407 ETR Debts Dischargeable in Bankruptcy

Posted in Personal Bankruptcy
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

407-debts-discharge
In a ruling released on December 19, 2013, three judges from the Court of Appeal for Ontario have ruled that the the practice of denying the license plate renewal for people who owed money to 407 ETR and who have filed a bankruptcy or consumer proposal is contrary to the "fresh start" principles of the Bankruptcy & Insolvency Act.  Although this is an Ontario Court of Appeal decision, the 407 has advised us that they will appeal to the Supreme Court, so we should not consider this decision to be final.  At the moment, it's "business as usual", so while 407 debts according to the recent court ruling are dischargeable in a consumer proposal or personal bankruptcy in Ontario, the 407 is not yet recognizing this decision, and therefore even with a bankruptcy you are not currently able to renew your plates if there is a balance owing.

When the 407 was purchased by a private company, the Highway 407 Act in 1998 gave the 407 the right to collect tolls, and if you don't pay your tolls they have the power to suspend your vehicle permit issued by Ontario's Registrar of Motor Vehicles.  So, up until this court ruling, if you went bankrupt and didn't pay your 407 debt, you would not be able to renew your vehicle license plate.

I've met with many people over the years who live outside of the GTA and use the 407 to commute to their jobs in the Toronto area, and some of them have built up significant debts to 407.  Unfortunately for them, if they go bankrupt they were faced with either paying the 407, or giving up their car because they could not renew their license plate.

The lower court originally agreed that the 407 had the power to deny a license plate renewal for unpaid charges, but the case was appealed by the Office of the Superintendent of Bankruptcy who said, and I'm paraphrasing here:

Wait a minute!  Under the Constitution, federal laws take precedence over provincial laws, and since the Bankruptcy & Insolvency Act is a federal law, it out-ranks the provincial Highway 407 Act.

It's like when you were a kid and played rock-paper-scissors: paper covers rock, so paper wins.  The lawyers call it the doctrine of federal paramountcy, and the courts agreed: if you file bankruptcy, your debt to the 407 is just like any other unsecured debt (like a credit card, unsecured bank loan or income taxes): it is discharged when you go bankrupt.

To repeat, at the moment, it's "business as usual".

I use the 407 occasionally.  I have a transponder, and I was on it three days ago, so I have mixed feelings about this decision.  The 407 is a toll highway, and it's only fair that if you drive on it you pay your tolls.  If lots of people get to drive for free, that will ultimately drive up the cost for the rest of us.

However, I also strongly believe that the bankruptcy process exists to give the "honest but unfortunate" person a fresh start.  If you have more debt than you can handle, you should be permitted to get a fresh start from all of your debts, including the 407.  The 407 is a private company, just like a bank, so I agree with the court: they should not get special treatment.

So, if you have more debt than you can handle, including 407 debt, contact us and we can explain how you can get a fresh start.

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