bankruptcy fraud

Bankruptcy Fraud – Understanding the Criminal Code of Canada & Bankruptcy Laws

The purpose of Bankruptcy is to provide a fresh start to honest individuals who have fallen on hard financial times. All it takes is the loss of a job, an illness, or another type of emergency, and you can find yourself struggling to deal with an unmanageable amount of debt. Filing for Bankruptcy is a legal way for Canadians to eliminate crippling debt and start over. Unfortunately, some individuals choose to abuse the system by engaging in Bankruptcy fraud. 

What is Bankruptcy fraud?

Bankruptcy fraud is a broad term that describes several types of criminal actions. For instance, if an individual files for Bankruptcy and then continues to obtain and use credit knowing they can’t repay the money they are borrowing, this is an example of Bankruptcy fraud.

How is Bankruptcy governed in Canada?

Bankruptcy laws and offences are outlined in the Bankruptcy and Insolvency Act (BIA) in sections 198 to 201 and the Criminal Code of Canada. The BIA is the document responsible for governing all Bankruptcies that take place in Canada. 

The Criminal Code of Canada is a federal law that defines the criminal offences enacted by the Parliament of Canada. The Criminal Code defines what constitutes a criminal offence, how people can be deemed guilty of the crimes they’ve committed, and establishes the type of degree of punishment that someone can receive if they are convicted of an offence.  

Common types of Bankruptcy fraud

While there are a variety of ways an individual can engage in Bankruptcy fraud, the Government of Canada recognizes some of the most common offences committed under the BIA and the Criminal Code of Canada. These include instances when the bankrupt individual: 

  • Makes an illegal transfer of property before or after the date they filed for Bankruptcy.
  • Makes false entries in a statement of account or hides or falsifies documents related to their property or affairs.
  • Obtains credit through misrepresentation  
  • Hides or illegally remove property or hides claims or debts
  • Gets credit without telling the lender they are bankrupt. A person who is bankrupt and borrows $1000 or more must tell the lender that they are bankrupt. 
  • Fails to respond fully and truthfully to questions asked in BIA examinations

How are offenders discovered?

The Office of the Superintendent of Bankruptcy (OSB) investigates possible Bankruptcy abuse cases. The OSB can identify instances of Bankruptcy fraud through its detection programs or through complaints received from creditors, members of the public, or a Licensed Insolvency Trustee (LIT). 

If a creditor believes the bankrupt is failing to respect their obligations, the creditor can oppose the bankrupt’s discharge from Bankruptcy. To do this, the creditor must notify the Licensed Insolvency Trustee and the bankrupt, and provide their reasons for why they believe fraudulent behaviour has occurred. The creditor also has to present supporting evidence to the Court to back up their claim. It is then up to the Court to decide on the type of discharge for the Bankrupt. 

There are four types of discharge: 

  • Absolute discharge. Bankrupt released from the obligation to repay their debts (with some exceptions) as of the day they filed.
  • Conditional discharge. A bankrupt must meet certain conditions before an absolute discharge is granted. 
  • Suspended discharge. Absolute discharge is postponed and will take effect at a later date.
  • Refused discharge. The Court decides to refuse a discharge, and the bankrupt is not released from their debts. During this time, the bankrupt can not borrow. 

If an LIT suspects that an individual who has declared Bankruptcy is not following the law, they are required to report it to the OSB. If the OSB suspects an offence has been committed, the file is sent to one of its three special investigation units. The investigation units are responsible for reviewing criminal offences under the BIA and the Criminal Code when they are related to Bankruptcy and insolvencies. The investigation units work closely with the Royal Canadian Mounted Police (RCMP) to investigate suspected criminal activities and enforce the BIA and Criminal Code. 

Recently, the three investigation units were consolidated under the Integrity and Enforcement branch (I&E) which is intended to handle low volume, high-impact insolvency issues. A new Major Case Unit was also created to handle the more high-profile and complex cases. 

What Are the Penalties for Bankruptcy Fraud?

Bankruptcy fraud is a serious offence, and the associated penalties can vary based on the specific case. Those that look at Bankruptcy as an expense-free ride out of their debt issues should consider the potential penalties, which can include: 

  • Jail time 
  • Probation 
  • Restitution 
  • Community service
  • House arrest 

Those found guilty of Bankruptcy fraud can also expect to find it very difficult to declare Bankruptcy or a Consumer Proposal in the future. 

How to Report Bankruptcy Fraud

As a member of the public, you can report any suspected fraudulent activity related to a Bankruptcy file. You can contact the OSB at 1-877-376-9902. 

Questions About Bankruptcy? Reach out to an LIT

If you’re struggling with debt and you need help to regain your financial footing, reach out to a Licensed Insolvency Trustee. An LIT is the only professional authorized to administer government-regulated insolvency proceedings, including Bankruptcies and Consumer Proposals.  

An LIT can answer all of your questions about Bankruptcy and work with you to determine if Bankruptcy is the right solution for your debt issues. Contact Allan Marshall and Associates today for a risk-free 30 minute call with one of our experts. You can call us at 1-888-371-8900, or fill out our online contact form, and we will reach out to you.     

References: 

About Author

Avatar photo

Allan Marshall & Associates Inc.

Allan Marshall & Associates Inc. is a Licensed Insolvency Trustee firm found in Alberta & the Maritimes. We are licensed by the Federal Government of Canada to administer bankruptcies, Consumer Proposals, receiverships and other insolvency services. We have the knowledge and experience to assess your situation and offer the best advice for your particular need, whether you are a first time bankrupt or simply struggling to make ends meet.