Big Banks, Creditor Oppositions, and the Hoyes Michalos Difference

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

big-banks-creditor-oppositionTwo weeks ago Rebecca Martyn, the trustee in our Windsor, Leamingon and Chatham offices, explained the concept of a Creditor Opposition to a Bankruptcy Discharge. In simple terms, any creditor can object to your bankruptcy ending. If they formally object to your bankruptcy discharge, a discharge hearing is held in bankruptcy court, and the bankruptcy court will decide on the terms of your discharge. The court may give you an absolute discharge, or the court may require you to make extra payments, or perform other duties before you are discharged.

So what is the role of your trustee in this process? Will your trustee help you get discharged, or is your trustee working for your creditors?

If you listen to some of the advertisements you hear from many “debt settlement consultant” companies, they will tell you that the trustee works entirely for the creditors, and therefore wants you to pay as much as possible. That’s partially true. At the end of the bankruptcy the money you have paid is distributed to the creditors, and to the trustee in the form of fees. The more you pay, the more the creditors and trustee gets, so on that basis the trustee is working for the creditors. However, that’s only part of the story.

At Hoyes Michalos we take a different approach. We don’t “work” for any particular party. We view our role as a “middle man”, working towards a beneficial outcome for all parties. I often explain our role by saying we are like the referee in a hockey game: we don’t “work” for Team A or Team B; our job is to ensure that all parties understand the rules, and follow them.

So, for example, when you meet with one of our professionals for your no charge initial consultation, we will explain your options (including a consumer proposal and personal bankruptcy in Ontario), and we will explain the benefits, and what will happen if you don’t complete your duties. If you don’t complete your duties, your bankruptcy will not end; it’s as simple as that. That may make it appear that we are working against you, but that’s not the case. There are rules that we all must follow, so we make sure you understand the rules, and follow them.

What if a creditor doesn’t follow the rules? Do we “punish” them? Yes, we do. We don’t work for the creditors, so if they break the rules, we will object and work to correct it. For example, if you file a consumer proposal or bankruptcy and a creditor then attempts to take you to court to garnishee your wages, as soon as we are notified of that action we will apply to court to stop the garnishment. If a creditor doesn’t follow the rules, we have no hesitation in applying to court to enforce the rules.

So who does Hoyes Michalos work for? If you ask a bank or credit card company after we have applied to court to stop them from taking action against you, I can guarantee they won’t say that we are working for them.

Let me give you another example regarding creditor oppositions. A few weeks ago I received a letter, from a Big Bank, advising me that they were opposing the discharge of one of my bankrupts. I’ll call her Jane, although that is not her real name (I don’t disclose personal information of anyone we deal with on this website). Jane’s situation was not unusual. She was unemployed for a period of time, and when she returned to work her debts were more than she could manage, so she decided to declare personal bankruptcy. She had no surplus income, and no assets, and this was her first bankruptcy, so she was eligible to be automatically discharged at the end of nine months. That’s why I was surprised that Big Bank wanted to oppose her discharge.

An opposition to a discharge is common where the creditor believes the bankrupt has committed fraud, or acted in an inappropriate manner. If you buy a $10,000 big screen television on your credit card the day before you declare bankruptcy, there is a very high chance that the credit card company will be opposing your discharge. If your debts increased substantially in the period leading up to bankruptcy, the chances increase that your discharge will be opposed. If this is your third bankruptcy, your discharge will be automatically opposed. If you have high income your discharge could be opposed on the basis that you had the ability to file a consumer proposal, and yet decided to file bankruptcy instead.

However, none of these factors existed in Jane’s case. This was her first bankruptcy, she had not used her credit cards for many months before filing bankruptcy, she had no surplus income, no assets, and she had completed all of her duties. When I asked Big Bank why they were opposing her discharge, they said, simply, that they wanted more money. In addition to what Jane had already paid, they wanted Jane to continue making monthly payments for an additional six months. They said they would agree to withdraw their opposition if Jane agreed to pay more.

As the trustee, I had a choice. I could have taken the easy way out and said to Big Bank “okay, go ahead and oppose Jane’s discharge”. Needless to say, at Hoyes Michalos it’s not our company policy to take the easy way out.

Instead, I talked to Big Bank, and here’s what I told them (and yes, I’m paraphrasing a bit, since we had a number of conversations, both verbally and in writing, over a period of about a month):

If there is no surplus income, it is not possible to simply extend a bankruptcy to give a bankrupt time to make additional payments. As a creditor, you have the right to object to any bankrupt’s discharge. In order to oppose a discharge you are required to have a lawyer attend a discharge hearing in bankruptcy court on your behalf. It generally takes three to six months to schedule a discharge hearing, after the expiration of the initial nine month period. While many trustees do not attend discharge hearings, at Hoyes Michalos it is our policy to attend all discharge hearings. At that hearing I will advise the judge that the bankrupt had no surplus income, and there is no indication that the bankrupt has behaved inappropriately. This hearing is being held simply because Big Bank has decided that they want more money than the rules would otherwise require the bankrupt to contribute. If the court agrees that Jane is not required to make any additional payments, I will request that Jane be reimbursed for the cost of traveling to court, and missing a day of work.

In simple terms, I acknowledge the right of a creditor to oppose a discharge, but I also wanted them to fully consider the implications of their actions. They wanted Jane to simply pay more. Unfortunately for Big Bank, it’s not that simple. A first time bankruptcy with no surplus can only be extended through an opposition. Jane couldn’t simply agree to give Big Bank more money. Big Bank would need to go to court and ask the court to force Jane to pay more than the rules required. In the absence of any misconduct on the part of Jane, I advised Big Bank that they would look bad if the court disagreed with their position.

So, what happened?

After considering their options, Big Bank sent me a letter advising that they had decided to withdraw their opposition. Jane was automatically discharged earlier this month, with no court hearing required. Needless to say, Jane was quite happy with the outcome.

Jane’s story is a perfect example of the Hoyes Michalos difference. We work very hard to ensure that all of the rules are followed. We don’t simply let Big Banks do whatever they want. We make sure they operate within the rules.

Jane was happy, not because I worked for her, but because my team worked to ensure that everyone played by the rules.

If you are experiencing financial problems and what to experience the Hoyes Michalos difference, please call one of our offices, or e-mail us and let’s get started.