
In conclusion, we have completed our review and your complaint has been closed accordingly. Thank you for your letter.”
V. A party who acts for herself…
23In light of the “full-court press” being brought by the creditor Mrs Kunkel elected to retain legal counsel to protect her interests. An affidavit filed by counsel on the motion before me indicates that the bankrupt has been paying accounts incurred over the years at a rate of $300 per month since at least 2010.
24In her May 2011 affidavit the bankrupt indicated that added that as at that point in time:
“In order to respond all of the Motions and Applications being brought [by] Mr. Monson, I have necessarily expended in legal fees approximately $14,489.01 plus G.S.T. /H.S.T. and disbursements.”
25Mrs Kunkel filed extensive affidavit materials responding to the request for information from Mr. Monson. I’m not satisfied that all that effort was necessary. To a degree perhaps Mr. Kunkel was doing the trustee’s job for him. On the other hand the trustee is expected to apply a degree of proportionality in the extent of investigation done in any bankrupt estate.
26Here a mediated agreement with respect to the applicable surplus income obligation had been reached more than 4 years before the hearing before me.
VI. Consequence of Delay
27In her 2011 affidavit Mrs Kunkel deposed, in part:
“…Mr. Monson has attended at my home before and after I filed for bankruptcy seeking for me to make payments to him. He has contacted my landlord to advise them that I was a deadbeat so that presumably, I would be evicted. My children and neighbour have seen Mr. Monson around my home, in particular, in front of my house right across the street. Mr. Monson has no reason to be on the street where I live….”
28This evidence was not relevant to the application before me regarding the discharge terms for Mrs Kunkel but, if true, reflects problems with the administration of this bankruptcy.
29Once a bankruptcy is filed, collection activities are for the trustee. If a creditor is dissatisfied with the trustee’s actions there are remedies available. Here the efforts by Mr. Monson (while perhaps motivated by his understandable desire to recover the debt he believed was owed to him), have nevertheless resulted in the matter taking much longer to come to final resolution and with I regard as inordinate expense.
30The materials filed by the trustee in March 2013 at the time of the discharge hearing included a letter from the Odette Cancer Centre at Sunnybrook Hospital. The letter makes clear that Mrs Kunkel is under that institution’s care for treatment of cancer.
31The social worker assigned to her case in 2012 reports in part:
“Specifically, given her financial circumstances, she is applied to an been eligible for financial support through Cancer Recovery Foundation of Canada in addition to the Ministry of Community and Social Services Emergency Energy Fund. Those programs require individuals to demonstrate financial need in order to be eligible to receive support. She was approved for funding from both and from the Cancer Recovery Foundation of Canada on more than one occasion.”
32I point out again that this started out as a one creditor, 2008, bankruptcy. Circumstances have clearly changed over the intervening five years.
VII. Surplus Income Provisions
33Against this background I come to consider the Trustee’s surplus income recommendation and the diametrically opposed positions of the creditor and debtor.
34Section 68 provides for a consideration of what “surplus” income, earned by the bankrupt after the date of bankruptcy, ought to be available to the creditors. I have stressed portions of the subsections in extracts below to help focus on the issues before me
35A portion of the involvement of the OSB is set out in section 68(1) and (2):
(1) The Superintendent shall, by directive, establish in respect of the provinces or one or more bankruptcy districts or parts of bankruptcy districts, the standards for determining the surplus income of an individual bankrupt and the amount that a bankrupt who has surplus income is required to pay to the estate of the bankrupt.
(2) The following definitions apply in this section. \
“surplus income” means the portion of a bankrupt individual’s total income that exceeds that which is necessary to enable the bankrupt individual to maintain a reasonable standard of living, having regard to the applicable standards established under subsection (1).
“total income”
(a) includes, despite paragraphs 67(1) (b) and (b.3), a bankrupt’s revenues of whatever nature or from whatever source that are earned or received by the bankrupt between the date of the bankruptcy and the date of the bankrupt’s discharge, including those received as damages for wrongful dismissal, received as a pay equity settlement or received under an Act of Parliament, or of the legislature of a province, that relates to workers’ compensation; but
(b) does not include any amounts received by the bankrupt between the date of the bankruptcy and the date of the bankrupt’s discharge, as a gift, a legacy or an inheritance or as any other windfall.
36The role of the trustee in the process is set out in subsections (3)and (4) [my emphasis]:
(3) The trustee shall, having regard to the applicable standards and to the personal and family situation of the bankrupt, determine whether the bankrupt has surplus income. The determination must also be made
(a) whenever the trustee becomes aware of a material change in the bankrupt’s financial situation; and
(b) whenever the trustee is required to prepare a report referred to in subsection 170(1).
(4) Whenever the trustee is required to determine whether the bankrupt has surplus income, the trustee shall
(a) if the trustee determines that there is surplus income,
(i) fix, having regard to the standards, the amount that the bankrupt is required to pay to the estate of the bankrupt,
(ii) inform, in the prescribed manner, the official receiver, and every creditor who has requested such information, of the amount fixed under subparagraph (i), and
(iii) take reasonable measures to ensure that the bankrupt complies with the requirement to pay; and
(b) if the trustee determines that there is no surplus income, inform, in the prescribed manner, the official receiver, and every creditor who has requested such information, of that determination.
37The provisions dealing with a method of resolving disputes as to quantum referred to earlier in these reasons are addressed in subsection (6)
(6) If the trustee and the bankrupt are not in agreement with the amount that the bankrupt is required to pay under subsection (4) or (5.1), the trustee shall, without delay, in the prescribed form, send to the official receiver a request and send a copy of the request to the bankrupt.
(7) On a creditor’s request made within 30 days after the day on which the trustee informed the creditor of the amount fixed under subsection (4) or (5.1), the trustee shall, within five days after the day on which the 30-day period ends, send to the official receiver a request, in the prescribed form, that the matter of the amount that the bankrupt is required to pay be determined by mediation and send a copy of the request to the bankrupt and the creditor.
38In the present case there was a failure of the bankrupt to pay the amount determined by the trustee. The BIA addresses the steps to be taken in such circumstances in subsection (10)
(10) The trustee may, in any of the following circumstances — and shall apply if requested to do so by the official receiver in the circumstances referred to in paragraph (a) apply to the court to fix, by order, in accordance with the applicable standards, and having regard to the personal and family situation of the bankrupt, the amount that the bankrupt is required to pay to the estate of the bankrupt:
(a) if the trustee has not implemented a recommendation made by the official receiver under subsection (5);
(b) if the matter submitted to mediation has not been resolved by the mediation; or
(c) if the bankrupt has failed to comply with the requirement to pay as determined under this section.
39Such an application has now finally come before this Court as part of the discharge process. I am required therefore to determine in accordance with the applicable standards, and having regard to the personal and family situation of the bankrupt. As of what point in time is that determination to be made?
40What factors are to be considered? Is the determination of a “reasonable standard of living” required at this point and if so, against what standard is that determination to be made?
VIII. The Discharge Process
41In every discharge case I am required to take a hard look at the personal circumstances of each bankrupt individual. I am obliged to consider the evidence put before me and to determine a just result, in all the circumstances of each case.
42On any “Discharge Day” motion list I am privy to a series of very personal and individual stories. The persons appearing before me range from innocent victims of circumstances to callous serial rogues. Many fall somewhere between those two extremes.
43My statutory discretion is broad, but must be exercised, not only in a judicial, but also in a caring and compassionate manner, while seeking to rehabilitate the unfortunate victims and to punish the rogues appropriately.
44In this case having regard to the entirety of the evidence before me, I am not satisfied that the full amount of potential surplus income liability, recommended by the trustee, using one of several possible calculation scenarios, ought to be payable in this case.
IX. Disposition
45Conversely Mrs Kunkel is a second time bankrupt and earlier in this bankruptcy was in a better position to make a meaning contribution towards her calculated liability and failed to do so at that point in time.
46I believe the landlord did forebear on enforcing his legal rights while Mrs Kunkel and her family were tenants of the property. He is entitled to some recognition of that portion of the history of this matter.
47This matter needs to be concluded and on what I regard as an achievable basis.
48As a consequence I have determined that the Bankrupt’s discharge will be conditional upon payment being made by her, to the Trustee of $3,800, being 10% of the amount of the original claimed rental debt of $38,000.
49Both sides spent too much over this dispute. Nothing is to be gained by awarding costs to any party. Therefore I have determined that there will be no order as to Costs.
50I am also, on a concurrent basis, suspending discharge of the bankrupt, for a period of three months, to reflect the previous bankruptcy and in lieu of what might well have been a higher surplus income payment requirement.
Master D. E. Short
Registrar in Bankruptcy
October 10, 2013
DS/ B. 23