McCrossin (Re), 2019 NSSC 71

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: McCrossin (Re) , 2019 NSSC 71 Date: 20190225 Docket: No. 42797 Registry: Halifax Estate Number : 51-2089387 In the Matter of: The bankruptcy of Nikolas Robert McCrossin Judge: Raffi A.

Balmanoukian, Registrar Heard: January 4, 2019, in Halifax, Nova Scotia (by teleconference) Counsel: Nikolas Robert McCrossin, appearing via teleconference personally Balmanoukian, Registrar: [ 1 ] Should a young man with no dependents and a secure job, making approximately $60,000 per year, be relieved from $9100 in student loans, carrying a minimum monthly payment of $435? [1] [ 2 ] No. [ 3 ] Over the last few months, I have delivered several written and oral decisions in which I have bemoaned the limitations placed on the Court under Subsection 178(1.1) of the Bankruptcy and Insolvency Act , RSC 1985, c.

B-3 , as amended (the “ BIA ”). That provision gives me a very limited jurisdiction. I can grant relief, or refuse it (or adjourn the application, or refuse it with leave to reapply). I cannot modify the loan or its terms. [ 4 ] Mr. McCrossin avails himself of that provision. He is a discharged bankrupt, but his student loans were not discharged by virtue of Subsection 178(1) BIA . [ 5 ] Subsection 178(1.1) reads:

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

g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, 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. [ 6 ] I am often presented with “hardship relief” applications under this subsection, in which the minimum payment called for is simply untenable.

If the applicant demonstrates good faith – the other branch of the 178(1.1) test – the remaining question is whether there is a juristic reason by which the Court should not exercise its discretion to grant full relief, and discharge the student loans. [ 7 ] I have reviewed the caselaw on s. 178(1.1) and this three part test – good faith, present and continuing financial difficulty (sometimes referred to as “hardship”), and the Court’s discretion – in Re Sullivan 2018 NSSC 334 and Re Simon , 2018 NSSC 332 .

I have also discussed the public and special nature of student loans in general in Re Handspiker , 2018 NSSC 333 . [ 8 ] In my opinion, Mr.

McCrossin (who filed affidavit evidence and appeared at the hearing via teleconference from Alberta, where he is stationed with the Canadian Forces) fails all three tests. [ 9 ] He has not demonstrated present and continuing financial difficulty within the meaning of section 178(1.1) ; his actions and own words fall short of the “good faith” required; and in the event I am wrong about either or both of those factors, I would not exercise my discretion in his favour on the facts of his case.

[ 10 ] I will examine each of these elements in turn. Good faith [ 11 ] I canvassed the case law on this topic in Re Simon , supra . I will not here repeat the extensive quotations I cited therein, and my analysis. Instead, I will discuss Mr. McCrossin’s approach to his indebtedness as presented in his affidavit evidence and viva voce submissions, as they relate to the relevant factors I compiled and summarized in Re Simon . [ 12 ] Mr. McCrossin received credit for the first year of his two year culinary arts course.

He is three credits short of completion in his second year (out of some 7-10 credits per year required). He worked for various restaurants before joining the Canadian Forces, where he is a cook. Regardless of his level of completion, it is fair to say he is making use of the skills acquired during his education, in his vocation. [ 13 ] He seems to have considered the status of his student loan, in bankruptcy, as a type of reverse onus.

He states “[m]y intention was always that the Student Loans would form part of the bankruptcy filing.” He wrote to the authorities asking for his balance to be reduced to zero “per judgment of courts.” In effect, he seems to have been of the belief that he could impose his understanding on the authorities, to achieve a conclusion in law. He refers to this in his affidavit as “[t]wo samples of correspondence with Student Loans which assumed that the Student Loans were included in the Bankruptcy discharge. None were answered by Student Loan.” [ 14 ] That is not how it works. [ 15 ] I cannot comment on Mr.

McCrossin’s understanding, or how he arrived at it. There was no evidence of what, if any, guidance he received from the Trustee on the topic. However, he clearly was not within the “dischargeable loan” timeframe, having finished studies in April 2011 and having filed for bankruptcy in February 2016. [ 16 ] He also does not have the option, for all intents and purposes, to say “if I don’t hear from you I’ll consider us square.” It is unfortunate that the student loan authorities did not respond to this to put Mr.

McCrossin’s understanding aright, but that does not change the result. [ 17 ] In any event, as may be seen from Re Gowans , 2010 ABQB 500 , a mistaken belief does not constitute a basis for the loan’s discharge. This is the case even if the source of that belief turns out to be a mistake by the Trustee. [ 18 ] Turning to Mr. McCrossin’s performance as indicators of good faith, or lack thereof - Mr. McCrossin’s evidence was that he paid approximately $1,000, all voluntarily, under the indebtedness prior to his bankruptcy.

The student loan balance, at bankruptcy, was a little over $8,000 out of a total of $21,687 declared unsecured creditors, a significant but not overwhelming proportion. It is fair to say he did not file on the heels of cessation of studies. [ 19 ] I will discuss Mr. McCrossin’s lifestyle and means under the discussion of financial hardship. [ 20 ] He does not appear to have been impeded by any illness. [ 21 ] He says he made use of interest deferment twice, while unemployed. He did not receive a debt principal reduction. As stated, he is now employed.

His service contract runs to 2021. [ 22 ] He is or has been subject to GST (when he was eligible for the GST credit) and Income Tax refunds being withheld at source to defray the indebtedness. [ 23 ] He takes offence to the “constant” collection calls and letters and states that “I have agreed to $50/month payment to stop the ‘harassment’.” [ 24 ] Although I have pointed out factors in Mr.

McCrossin’s favour – the timing of the bankruptcy, the proportion of the student loan of the total indebtedness, and limited use of interest relief, the balance of relevant factors (including those “good faith” factors pertaining to financial matters, yet to be discussed) weigh heavily against a finding of good faith. [ 25 ] Instead, it appears that Mr. McCrossin, for whatever reason, considers it his liberty to adjust his legal obligations by a type of “negative option” – that by writing to the authorities he could change the effect of the BIA as it impacts his student loans.

Not so. [ 26 ] It is also telling that the only voluntary payments he has sought to make are “to stop the ‘harassment.’” One may hypothesize as to how anxious he would be to address this matter but for the importuning and garnishment/withholding efforts of the authorities. [ 27 ] On balance, I find that Mr. McCrossin has not satisfied the “good faith” test in 178(1.1)(a). Financial Hardship [ 28 ] I have referred to Mr. McCrossin’s basic circumstances already – he is employed, securely for now, at a salary of approximately $60,000 per year. He has no dependents.

He is 30 years old. [ 29 ] His pay statement shows a gross pay of $5,014 monthly, plus $159.50 in taxable benefits. His net is $2,584.32 for the month of October 2018. [ 30 ] That requires adjustments both up and down. This does not reflect CPP or EI, as he had reached the maximum for 2018. On average, these would be $216.15 and $59.05 monthly, respectively. [ 31 ] There are also insurance deductions which do not factor materially into my analysis.

[ 32 ] The most significant non-statutory [2] deduction is for housing and related amenities, of $946.42 per month. In other words, if Mr. McCrossin had his own private sector housing arrangements, his take-home would be correspondingly increased. [ 33 ] He also has a $495.83 superannuation deduction, which I understand to be a mandatory pension plan. Although this may fairly be said to be a type of savings, I give Mr.

McCrossin the benefit of the doubt of this deduction for the purposes of my hardship analysis. [ 34 ] I have the discretion, under s. 68(11) to fix what is a “fair and reasonable” amount for the purposes of that section. [ 35 ] Strictly speaking, s. 68 is not applicable to this case, as we are not dealing with what is “surplus income” for the purposes of the bankruptcy process. I also do not want to be taken, as some cases suggest, as accepting the s.68 amount as the “be all and end all” amount for the purposes of calculating whether there is 178(1.1) financial hardship.

Nonetheless, I consider it a useful exercise in the case at bar. If Mr. McCrossin does not have “surplus income” within the meaning of s. 68, it is relevant in assessing the level, if any, of s. 178(1.1) financial hardship. [ 36 ] If one takes Mr. McCrossin’s gross income of $5,014 monthly, deducts average CPP, EI, superannuation, insurance benefits, and income tax, one is left with some $3323.46 per month against a superintendent’s guideline amount for 2018 of $2,152.

The difference is $1171.46, and half that (the Directive 11R2 “surplus income” ratio) is $585.73 If this was a bankruptcy situation, $585.73 would be the presumed minimum amount Mr.

McCrossin would have to pay his trustee during the bankruptcy as “surplus income.” This is assuming that the amounts I have deducted are all mandatory, and are all allowable for the purposes of calculating the s. 68 amount. [ 37 ] The minimum student loan payment called for here, according to the invoice in evidence, is $435. [ 38 ] I have been vexed in several 178(1.1) cases before me in which the debtor has some ability to pay, but not to the extent called for by the authorities.

I have found myself boxed in a corner in such cases given my lack of jurisdiction to amend or adjust payment terms. [ 39 ] This is not such a case. [ 40 ] In addition to Mr. McCrossin’s notional s. 68 amount being well above the student loan payment amount, I also bear in mind the time horizon. The interest rate is not in evidence before me [3] , but $9100 divided by $435 is some 21 months. Allowing for interest, one may surmise that the loan amortization at this rate of payment is well under three years. [4] [ 41 ] That is not an unreasonable hardship in these circumstances. [ 42 ] I have also borne in mind Mr.

McCrossin’s submitted budget. To his credit, he appears to have taken the insolvency process seriously. His budget bears out his attention to financial planning. Some items are presented bimonthly instead of biweekly, so his ultimate cash flow would vary slightly from month to month, but that does not change the overall picture. [ 43 ] I also do not propose to exacerbate this decision with a microscopic analysis of each item. It is adequate to say that there are notable discretionary expenses. Mr.

McCrossin uses a vape; he has a $785/month auto expense; he has items like “date night,” as well as “entertainment” ($55/month) and $100 for savings. I do not mean individually to criticize any specific item. I mean to illustrate that Mr. McCrossin does not live the life of an ascetic. [ 44 ] 178(1.1)(

b) requires not only that Mr. McCrossin have a current “financial difficulty to such an extent that the bankrupt will be unable to pay the loan,” but that that he will “continue to experience” such difficulty. [ 45 ] Not only does Mr. McCrossin have the present wherewithal to pay the student loan, on the terms in evidence before me, but has a service commitment which ensures that he will continue to have this ability until at least 2021. [ 46 ] I therefore find that Mr. McCrossin has not met the “financial difficulty” test in s. 178(1.1) (b). DISCRETION [ 47 ] Having found that Mr.

McCrossin has failed both elements of the 178(1.1) test, I must refuse his application. To reiterate, if he fails one or both branches of 178(1.1) I must refuse the application. If he meets them, I may or may not do so. [ 48 ] Thus, in the event I am wrong about both aspects of my analysis – that is, if Mr.

McCrossin had met both the good faith and financial difficulty elements in 178(1.1) - I would then have to consider whether I should exercise my discretion in his favour. [ 49 ] One of the objectives of the BIA , particularly for a first-time bankrupt (which almost all 178(1.1) applications will encompass) is debtor rehabilitation. It is certainly to Mr.

McCrossin’s credit that he appears to have learned from the process, at least when it comes to managing his cash flow. [ 50 ] However, I have found his approach to this indebtedness and unwillingness to service what is serviceable (except to “stop the ‘harassment’”) to be wanting. [ 51 ] I have had recent occasion to revisit the “special nature” of student loans in Re Handspiker , 2018 NSSC 333 . While that was a discharge application, I also discussed 178(1.1). [ 52 ] Ultimately, student loans are not the same as other unsecured debt.

They are debts to the public, provided at a time of need to enhance an intangible and lifelong asset – an education. The implied bargain is that through that loan facility, the recipient becomes a (more) productive and contributing member of Canadian society. The bargain further assumes that through repayment of the loan and enhanced skills and economic value (and corresponding taxes and consumption), the borrower enriches both him-or-herself and the polity as a whole.

[ 53 ] In the present case, Mr. McCrossin is admirably making use of his education; he doing so in taking a living wage in the form of the Queen’s shilling through his service to Canada in our Forces. He has the means and corresponding obligation to repay the advance Canadians have made to him, in the form of his comparatively modest student loan. There is no discretionary reason known to me by which, if I had found that he met both components of the 178(1.1) test, I would have effected the relief he seeks. Conclusion [ 54 ] The application is dismissed. Balmanoukian, R.