Bankruptcy: Lawsuits & Legal Judgments

Explained Simply

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Bankruptcy wipes most judgment debts except those linked to fraud, student loans, or family law issues. Trustees manage collections, and judgments affect credit for six years. Creditors can reclassify debts, while consumer proposals offer an alternative even for lawsuits legal judgments.

Treatment of Legal Judgments in Bankruptcy

Most judgments from regular debts can be discharged in bankruptcy., Exceptions exist, particularly for fraud-related judgments., Student loans and family law judgments often survive bankruptcy.

In Canada, most court judgments from regular debts can be discharged by filing for bankruptcy. That means judgments for credit cards, personal loans, and many civil cases are usually included in the bankruptcy and wiped out at discharge. Filing stops collection and, over time, the judgment should be removed from your credit file. For example, a court order to pay an overdue credit card balance is usually cleared by a bankruptcy discharge.

There are important exceptions that can keep a judgment alive after bankruptcy. Judgments for fraud, theft, or taking money while acting as a trustee normally cannot be discharged and remain payable. Family law orders like child support or spousal support also survive bankruptcy. Student loans often survive for a period after you stop studying — commonly seven years — unless a court decides you face extreme hardship. For example, if a judge finds your debt came from fraud, that debt will not be wiped out by bankruptcy.

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Strategic Approaches for Creditors

Creditors may recharacterize debts to fit exceptions in bankruptcy discharge., Courts examine the nature of pleadings to determine judgment survivability., Corporate attribution doctrine’s role in insolvent corporations is crucial.

Creditors often look for ways to keep their debts from being wiped out in bankruptcy. One method is recharacterizing the debts to fit exceptions outlined in the Bankruptcy and Insolvency Act, specifically section 178. For example, if a debt is tied to fraud or misrepresentation, creditors can argue that it shouldn’t be discharged. By examining the details of the original pleadings that led to the judgment, courts can determine whether a debt can survive a bankruptcy discharge. This close look at the case can help creditors protect their interests even when a debtor files for bankruptcy.

In cases involving companies, the corporate attribution doctrine plays a key role. This legal principle helps courts decide if the intentions of an individual, such as fraudulent behavior, should apply to the entire corporation during insolvency matters. For instance, if a CEO commits fraud, courts may hold the company responsible, allowing creditors to pursue their debts despite the company being in financial trouble. Understanding these strategies can give creditors a better chance of recovering what they are owed, even when debtors face bankruptcy.

Role of Trustees and Long-term Implications

Trustees manage judgment collection and debtor’s estate in bankruptcy., Discharged judgments affect credit records for six years., Consumer proposals offer alternative debt resolution including judgment debts.

Trustees in Canada play a crucial role during bankruptcy by managing the debtor’s estate and helping with judgment collections. When someone files for bankruptcy, a Licensed Insolvency Trustee (LIT) takes charge of their assets and ensures that creditors are paid according to the law. They work with debtors to navigate their financial situation and may also pursue any money owed to the bankrupt person, like payments from judgment debts. Remember, while bankruptcy can wipe out many debts, some judgment debts may still stick around, especially if they are tied to fraud or other serious issues outlined in the Bankruptcy and Insolvency Act.

After a bankruptcy discharge, it’s important to know that judgments can impact your credit record for six years. This means that even after bankruptcy, a discharged judgment can still be seen by lenders and affect your ability to get loans or credit. However, consumer proposals can offer a helpful alternative for those in debt, allowing them to settle their debts through a payment plan while keeping their assets. Plus, consumer proposals can include some judgment debts, making them a valuable option for debt relief in Canada.

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References

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