You may have made the difficult decision of making an appointment to meet with a trustee in bankruptcy to discuss your financial affairs and to seek alternatives to deal with your debts.
After you have provided the trustee with some information regarding your assets, liabilities, income and expenses, the trustee poses a series of questions to you regarding your financial activities over the past five years. These questions may include:
• Are you involved in any civil litigation that may result in you receiving any money?
• Do you expect to receive an inheritance in the near future?
• Have you disposed of any property in the last 12 months?
• Have you sold or transferred any real estate in the last five years?
• Have you made any payments to a creditor other than normal payments?
• Has a creditor commenced any court action against you?
There are specific reasons for the trustee to pose the above and other questions regarding your financial affairs.
Regarding the first two questions, the trustee is trying to establish if you will be the recipient of additional property during the term of the anticipated bankruptcy. The Bankruptcy and Insolvency Act (BIA) states that property is defined as any property wherever situated that may belong to the bankrupt on the date of bankruptcy or that may be acquired by or devolve upon him or her during the period that they are in bankruptcy. Accordingly, if you were to be the recipient of a monetary award as a result of a lawsuit, depending on the nature of the lawsuit, the funds may be considered property available for your creditors.
In the case of an inheritance, any property you were to receive in the period that you are bankrupt would belong to the trustee for the benefit of your creditors.
The probing of your dispositions or transfers of property in the previous 12 months and five years is to determine if you have engaged in any activity that was detrimental to the interests of your creditors. For example, a disposition or transfer of property for an amount that is less than the fair market value of the property transferred may fall under the provisions of the BIA dealing with transfers at undervalue that could be declared void as against the trustee.
Payments to your creditors are probed by the trustee to determine if you have preferred one creditor over your other creditors. In the case of arm’s-length creditors, any payment out of the ordinary course within the three-month period preceding your bankruptcy may be determined to be a preferential payment that is recoverable by the trustee. For non-arm’s-length creditors, the period is 12 months.
The trustee will inquire about creditors who have commenced legal action against you to determine if the trustee should take any steps to prevent your property from being seized or, in the case of your wages, garnisheed. The provisions of the BIA dealing with the stay of proceedings prevent the commencement or continuation of legal action and garnishees to ensure that all of your creditors are treated equally in the bankruptcy proceedings.
The above is not a complete treatment of the subject matter. There are many questions that the trustee will pose to you to obtain a complete understanding of your affairs to ensure that your creditors are treated fairly and equally in the process.
» Wayne K. Palmer is a senior manager in BDO’s Brandon office. He is responsible for both the consumer and commercial practices in Brandon and surrounding areas, including Boissevain, Minnedosa, Neepawa and Dauphin. Wayne has more than 25 years experience in the financial recovery services field.