Court File and Parties
COURT FILE NO.: BK-15-01956720-0033 DATE: 2017/06/01 ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF THOMAS VERNER OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Stanley J. Kershman
HEARD IN OTTAWA: March 22, 2017 and May 24, 2017
APPEARANCE: Thomas Verner, the Bankrupt, represented by Eric Lay Tammy Dupuis, Opposing Creditor Sylvie Lyons, on behalf of the Trustee Ginsberg Gingras
REASONS FOR DECISION CONCERNING OPPOSITION TO DISCHARGE
INTRODUCTION
[1] This discharge is opposed by the Trustee in Bankruptcy and by an unsecured Creditor, Tammy Dupuis.
FACTUAL BACKGROUND
[2] Mr. Verner is 48 years of age. He is a member of the Canadian Armed Forces and is currently posted on a peacekeeping mission.
[3] Mr. Verner married Tammy Dupuis on April 5, 2012. The parties separated on September 2013 after being married for 179 days. On October 6, 2014, Justice Levenson-Polowin granted a final order which among other things, ordered that Mr. Verner pay Ms. Dupuis the sum of $33,881.97 by November 6, 2014, which represented a joint obligation to Scotiabank on a loan, which Ms. Dupuis took responsibility to pay.
[4] Mr. Verner filed a proposal on November 3, 2014 through Ginsberg Gingras about 25 days after the judgment was granted in favour of Ms. Dupuis. That proposal was defeated. Mr. Verner subsequently went bankrupt on February 3, 2015.
[5] Tammy Dupuis, the Opposing Creditor was appointed as an inspector in the Estate.
OPPOSITIONS TO DISCHARGE
Opposition to Discharge by the Trustee
[6] This discharge is opposed by the Trustee on the following grounds:
(a) that the Bankrupt failed to disclose that he obtained a posting loan of $25,000 during the bankruptcy;
(b) that the Bankrupt failed to disclose the Trustee of his charge of marital status as of July 2016;
[7] The Trustee also advised the Court that the Bankrupt had not complied with his surplus income obligations which were still owing to the Trustee.
Opposition to Discharge by Tammy Dupuis
[8] The Opposing Creditor opposed the Bankrupt’s discharge based on the fact that he continued to borrow monies after he filed for bankruptcy, i.e.: the posting loan, and, secondly, that he caused or contributed to his bankruptcy through reckless speculation, extravagant lifestyle, gambling or negligence with respect to his financial affairs.
ISSUES
1) Should the Posting Loan Monies be of Concern in this Bankruptcy?
Trustee’s Position:
[9] The Trustee argues that a posting loan received by Mr. Verner was a loan that was received after bankruptcy and that his bankruptcy should have been declared to the lender which was a branch of the Government of Canada.
[10] The Trustee was also concerned with the fact that a substantial portion of the proceeds of the posting loan were provided to Mrs. Verner, who was romantically involved with the Bankrupt at the time of the loan.
Bankrupt’s Position:
[11] The Bankrupt argues that the lender was advised of the bankruptcy at the time that he applied for the loan. He indicated that he had to repay the loan and that he was in the process of doing so over the next several years.
Opposing Creditor’s Position:
[12] The Opposing Creditor argued that the Bankrupt did not advise the lender of all of his debts because he did not mention the debts which were included in his bankruptcy.
Analysis:
[13] The posting loan is a post-bankruptcy debt which is being repaid over a period of four years. The Court finds that monthly payments are being deducted from the Bankrupt’s salary to pay for this loan and therefore is being repaid.
[14] The Bankrupt’s evidence is that he advised the lender of his bankruptcy at the time he obtained the loan. The Opposing Creditor argues that he did not disclose the loans that were included in the bankruptcy in order to obtain the posting loan.
[15] As to the Trustee’s concern that proceeds of the loan were given to the Bankrupt’s now common law spouse, the Court finds that since the loan is being repaid and since based on the evidence of Mr. Verner that he advised the lender that he was bankrupt, while the Court appreciates that this was an issue that the Trustee had to bring to the attention of the Court, under the circumstances of this case, the Court does not find that there is any issue in relation to the posting loan.
[16] As to whether the debts included in his bankruptcy were disclosed to the lender, the Court finds that is not a relevant factor because the debts included in his bankruptcy were no longer payable at the time he applied for the posting loan, which was post-bankruptcy.
SURPLUS INCOME BASED ON TAX-FREE INCOME
[17] When deployed overseas, the Bankrupt receives his salary tax-free. That means that his salary is higher than if deductions were being taken, which, in turn, means that surplus income will be higher. Mr. Verner owed an amount of surplus income prior to his discharge hearing. The Trustee calculated that the Bankrupt’s surplus income was in the range of $14,000 - $16,600 from June 2016 until January 2017.
[18] The discharge hearing was not heard until March 2017 because the Bankrupt was still on deployment. The Trustee has recalculated the Bankrupt’s surplus income based on the payments made and the tax free status of the bankrupt’s salary. The Trustee has calculated that the total surplus income is $35,311.93, less already $12,487.71 paid, leaving a balance of $22,824.22 outstanding. The Trustee seeks an order that the bankrupt repay the full amount.
[19] The Bankrupt argues that he should only have to repay $15,000 of this amount because of the length of the bankruptcy and the fact that he had done nothing wrong.
[20] The Court finds that the surplus income of $22,824.22 is required to be paid by the Bankrupt to the Estate for the benefit of the creditors on account of surplus income. The Court does not see any reason why the amount should be reduced as requested by the Bankrupt.
Opposition to Discharge by Tammy Dupuis
Opposing Creditor’s Position:
[21] The opposing creditor opposes the Bankrupt’s discharge based on the following:
- that the parties were only married for a very short period of time and that by an order dated October 6, 2014 by the late Justice Levenson-Polowin, the Bankrupt was ordered to repay the Opposing Creditor the sum of $33,881.97;
- that Mr. Verner continued to borrow monies after he filed for bankruptcy, i.e.: the posting loan; and,
- that he caused or contributed to his bankruptcy through reckless speculation, extravagant lifestyle, gambling or negligence with respect to his financial affairs.
Bankrupt’s Position:
[22] The Bankrupt argues that this debt is included in the bankruptcy and that no amount of monies should be paid other than the surplus income.
Analysis:
[23] The total of the unsecured claims is $81,031.00. The total of the proven unsecured claims is $76,370.82. The opposing creditor’s claim is $37,665.95 which represents approximately 49% of the total proven unsecured claims.
[24] The Court accepts the evidence of the Bankrupt and the information contained on the Statement of Affairs, and finds that he went bankrupt because of the debt owed to the opposing creditor. The opposing creditor was jointly liable on the debt and paid that amount out to the Bank of Nova Scotia and is now stepping into the shoes of the Bank of Nova Scotia to claim the amount from Mr. Verner.
[25] The Court finds that the Bankrupt’s conduct in filing for bankruptcy to extinguish this debt was inappropriate. He made no payments on the judgment in favour of the opposing creditor. The Bankrupt filed for his proposal and subsequent bankruptcy shortly after the judgment was granted under opposing creditor’s favour. The marriage was short only 179 days.
[26] The Court finds that there is no evidence that Mr. Verner continued to borrow or obtain credit after he realized that he could not pay his debt filed in the bankruptcy because the posting loan was made after Mr. Verner filed for bankruptcy and not before.
[27] Therefore, the Court finds that Mr. Verner did not continue to borrow after bankruptcy.
[28] Mr. Verner is paying approximately $1,200 for the rental of one-half of the master bedroom, which he occupies with Ms. Verner with whom is romantically involved.
[29] The Court has considered that he is paying $1,200 for a room in a house and he is not even there as he is deployed overseas. The Court finds that, essentially, Mr. Verner is subsidizing Ms. Verner’s lifestyle with this arrangement.
[30] The Court notes Mr. Verner borrowed the posting loan and the benefit of which in large part went to Ms. Verner.
[31] The Court finds that under s. 173(1)(a) that the assets of the Bankrupt are not equal to $0.50 on the dollar on the amount of the unsecured liabilities and that has arisen in circumstances that the Bankrupt is justly responsible for.
[32] Therefore, the Court orders the Bankrupt to pay an additional amount of $8,500 to the Trustee in Bankruptcy for the benefit of the Creditors in addition to the sum of $22,824.22 as a condition of obtaining his discharge. These funds are payable at the minimum rate of $500 per month commencing August 1, 2017 and are payable over a period of four years.
Findings
[33] In conclusion the Court makes the following findings:
- under s. 173(1)(a) that the assets of the Bankrupt are not equal to a value of $0.50 on the dollar on the amount of the unsecured liabilities and that has arisen in circumstance that the Bankrupt is justly responsible for;
- under s. 173(1)(m) that he failed to comply with his surplus income obligation.
COSTS
[34] The Opposing Creditor was successful on the discharge hearing and should be entitled to costs. The Court fixes those costs at $500. This amount shall be paid by the Trustee in Bankruptcy out of the Estate proceeds to the Opposing Creditor in priority to any claims in the bankruptcy.
[35] Order accordingly.
Mr. Justice Stanley J. Kershman