January 2014

407 ETR Debts Dischargeable in Bankruptcy or Proposal

In a landmark ruling the Supreme Court of Canada ruled that debts owed to the 407 ETR Highway in Canada are dischargeable in bankruptcy. In their decision regarding 407 ETR Concession Company Limited the Supreme Court decided that federal bankruptcy law is paramount to provincial legislation, and therefore 407 ETR debts are discharged in bankruptcy. In addition, the 407 cannot use it’s powers of plate denial to override bankruptcy law.

I’ve met with many people over the years who live in and around 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. If they file bankruptcy or a consumer proposal to eliminate their debts, the last thing they need is a plate denial. The good news is that, after several court cases, 407 ETR debts are discharged in a bankruptcy or proposal and the 407 can no longer deny plate renewal for debts discharged through a bankruptcy or proposal.

Based on information published by the 407 ETR, if you filed bankruptcy or a proposal after November 13, 2015, 407 ETR will remove from plate denial any amounts included in the bankruptcy or proposal as long as you have no new 407 debts or other debts with the Ministry of Transportation (eg parking tickets). If you filed a bankruptcy before November 13, 2015 you can refer to the 407 position here.

If you file with Hoyes Michalos, we will contact 407 ETR directly on your behalf.

If you have more debt than you can handle, including 407 debt, call us at 1-866-747-0660 and we can explain how you can get a fresh start.

This ruling, and the capitulation by the 407 ETR, was a long time coming. For those who are interested here is a history of the back and forth legal actions that got us to the point of ensuring 407 debts are eliminated if you file for bankruptcy or make a consumer debt proposal.

407 Debts are Unsecured Debts

The Bankruptcy & Insolvency Act eliminates unsecured debts. So wouldn’t that make money owing to the 407 a debt discharge in a bankruptcy? You would think so, but the 407 ETR didn’t want to lose their special power to suspend a license plate renewal for non-payment of 407 tolls, so they took the matter all the way to the Supreme Court.

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 the supreme court ruling, if you went bankrupt and didn’t pay your 407 debt, you would not be able to renew your vehicle license plate.

A lower court originally agreed that the 407 had the power to deny a license plate renewal for unpaid charges. The Office of the Superintendent of Bankruptcy argued that federal law is paramount to provincial law. In other words, if there exists both provincial and federal legislation on the same point of law, the federal law has paramountcy; it wins.

In a ruling released on December 19, 2013, three judges from the Court of Appeal for Ontario 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. In effect, the Ontario Court of Appeal ruled that 407 ETR debts are dischargeable in bankruptcy, but 407 ETR appealed that ruling all the way to the Supreme Court

The arguments in the Supreme Court case were based around two pieces of legislation. The Ontario Highway Traffic Act grants 407 ETR the power to request that the Ministry of Transportation deny a license plate renewal if there are unpaid 407 tolls at the time of renewal. The federal Bankruptcy & Insolvency Act says that “unsecured debts are eliminated in a bankruptcy”.

The Supreme Court then decided, as expected, that federal law wins. In fact they went so far as to say it’s in the best interest of the bankrupt debtor and that this is entirely consistent with bankruptcy law:

The operation of s. 22(4) also frustrates Parliament’s purpose of providing discharged bankrupts with the ability to financially rehabilitate themselves. While the intent of s. 178(2) is that the debtor will no longer be encumbered by the burden of pre-bankruptcy indebtedness, s. 22(4) allows ETR to continue burdening the discharged bankrupt until full payment of the debt. Had Parliament wished to exempt ETR’s toll debt from the bankruptcy process, as well as from the consequences of a discharge, it would have done so expressly in s. 178(1). It did not.

In my opinion, that’s as it should be. If the provincial and federal governments both want special laws for toll roads, they should pass specific legislation. They haven’t, so I agree with the Supreme Court’s decision.

How Long Can You Run From Your Debt? And Should You?

What are your trigger points?

For some people the trigger is the first time they miss a payment. For others, they can miss many payments before it becomes an issue.

A call from a collection agent about an overdue debt is often the “straw that breaks the camel’s back”. However, we all have caller I.D. and voice messaging, so many people are able to ignore phone calls and voice mail messages for many months. Every person is different.

Letters threatening legal action are often the spark that causes people to contact a professional at Hoyes Michalos. Of course threatening letters do not always lead to legal action, so it takes more than a letter to scare many people into action.

In virtually all cases the final trigger for most people in debt is a wage garnishment. It’s possible to ignore phone calls, voice mail messages and threatening letters, but most people cannot afford to ignore having real money taken from their paycheque each week. A wage garnishment almost always requires action. For many people, that is the “last straw”.

So can you just up and walk away from your debts?

The do-nothing strategy does work in very limited circumstances. If you don’t have a job, or if your creditors don’t know where you work, a wage garnishment may not be a problem. In that case you are what we call “creditor proof”. It’s like being “bullet proof”, like Superman. Bad guys would shoot Superman and he didn’t get hurt. If you are creditor proof they can take you to court, but if you have no wages to garnishee or no wages to seize, you don’t have to take action. For some people with debt, this is the right solution. You just tell your creditors if they call you are not working and have no money to pay.

However, it’s important to note that the debts themselves won’t go away. If you return to work, you now have income that can be garnisheed. So for some people, the right answer isn’t so much to run away from debts, but to temporarily ignore them.

What about the limitations period?

What about the statute of limitations? If your debts are old, can you ignore those debts? The Ontario Limitations Act states that if you haven’t made any payments on a debt for two years, if a creditor sues you your defense would be that the debt is outside the limitations period, and assuming you are in court to defend yourself, the judge would not grant them a judgement against you. Without a judgement, they can’t garnishee your wages.

However it’s important to know that the debt itself doesn’t go away. You still owe the money and these debts will show up on your credit report with a note that they are in collections, and will remain there for up to six years. Also, some debts are not included like government debts including student loan debt and tax debt.

Can you leave the country?

If you owe money in Canada but live abroad, you may not need to file bankruptcy or a consumer proposal to avoid those debts. However, if you have income or assets in Canada, or are expecting to return, you may want to talk to a trustee about dealing with your Canadian debts sooner rather than later.

What Are Your Options?

Do you really want to run from your debts forever? Do you really want to run the risk of phone calls and legal action? Do you want to have the ability to borrow in the future, which is very difficult if you have a lot of debt on your credit report?

For most people, the answer is “no, I don’t want to run from my debts forever. I want to deal with my debts so I can have a fresh start.” That means considering whether a bankruptcy or consumer proposal make sense given your personal financial situation.

If you are tired of running from your debts, give us a call at 1-866-747-0660 and we can explain how you can get a fresh start.

Month: January 2014