Q: In recent years it’s become harder to make ends meet on our farm. Our debt load is overwhelming and I think bankruptcy is our only option. What do I do?
A: Farming has become an increasingly tough way to make a living in the last number of years. Many people have been in the same tight spot so don’t feel embarrassed or guilty about the situation.
Bankruptcy may not be the only option. Working with a financial consultant or lawyer can lead to a negotiated payment plan with your creditors. Often just sitting down and explaining the situation to creditors and suggesting some plans will result in a deal. Ignoring debts seldom does anything but get a person in deeper.
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The federal Farm Debt Mediation Service has a system offering financial advice and assistance in dealing with creditors. Many provinces have similar plans. Contact each level of government to discover what is available. As well, farmers cannot be involuntarily petitioned into bankruptcy. Any move in that regard must be done voluntarily through what is called an “assignment in bankruptcy.”
If it seems that bankruptcy is imminent, consult with a licensed trustee in bankruptcy. These people are trained and federally licensed to deal with such situations. Trustees gather and preserve assets for creditors, but they must also ensure a person’s legal rights are fully recognized to ensure he gets a fresh financial start. Trustees have to balance these competing interests.
When a person goes bankrupt, all his property “vests” in the trustee. That means the trustee takes over decisions about the property unless it is exempt from seizure under provincial law. If not, the trustee takes it and sells it for the benefit of creditors. For example, if a person has three ordinary half-ton trucks, he can probably only keep one, with the other two going to the trustee. The trustee should help determine what is exempt.
A bankrupt person can keep a certain percentage of his income depending on how much it is and how many dependents he has. The excess must be paid to the trustee for the benefit of the creditors.
It usually takes nine to 12 months to sort out an individual’s affairs. During this time the person cannot make major financial decisions or changes. At the end of this period the trustee will apply to the court for the person’s discharge from bankruptcy, which if granted will bring this process to an end. At that time, the person is released from certain debts while others remain.
A bankruptcy does not deal with secured debt such as land mortgages or security over equipment, crops or livestock. Secured creditors can continue to deal directly with the individual as if the bankruptcy had not occurred. However, unsecured debt is usually released at the end of a bankruptcy. This can include fuel and chemical bills, credit card balances and other trade creditors. A person with a large amount of unsecured debt and no means of repaying it is often a good candidate for bankruptcy.
Debts obtained through fraud or obligations of child support survive a bankruptcy and the individual will still be liable for them.
There are some alternatives to bankruptcy, such as a proposal. The trustee makes a proposal to all a person’s creditors that the individual will pay a percentage of the debts back at an agreed rate over an agreed period. A majority of the creditors must approve the proposal. If not, the person is automatically bankrupt.
If he successfully completes the proposal, this is not as damaging to his credit rating as a full bankruptcy. Generally, a person’s credit rating is marked with a bankruptcy for about seven years after their discharge.
Consultation with trained professionals is the key to successfully dealing with an overwhelming debt load.
Do not act with haste. Make an informed decision and deal openly with the trustee and creditors.
Rick Danyliuk is a practising lawyer in Saskatoon with McDougall Gauley LLP. He also has experience in teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
