What To Do When You Are An Unhappy Creditor In A Bankruptcy

The purpose of this article is to give you some idea of what your rights are in a bankruptcy when you are a creditor and aren’t satisfied with some aspect of the process. As Trustees, we do not provide legal advice. For that reason, this article is general in nature and we recommend consulting legal counsel while also speaking with the Trustee involved as appropriate.

Talk to the Trustee

The Trustee does not work for the bankrupt. The Trustee is sort of an officer of the court and has duties to both the bankrupt and the creditors. If you have a concern you should first talk to the Trustee involved, who will give you much more detailed advice than is possible in this brief document.

Review the Statement of Affairs

All bankrupts file a Statement of Affairs – a sworn document listing their assets and liabilities. Review this document and if you are aware of any discrepancies, inform the trustee in writing so the Trustee can further investigate.

File a Proof of Claim

There is a formal document you need to file with the trustee to establish that you are a creditor in the bankruptcy – file it and provide proof that you are a creditor (invoice, bill of sale, loan agreement etc.). If you are not a creditor most of the remedies below are not available to you. Note that you are not a creditor of an individual if you are a creditor of a corporation they own unless they personally guaranteed the debt.

Become an Inspector

This doesn’t happen often, but you can be elected an inspector in a bankruptcy if there is actually a creditor meeting. If you are a large enough creditor you can request the trustee call a meeting. The inspectors are sort of like the Board of Directors of the bankruptcy.

Review the Bankruptcy File

Once you have established that you are a creditor, you have the right to review the bankruptcy file. This will include information about assets, if any and copies of the proofs of claim filed be other creditors. It will also include monthly income and expense filing by the bankrupt so you can get an idea if they have any ability to make payments into the bankruptcy (See separate explanation of the term “Surplus Income”).

Request a Copy of the “Section 170” Report

Trustees do a report to creditors who have asked for a copy (tick the box on your proof of claim) indicating what their recommendation is with respect the bankrupt’s discharge (release from bankruptcy). Review the report, understand what the Trustee is recommending and talk to them if you do not agree.

Object to the Bankruptcy’s Discharge

Any creditor is entitled to object to a bankrupt getting a discharge. You have to file a written objection and pay a court fee. It’s important to note that the fact you didn’t get paid is not a sufficient reason to object to the bankrupt’s discharge.

File a Complaint with the Office of the Superintendent of Bankruptcy

If you think something inappropriate is happening with the bankruptcy filings, you can file a complaint with the relevant Office of the Superintendent of Bankruptcy. They will consider the complaint and investigate as appropriate, which can include examining the bankrupt under oath. They can also refer matters to the RCMP as appropriate.

Take Action Under Section 38

Where a Trustee is unable or unwilling to take some action (say; pursuing an asset that was transferred prior to the bankruptcy) a creditor can make a court application to take that action under their own name. This is a complicated process that will require a lawyer but you should talk to the Trustee first.

Sue the Bankrupt After the Bankruptcy is Over

Debts incurred through fraud or misrepresentation are not released in a bankruptcy. If you feel your debt falls into this category the correct process is to sue the bankrupt after they are discharged and prove the fraud or misrepresentation as part of that lawsuit. You will need to consult your legal counsel in respect to this alternative. The Trustee cannot generally help you with this as they don’t know the facts and this type of lawsuit will turn on the facts of the case.

Again, this information is general in nature and you should speak to both the Trustee and your legal counsel as appropriate.