A mediator is a neutral party who facilitates negotiations between two or more parties in conflict. It’s the mediator’s job to try and help the conflicting parties come to an agreement. If you’ve been through a separation, you may have worked with a mediator as a more cost-effective and efficient alternative to the traditional divorce process. Similarly, some business disagreements and contract disputes can be resolved through mediation.
Who Acts as a Mediator in the Bankruptcy Process?
A Bankruptcy mediator is often an employee of the Office of the Superintendent of Bankruptcy of Canada (OSB). The OSB is responsible for licensing and regulating bankruptcy professionals and for supervising the insolvency process.
What is the Role of the Bankruptcy Mediator?
The main job of the bankruptcy mediator is to help facilitate conversation between the parties. The mediator will help the parties understand each other’s perspective and reach an agreement.
Is it not the mediator’s job to decide on a solution, this is up to the parties involved in the mediation. The mediator is also not allowed to act as legal counsel to any of the parties involved in the mediation process.
Who can attend a Bankruptcy mediation?
Depending on the specifics of the bankruptcy mediation (explained below), there are certain individuals who may participate, such as the debtor (the bankrupt), a creditor, the mediator and the LIT. During mediation, the LIT is there to provide the debtor with guidance as it relates to the bankruptcy process.
When is Mediation Used in Bankruptcy?
Bankruptcy mediation can resolve two different types of issues at two different times during a bankruptcy:
1. Surplus income mediation
At the beginning of a Bankruptcy, the Licensed Insolvency Trustee (LIT) reviews the income and certain expenses of the debtor and determines if that person must make a monthly surplus income payment based on Standards that are issued annually by the Office of the Superintendent of Bankruptcy (2024: Appendix A), and for how long the person must make those monthly payments. This amount may be adjusted during the bankruptcy if there is a change in either a bankrupt person’s total income, or personal or family situation of the bankrupt person.
If the debtor does not agree with the surplus income payment set by the LIT at the beginning of the bankruptcy, or perhaps adjusted during the bankruptcy, the LIT must request “surplus income” mediation.
Creditors can also request surplus income mediation if they disagree with the amount of surplus income payments set by the LIT by making a request to the Trustee.
In a successful mediation, the parties come to an agreement. When this happens, the parties sign a “mediation settlement agreement” and the bankrupt person agrees to comply with the conditions of the agreement.
If the parties cannot reach an agreement, the LIT can apply to the court to fix how much the debtor must pay as surplus income.
2. Discharge mediation
A second type of bankruptcy mediation is called “discharge mediation.” Most mediations are discharge mediations. This occurs towards the end of the bankruptcy when the surplus income payments set by the LIT, or a mediation settlement agreement, have not been paid in full by the debtor.
A creditor may also oppose the discharge of the bankrupt person. A creditor may do this if the bankrupt person has not made all their surplus payments or if the bankrupt person chose to file for bankruptcy when they could have filed a viable consumer proposal. In these scenarios, the LIT must ask for mediation.
In a successful mediation, the parties come to an agreement. When this happens, the parties sign a “mediation settlement agreement” and the debtor agrees to comply with the conditions of the agreement. Upon meeting the conditions of the mediation settlement agreement, the debtor receives their discharge from bankruptcy.
If the parties cannot reach an agreement, the LIT must ask the court for a hearing to come to a decision.
Why Use Bankruptcy Mediation?
Mediation is more flexible and cost-efficient than going through a more formal court proceeding. If a person is in a financial situation where they have had to declare bankruptcy, they would most likely prefer to keep costs as low as possible.
Mediation also gives the bankrupt person an opportunity to decide how the disagreement is settled instead of leaving it up to the court. For example, most discharge mediations are settled between the LIT and the debtor even before the official mediation session with the mediator. It is then simply a matter of the parties signing off on the mediation settlement agreement.
Have Questions About Bankruptcy Mediation? Contact our LITs
If you are struggling with debt and considering bankruptcy, contact one of our Licensed Insolvency Trustees. LITs are federally regulated debt professionals and are the only professionals in Canada licensed to administer government-regulated insolvency proceedings, such as Consumer Proposals and bankruptcies.
When you meet with a LIT, they will assess your debt situation and recommend a debt solution that best fits your needs. While Bankruptcy might sometimes seem to be the right – or only – solution, you may have other options. If you have questions about what a mediation session looks like or how the bankruptcy mediation process works, a LIT can answer your questions.
To schedule a no-obligation no-cost consultation with a debt professional at Allan Marshall & Associates, please reach out to us at 1-888-371-8900, or reach us online.
