Dreger (Re), 2013 BCSC 200

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Dreger (Re), 2013 BCSC 200 Date: 20130208 Docket: 12-1638 Registry: Victoria In the Matter of the Bankruptcy of Kenneth Samuel Joseph Dreger Before: Master Bouck (Sitting as Registrar in Bankruptcy) Reasons for Decision Counsel for the Applicant: H. Wellman Counsel for Attorney General of Canada on behalf of Her Majesty the Queen in Right of Canada as Represented by the Minister of National Revenue: C. L. Eames Place and Date of Trial/Hearing: Victoria, B.C. November 26, 2012 Place and Date of Judgment: Victoria, B.C. February 8, 2013 The Application [ 1 ] Mr.

Dreger, a former bankrupt, wishes to be relieved of the obligation to re-pay his student loans. The application is opposed by one of those lenders, Canada Student Loans (“CSL”). [ 2 ] Mr. Dreger made an assignment into bankruptcy on October 27, 2010 and was discharged without conditions (and without opposition) on July 28, 2011. [ 3 ] In his notice of application, Mr. Dreger seeks the following relief: 1. A declaration that Mr. Dreger's government student loans received between 1998 and 2001 with respect to his Bachelor of Arts were discharged on July 28, 2011 pursuant to ss. 178 (l)(

g) and 178(2) of the Bankruptcy and Insolvency Act . [(the “Declaratory Relief”)] 2. Alternatively, an Order pursuant to s. 178 (1.1) of the Bankruptcy and Insolvency Act ("the "BIA") that

section 178 (l)(

g) no longer applies to Mr. Dreger's student loan debts and those debts including but not limited to the following are released: a. Canada Student Loans - Account No. 724479423 00 - 06466 and/or 724479423 00 - 10128; b. Royal Bank Student Loans - Account No. 20490488-00; c. British Columbia Student Loans Account No. X26000253415. [(the “Hardship Application”)] [ 4 ] As for the Declaratory Relief, the applicant argues that any obligation with respect to these loans was extinguished upon his discharge from bankruptcy. [ 5 ] CSL says that Mr. Dreger does not qualify for relief under s. 178(1) (

g) of the BIA because his assignment occurred less than seven years after completing all education pursuits. Mr. Dreger was last a student in December 2003. [ 6 ] As CSL submits, the question to be determined is whether Mr. Dreger can have both dischargeable and non-dischargeable loans under s. 178(1) (g). [ 7 ] On that question, there is competing jurisprudence emanating from the Quebec Court of Appeal and Registrars sitting in various other provinces (for convenience, “the Registrars’ decisions”).

[ 8 ] CSL urges me to follow the reasoning of the Quebec Court of Appeal which would mean that despite some breaks in education, Mr. Dreger remained a “student” until he completed his last period of studies in December 2003.

In those circumstances, none of the loans obtained before that date have been extinguished. [ 9 ] As for the Hardship Application, CSL says that the applicant has neither acted in good faith with respect to repayment of the loans nor will suffer hardship if the loans remain due and owing. [ 10 ] Subsequent to the hearing of this application, I heard similar arguments in the matter of the Bankruptcy of Douglas John Scott Mallory , (Victoria Registry No. 12-1701). This decision might be read in conjunction with reasons issued in Mallory (Re) : 2013 BCSC 202 .

Facts [ 11 ] Many of the facts set out below are taken verbatim from the parties’ comprehensive written briefs. [ 12 ] Mr. Dreger has deposed to facts in three affidavits. He was in attendance at the hearing of the application but did not give oral evidence. [ 13 ] Mr. Dreger is presently 43 years old and the father of two minor children. The children are the product of Mr. Dreger’s first marriage. Both children have special health and educational needs.

One of the children has been diagnosed as autistic; the other child is said to suffer from both Asperger’s and Tourette’s syndrome. [ 14 ] The two children live part-time with Mr. Dreger and his common-law wife. Mr. Dreger’s common-law wife also has two children. One of those children lives with the couple part-time; the other, on a full-time basis. In addition, Mr. Dreger and his wife have taken into their care a teenage girl who is a friend of one of the children. [ 15 ] Mr. Dreger pays child support to his first wife and spousal support to his second wife.

The spousal support obligations end in December 2013. [ 16 ] For most of his working life, Mr. Dreger has been employed as a bookkeeper. [ 17 ] In September 1998, Mr. Dreger entered Malaspina College (now known as Vancouver Island University), graduating in June 2001 with a Bachelor of Arts degree. [ 18 ] Mr. Dreger wished to become a teacher. Between September 2001 and December 2002, Mr. Dreger was enrolled in the Bachelor of Education program at Malaspina College. Mr. Dreger did not graduate from the program as he was unable to complete his practicum. [ 19 ] Mr.

Dreger’s educational pursuits were financed through Canada Student Loans, Royal Bank of Canada Student Loans and British Columbia Student Loans. The evidence does not provide any breakdown as to when each of these loans were advanced. [ 20 ] Mr. Dreger returned to work in the bookkeeping field after December 2002 but had not given up on his goal to obtain the education degree. [ 21 ] In the fall of 2003, Mr. Dreger took a leave from this employment in order to complete the necessary practicum. This practicum, which ended in November 2003, did not go well.

No further attempts at a practicum were permitted. [ 22 ] Thus, Mr. Dreger once again returned to his work as a bookkeeper, remaining in the employ of one accounting firm for about four years. [ 23 ] In March 2004, Mr. Dreger’s student loans became due. He applied for and obtained interest relief on those loans for the maximum four-year period allowed. [ 24 ] During that four-year period, Mr. Dreger’s marriage broke down and he suffered bouts of depression. Health issues caused Mr. Dreger to eventually take another leave from employment. [ 25 ] While on this leave, Mr.

Dreger decided to incorporate his own bookkeeping business which he operated with his second wife. [ 26 ] Unfortunately, the second marriage also failed resulting in Mr. Dreger becoming the sole shareholder and operator of the bookkeeping business. The income generated from this business declined after this second marital breakdown. Mr. Dreger is still operating the business on a part-time basis. He is also employed 30 hours each week as a bookkeeper in an accounting firm. [ 27 ] As noted, Mr. Dreger made an assignment into bankruptcy on October 27, 2010.

He declared unsecured debts in the sum of $123,992, of which $90,494 represented student loan debt. Mr. Dreger also owed monies to the Canada Revenue Agency, the Family Maintenance Enforcement Program and various financial institutions. [ 28 ] By the time of this assignment, Mr. Dreger had not made any voluntary payments on any of his student loan debts. Mr. Dreger had then been out of school for six years and nine months. [ 29 ] Since the assignment, Mr.

Dreger’s parents have paid the Royal Bank student loan in full, leaving the sum of $68,854.21 (excluding some interest) outstanding at on the publicly-funded loans. [ 30 ] The amount owing to CSL as of June 2012 is approximately $35,000. [ 31 ] The affidavit evidence addresses Mr. Dreger’s historical income and expenditures in great detail. Mr. Dreger is not in a healthy

financial position at this time. He is paying $1,263 per month in child and spousal support. He has no savings or nor any assets of significant value. [ 32 ] Mr. Dreger says that he has not incurred any debts “since graduating” other than using a credit card with a $500 limit to meet household and family expenses as needed. [ 33 ] Mr. Dreger’s annual income of about $52,000 is gone by the time all of his family’s expenses are met. In that regard, Mr. Dreger and his spouse claim some unusually high expenses considering their combined household income. Indeed, Mr. Dreger’s expenses came under scrutiny by CSL.

The family telephone bill (including cell phones for the children) amounts to $200 to $300 each month. There are expenses related to development and education of Mr. Dreger’s autistic son, such as regular purchases of electronic and other games as well as a laptop computer. In addition, Mr. Dreger is obliged to pay for his son’s medication. [ 34 ] Mr. Dreger says that he has reached the top end of his salary as a bookkeeper. Only further education or certification would justify an increase in that salary. Mr.

Dreger does not have the means to pursue further education at this time. [ 35 ] In submissions, counsel for Mr. Dreger suggested that repayment of the remaining student loans would take anywhere from 9 to 52 years, depending on various factors such as inclusion of the spouse’s income and/or discontinuance of spousal support obligations. [ 36 ] Mr. Dreger’s current circumstances may well justify a second assignment into bankruptcy. In that scenario, there is no question that the student loan debt would be extinguished in its entirety. However, Mr.

Dreger wishes to avoid this second assignment if at all possible as it may impact his ability to work as a bookkeeper. Discussion [ 37 ] The provisions of the BIA relevant to this application are as follows: 178.

(1) An order of discharge does not release the bankrupt from ... (

g) any debt or obligation in respect of a loan made under the Canada Student Loans Act , the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred (

i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student ; or ...

(1.1) At any time after five years after a bankrupt who has a debt referred to in paragraph (1)(

g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that (

a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and (

b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

(2) Subject to subsection (1), an order of discharge releases the bankrupt from all claims provable in bankruptcy. [ 38 ] With those provisions in mind, I now turn to the first remedy sought by the applicant. [ 39 ] I should first note that CSL does not challenge the registrar’s jurisdiction to make the proposed declaration. A. Is the applicant entitled to a declaration that the loans received between 1998 and 2001 have been discharged? [ 40 ] The question before the registrar is whether there can be multiple dates for the purposes of s. 178(1)(

g) depending on when the applicant ceased to be a student with respect to the loan or loans. Or, as more clearly put by Registrar Schwann in Hildebrand (Re), 2010 SKQB 32 : ... whether the seven year window is calculated relative to each student loan or if one survives, whether it claws back all other loans. [Para. 25.] [ 41 ] The applicant submits that any obligation with respect to obtaining the Bachelor of Arts degree has been extinguished as he ceased to be a student in June 2001.

As earlier stated, CSL argues that the relevant date for the start of the seven-year period is December 2003. [ 42 ] In Quebec (Procureur General) v. N.P., 2011 QCCA 726 , (“ N.P. ”) the Court of Appeal determined that the law-makers did not intend for multiple dates when enacting s. 178(1) (g). That is, there can be only one date on which an individual ceases to be a part-time or full-time student and that is when all education endeavours financed by student loans come to an end. In rejecting the analysis and conclusion of the trial judge, the Court of Appeal said this: [45] The trial judge's

interpretation, which corresponds to that of some registrars elsewhere in Canada, 14 presents some serious practical problems. Imagine a situation where a student obtains a first diploma thanks to government loans, temporarily interrupts his studies,

resumes his studies on a continuous basis, and finally declares bankruptcy shortly after obtaining his second degree. The consequence of having more than one possible date when studies end is to enable partially that which the legislator specifically sought to prohibit: opportunistic bankruptcies, declared without student actually having tried to capitalize on their education, and without the Minister having had the opportunity to recover the debt.

The legislator cannot have desired such a result. [ 43 ] That result is to be contrasted with the conclusions of registrars sitting in Nova Scotia, Saskatchewan and New Brunswick: McNutt (Re), 2008 NSSC 166 , Hildebrand (Re) supra , and Mortimer (Re), 2012 NBQB 109 . In those cases, the registrars decided that s. 178(1) (

g) contemplated multiple end dates of study, particularly when considering the overall objectives of the BIA : Mortimer (Re) at paras. 26 and 27. That is, there is no claw back as described by Registrar Schwann. [ 44 ] CSL urges me to follow N.P. not only because the Court of Appeal’s analysis is correct at law but also as a matter of stare decisis . Hildebrand (Re) and McNutt (Re) were decided before N.P..

N.P. is not specifically mentioned in Mortimer (Re) although the Federal Crown was represented and made submissions at that hearing. [ 45 ] I am not persuaded that stare decisis requires me to give any deference to a decision of an appellate court of another province. [ 46 ] All of the decisions cited analyze the issue before me in a manner which I certainly could not improve upon.

Thus, my task becomes a matter of deciding which analysis of the issue is more persuasive. [ 47 ] Having now had that opportunity for further review and reflection, I am persuaded to follow the reasoning found in the Registrars’ decisions.

In particular, I agree with the findings of Registrar Schwann that there is: There is nothing in [ s.178(1) (g)] to suggest or even imply that the date the bankrupt ceased to be a full- or part-time student must somehow relate or connect to the totality of his or her government student loans. ... this language supports the opposite conclusion, that is, whether a student loan debt survives depends on when the bankrupt ceased to be a full- or part-time student in relation to that debt . [Para. 31.] [ 48 ] Nevertheless, CSL submits that the result in McNutt (Re) , Mortimer (Re) and Hildebrand (Re) should not be applied to Mr.

Dreger’s circumstances. [ 49 ] It says (in its notice of application) that the result can only be applied where there has been a “significant gap” in attendance at post-secondary institutions and such attendance is funded by a “mix of publicly and non-publicly funded institutions in a myriad of different programs”. In Mr.

Dreger’s case, the gap between completion of the Bachelor of Arts degree and pursuit of the degree in education is only a matter of months and the programs are linked with the B.A. degree being a necessary precursor to the subsequent educational pursuit. [ 50 ] In support of this submission, CSL relies on the decision in Cunningham (Re), 2012 NBQB 352 . This case concerned an application under s. 178(1.1) of the BIA .

The registrar was required to determine when the applicant had “ceased to be a full or part-time student” for the purposes of the five-year period that must pass before a hardship application can proceed. The registrar cited N.P. but only with respect to that court’s comments on the need to deter “opportunistic” bankruptcies. Ms. Cunningham obtained a B.A. in May 2007 and then commenced a business course at CompuCollege in October of that same year.

The business course was completed in February 2009. [ 51 ] Registrar Bray decided that the commencement date for the five-year period under s. 178(1.1) was February 2009 as “there was no significant separation of time” between finishing the B.A. and commencing the business degree. And, importantly, “this scarcely gives any reasonable period to try to realize on the asset obtained from these loan financed studies”: Para. 20.

In the result, the applicant’s hardship application was deemed “premature” under “these specific circumstances”: Para. 21. [ 52 ] As an aside, Registrar Bray is also the author of Mortimer (Re) in which he approves of and adopts the reasoning found in McNutt (Re) and Hildebrand (Re). I conclude that the result in Cunningham (Re) ought to be restricted to its peculiar facts. [ 53 ] Moreover, while I remain persuaded that N.P. should not be followed, I also conclude that Mr. Dreger’s assignment was not “opportunistic” in the sense described by the Quebec Court of Appeal and Registrar Bray in Cunningham (Re).

The B.A. may have been a necessary prerequisite to the schooling that followed. However, Mr. Dreger did not complete his education degree. He had no opportunity to take advantage of this additional schooling. [ 54 ] CSL also argues that as a matter of public policy, it is unfair to make this declaration after Mr. Dreger’s discharge. CSL might well have opposed Mr. Dreger’s discharge if it had known that this declaration would be subsequently sought. [ 55 ] It is appreciated that CSL may have taken a different position at the applicant’s discharge hearing if it had known then, what it knows now.

However, at the time of discharge, both Hildebrand (Re) and McNutt (Re) were in the public domain. Thus, while CSL may have assumed that N.P. represented the correct state of the law in British Columbia, no steps were taken to address this controversial issue at the time of discharge. In those circumstances, I see no unfairness to CSL in making this declaration at this time. [ 56 ] In the result, there will be a declaration that the loans received by the applicant between 1998 and 2001 have been discharged. B. The Hardship Application [ 57 ] The Hardship Application is relied on by Mr.

Dreger as alternative relief. [ 58 ] Section 178(1.1) might apply to Mr. Dreger’s circumstances necessary if student loans were advanced after June 2001. However, the evidence does not address this issue in any detail. All that is revealed in the evidence is that loans were taken out to finance the applicant’s education. The evidence does not disclose which lender advanced what monies or even whether any of the $35,000 CSL advance was made after June 2001. Without knowing the amount of monies which remain outstanding, I am unable to fully analyze Mr.

Dreger’s ability to repay the loan balance. Such an analysis is a necessary consideration on Hardship Application. [ 59 ] I will remain seized of this matter. If the parties are unable to come to a resolution on this aspect of the application, additional hearing time may be scheduled in order to present evidence on the loan amounts outstanding. “C.P. Bouck” Master C. P. Bouck