bankruptcy and jail - what you need to know Toronto

Bankruptcy and Jail? | 5 Things You Need to Know Now

Bankruptcy and jail? What are the myths and misconceptions? Let’s see how a tennis legend has brought focus to this issue.

I am not a huge tennis fan, but when I heard that tennis great Boris Becker—the multi-millionaire former world number 1 player and 3-time Wimbledon champion—may go to prison, I was shocked and needed to know more.

I learned that he may spend time behind bars stemming from his actions in his bankruptcy. Now it’s one thing for a multi-millionaire to end up having to resort to bankruptcy to deal with debt, but it’s something else entirely when there may be prison-time associated with it!

And there are a lot of people that want to know whether they may go to jail or prison for not paying their bills, or whether a bankruptcy may leave a criminal record or worse…

So I thought that this would be a perfect time to set the record straight about outstanding bills, Bankruptcy and Jail.

Can you go to jail for not paying bills?  Can filing bankruptcy lead to jail time? If you are incarcerated, can you file bankruptcy?

Let’s tackle these common questions once and for all.

Here are five need-to-know truths about bankruptcy and jail.

Will I Go To Jail or Prison If I Don’t Pay My Bills?

Debtors’ prison no longer exists in Canada.

There was a time when people who were unable to pay were incarcerated until family or friends settled their debts. This practice was common-place in the 1700s up until the 20th century in the US and England but less so in Canada.

Thousands of debtors were imprisoned in the US and England, but far fewer in Canada where other means of recovering debt (ie seizure of property) were practiced.

Some form of imprisonment for debt persisted well into the 20th century but was largely phased out following the passage of the Bankruptcy Act Canada in 1919.

Today,  the collection of an outstanding account is a civil matter (not criminal) and actions to recover amounts owing to creditors are filed in civil court.

Will I Go To Jail If I Disobey A Court Order?

You can go to jail for contempt of court.

While you cannot go to jail for not paying your bills, you can be incarcerated if you disobey a judge or dishonour the court.

Also, if you fail to appear in court when ordered to do so, you may be held in contempt.

For example, if a creditor obtains a judgment against you or if you are a director of a company and a creditor obtains judgment against the company, you may be compelled to answer questions in what is known as a judgment debtor examination.  This process allows the creditor to question you, under oath, regarding your financial affairs (or the business’s financial affairs if you are a director). Should you fail or refuse to attend at such an examination, you could be held in contempt and incarcerated as a result.

A personal bankruptcy ends the necessity to attend at a judgment debtor examination, but does not terminate a bankrupt individual’s requirement to attend at an examination in relation to a business for which they were a director!

Will I Go To Jail or Prison If I File Bankruptcy?

Filing a bankruptcy is not a criminal offense and therefore will not leave you with a criminal record!

That said, you can be incarcerated if found guilty of an offense under the Bankruptcy and Insolvency Act.

The news is all abuzz regarding the bankruptcy of tennis superstar Boris Becker who may face incarceration in his bankruptcy for allegedly failing to disclose assets and liabilities, among other things. But can this happen in a Canadian bankruptcy?

The Bankruptcy and Insolvency Act is known as quasi-criminal act.  What this means is that an offense under this Act is not covered by the Criminal Code; they are like offenses under the Highway Traffic Act for speeding offenses or driving while uninsured.

That said, the punishments prescribed under the Bankruptcy and Insolvency Act can be quite serious but they’re not exclusively targeted at people who file bankruptcies. Some offenses deal with creditor actions, corporate actions, and others, including bankruptcy trustees!

Part VIII of the Bankruptcy and Insolvency Act (sections 198 – 208) enumerate the various offenses and punishments, some of which can include incarceration.

It is extremely rare for consumer debtors to be charged –let alone found guilty- under this section of the Act. That said, it can and does happen in the most egregious cases, typically involving fraud and abuse of the process.

These might include fraudulent declarations, concealment or fraudulent disposition of assets, among other things.

Boris Becker is alleged to have committed these offenses.

Directors and officers of bankrupt companies can be held liable for actions taken while the company was insolvent and during the bankruptcy process.

But the Bankruptcy and Insolvency Act is not alone in its treatment of serious offenses. There are a number of other federal, provincial and municipal statutes in Canada that provide for severe penalties and or incarceration for transgressions.  For example, failure to file a tax return when taxes are owing, or under-reporting income on a tax return is a criminal offense under the Income Tax Act, and offenses under the Highway Traffic Act can also involve serious consequences.

Can You File Bankruptcy While in Prison?

Believe it or not, a debtor can file for bankruptcy while incarcerated.

Of course, they would require the assistance of a licensed insolvency trustee who would be willing to attend at the correctional facility to assess the debtor and to carry out the counselling sessions and to witness the signing of statutory documents.

But given that the debtor would not be experiencing ‘harassing’ calls from creditors, and would not be subject to wage garnishment while incarcerated, it is unlikely that there would be any urgency to file bankruptcy until released from prison.

Once released and reintegrated in society, bankruptcy and other options could be explored.

The stay of proceedings in bankruptcy is of no effect for criminal matters

The stay of proceedings in bankruptcy refers to the automatic halt of all civil action taken by creditors to recover their debt.

Upon filing a bankruptcy, the stay of proceedings kicks in and stops substantially all creditor lawsuits, wage assignments, tax demands and wage garnishments.

However, the protection afforded by the stay of proceedings does not apply to criminal matters. So if, for example, the CRA pursues you for criminal tax evasion, a bankruptcy will not stop their actions.

Bankruptcy and Jail – Conclusion

Bankruptcy and jail and concerns about incarceration for failing to pay debt or for filing bankruptcy are topics that are often misunderstood. It’s important to know the facts so you can make the best choices for your financial future.

At Rusinek & Associates Inc., our Licensed Insolvency Trustees are experts in the field of bankruptcy and insolvency and are here to help guide you to make sure things go optimally for you should you need to get a fresh financial start through bankruptcy.

If you’re considering bankruptcy as an option, it’s important to seek professional advice and understand not only the merits and consequences of your options, but also your rights and obligations throughout the process.

At Rusinek & Associates Inc., we provide you with the information you need to steer clear of potential issues throughout the process. We are committed to providing debtors with the education and tools needed to ensure that they make informed decisions about their financial future.

About Author

Dr. Jacques Rusinek LIT

Dr Jacques (Jojo) Rusinek LIT was licensed in 1999 as a trustee in bankruptcy (now called Licensed Insolvency Trustee). He has helped thousands of people to become debt-free.

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