Money Talk – Bankruptcy, consumer proposals and tenancy
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Hey there, time traveller!
This article was published 16/11/2013 (4365 days ago), so information in it may no longer be current.
You may be going through some financial difficulties including making your rent payments on the due dates and are considering filing a bankruptcy or consumer proposal to resolve your debt problem. In deciding on the alternatives you may wish to consider the impact each approach could have on your residential tenancy.
For individuals, the Residential Tenancies Act governs landlord and tenant matters. This legislation is administered by the Residential Tenancy Branch.
If you fail to pay your rent on the due date, your landlord may look to terminate the tenancy by providing the requisite notice under the RTA and request an order of possession. The branch will decide whether to grant the order of possession. The legislation appears to provide a mechanism to have the notice of termination cancelled before an order of possession is granted, upon payment of the rent arrears, but this is not automatic.
What happens in a bankruptcy or a consumer proposal?
The Bankruptcy and Insolvency Act provides that the rights of landlords are, subject to the priority of a landlord’s claim and the requirement for the release of property that has been seized by the landlord, determined according to the laws of the province in which the property is situated. A further encroachment on the rights of landlords occurs in connection with consumer proposals.
When an assignment in bankruptcy occurs and there are rent arrears, the branch’s policy is that upon receiving a notice of termination from the landlord it may grant an order of possession on the grounds that rent is owed from before or after the date of the bankruptcy. The branch may also grant compensation for rent arrears for the period after the date of bankruptcy but not for rent arrears prior to the bankruptcy as these amounts are claims provable in bankruptcy.
Contrast the above scenario with a consumer proposal wherein the branch has confirmed in its policies that it cannot grant an order of possession solely on the grounds that rent is owed for the period preceding the filing of the consumer proposal. The branch also cannot grant an order for compensation regarding rent owed for the period preceding the filing of the consumer proposal as these amounts represent provable claims.
Since rent arrears for the three-month period preceding the filing of the consumer proposal are preferred claims, your consumer proposal would have to provide for the payment of the rent arrears in full prior to any payments to the other unsecured creditors. The effect is that the consumer proposal can prevent the landlord from obtaining an order of possession but the landlord would not be forced to compromise its claim for rent arrears.
Also, the protection provided to you in a consumer proposal relates to the non-payment of rent only. If there are other breaches of the tenancy agreement, the landlord may have the right to terminate the tenancy and seek an order of possession notwithstanding the filing of the consumer proposal.
If the consumer proposal is rejected by the creditors or is subsequently annulled the branch may, upon receiving the notice of termination from the landlord, grant an order of possession on account of rent owed before the date of the consumer proposal as the legal rights of the creditors are restored upon the rejection or annulment of the consumer proposal.
After the consumer proposal is filed if you do not pay your ongoing rent obligations the landlord may terminate the tenancy and seek an order of possession. The BIA does not protect you from post-filing obligations.
The above is not a complete treatment of the subject. If your financial difficulties include rent arrears you should consult with a trustee in bankruptcy, legal counsel or the branch to obtain detailed information on how a bankruptcy or a consumer proposal could affect your tenancy.
» 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.