Many people find themselves in a position where it becomes impossible to manage their debt and monthly expenses. This happens through no fault of their own, with extenuating circumstances making it difficult to make ends meet. This could be due to job loss, becoming underemployed, or even cases where people just don’t realize how much debt they have been acquiring. When this happens, bankruptcy allows you to legally enter a process to eliminate debt. Although this sounds like a great opportunity, bankruptcy is not intended for those who knowingly overspend and then just choose to get out of paying their debts. In fact, doing so is considered fraud.

There are many forms of bankruptcy abuse and fraud that should be reported as soon as possible. Although in some cases ,people unknowingly commit fraud, those who do purposefully mislead during the bankruptcy process are committing a crime. Here is how you can recognize bankruptcy abuse and fraud and how to report it.

What is bankruptcy?

Personal bankruptcy is a legal process governed by federal law under the Bankruptcy and Insolvency Act. It is not something that should be entered into lightly and is there to protect those who honestly fall into debt and cannot find other means of relief.

It is a complicated process with the goal to ensure that debts are eliminated while treating creditors equally and fairly. Although a stay of proceedings is put in place once bankruptcy is declared to stop wage garnishment and legal action by creditors, it is not a way to escape paying money owed.

Filing for Bankruptcy in Canada

Anyone can file for personal bankruptcy in Canada, as long as they meet the following criteria:

• Have lived in Canada within the last year
• Owe at least $1,000
• Are not able to pay debts, or pay them on time

In order to file for bankruptcy, you need to work with a Licensed Insolvency Trustee. They will resolve your finances and decide whether or not bankruptcy makes the most sense for you. As Licensed Insolvency Trustees, we at Charles Advisory Services always look for the best way to avoid bankruptcy for our clients, as it can have a very negative impact on your future. Depending on your situation, it will affect your ability to obtain future credit and will remain on your credit report for as long as seven years.

Although you will be permitted to keep some of your assets, such as your personal items and usually your home and vehicle, you can be asked to surrender other assets including investments and RESPs.

What are the offences?

One of the most common offences during bankruptcy is concealing assets. When bankruptcy is in process, the person declaring bankruptcy must provide a thorough list of all of their assets no matter how big or small so that the courts can determine what assets must be liquidated to go towards debt repayment. However, this is not the only offence. There are a number of other common offences that can be committed under the Bankruptcy and Insolvency Act (BIA) and the Criminal Code including:

• Transferring ownership of property to someone else before or after the date of the initial bankruptcy.
• Not providing honest answers or neglecting to answer questions regarding property posed by the trustee.
• Lying about or leaving out information on statements or accounting.
• Concealing or destroying information or documents regarding financial affairs.
• Obtaining credit within a year of the bankruptcy event.
• The selling or pawning of property purchased on credit within a year of bankruptcy.
• Failure to comply with the conditions of the bankruptcy.
• Failure to disclose that they are an undischarged bankrupt during any form of a business transaction.
• Obtaining credit to a total of $1,000 or more without disclosing they are an un-discharged bankrupt.
• Not disclosing past bankruptcies when filing for a new bankruptcy.

People can also commit fraud prior to filing for bankruptcy by knowingly:

• Living beyond their means without the intention of paying back the money they owe.
• Obtaining more debt and credit, knowing they will not be able to make repayments.
• Making large purchases using credit, knowing they will be declaring bankruptcy.
• Obtaining credit through false representations.
• Choosing to pay back friends and families over other lenders.

The Discovery of Bankruptcy Fraud

Many people are unrealistic when it comes to bankruptcy fraud with the belief they will never get caught. However, there are checks in place to make it easier to discover an offence. Anyone can report suspicions of fraud, not just the trustee managing the bankruptcy process.

Creditors are often involved in Canadian fraud cases. They frequently report issues such as undisclosed assets or transactions. This can include preferential payments to a family member. In the situation where a creditor becomes suspicious, they are in a position to oppose the bankrupt’s discharge leading to a bankruptcy court-led investigation.

The Office of the Superintendent of Bankruptcy (OSB) also looks for signs of fraud. They can spot and identify possible offences based on their own detection programs as well as through complaints from the public, creditors, or the Licensed Insolvency Trustees managing the bankruptcy. The OSB will send off their suspicions to three special investigation units including the RCMP.

Examples of Bankruptcy Fraud

Bankruptcy fraud can occur prior to bankruptcy or during bankruptcy. A good example of bankruptcy fraud prior to declaring bankruptcy is someone who intentionally makes major purchases such as a car on credit and then sells it. They take the money, declare bankruptcy, and get off from paying the lender for the balance owed. Another case might be someone who knowingly applies for more and more credit, pays off just the interest to maintain a good credit rating, spends the money until they are close to being maxed out, and then declares bankruptcy.

Once bankruptcy is declared, it might be someone who transfers ownership of assets to a family member or friend in order to maintain those assets, or who does not report certain items that are easier to hide such as expensive jewellery, which they can then sell for cash.

Penalties can vary based on the dollar amount involved and the harm caused by the crime committed. This can include huge penalties, but also jail time.

If you suspect fraudulent activities surrounding a bankruptcy, you can call 1-877-376-9902.

At Charles Advisory Services, we can ensure you know all the rules around bankruptcy so you are not in danger of committing bankruptcy abuse or fraud. Call our team at (416) 915-9007 or contact us here.