Dunn (Re), 2012 NSSC 240

IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Dunn (Re), 2012 NSSC 240 Date: June 26, 2012 Docket: B 36218 Registry: Halifax District of Nova Scotia Division No. 03 - Sydney Court No. 36218 Estate No. 51-1031682 IN THE MATTER OF THE BANKRUPTCY OF ASHLEY DUNN (LAHEY) _________________________________________________________________ LIBRARY HEADING __________________________________________________________________ Registrar: Richard W. Cregan, Q.C. Heard: May 10, 2012 Written Decision: June 26, 2012

Summary: The applicant ’ s student loans were not discharged by her bankruptcy as she made her assignment before seven years had passed since she had ceased to be a student. She applied for relief under Subsection 178(1.1) of the Bankruptcy and Insolvency Act . Result: The court was satisfied that she had acted in good faith respecting the loans. Her present surplus income would not be sufficient to cover the interest on the loans. If she were to find a permanent position, using her possible surplus income, it would likely take at least ten years to pay off the loans. This is longer than what is expected.

Thus it was found that she would continue to experience financial difficulty so as to not be able to pay the debt. Relief was granted. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT ’S DECISION . QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET .

IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Dunn (Re), 2012 NSSC 240 Date: June 26, 2012 Docket: B 36218 Registry: Halifax District of Nova Scotia Division No. 03 - Sydney Court No. 36218 Estate No. 51-1031682 IN THE MATTER OF THE BANKRUPTCY OF ASHLEY DUNN (LAHEY) __________________________________________________________________ D E C I S I O N __________________________________________________________________ Registrar: Richard W. Cregan, Q.C. Heard: May 10, 2012 Present: Joseph R.

Wall, representing the Attorney General of Canada Ashley Dunn (Lahey), representing herself [ 1 ] Background This is an application by Ashley Dunn (Lahey) for relief under Subsection 178(1.1) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 ( BIA) with respect to two student loans which remain outstanding after her discharge from bankruptcy. [ 2 ] Ms. Lahey is 31 years old. She obtained the BA degree from University College of Cape Breton which she attended from 2001 to 2004. She then continued her studies at the University of Maine, Fort Kent, where she obtained the B.Ed degree in December 2006.

[ 3 ] To finance her education she obtained two student loans, one through Federal sponsorship which has an outstanding balance of $31,928 and one through Provincial sponsorship with a balance of approximately $14,000. [ 4 ] She made her assignment in bankruptcy on January 23, 2008, and was discharged on October 24, 2008. [ 5 ] After receiving her degrees she was employed with the Cape Breton Victoria Regional School Board as a substitute teacher. She averaged three days a week for which she was paid $150 per day.

Then she had a term position from October 2009 to May 2010 for which she was paid approximately $1,400 biweekly. At the end of this term she returned to the on call list and was also on the on call list with the Eskasoni School Board. With the two arrangements she was averaging three days work a week at $160 per day. [ 6 ] To supplement her income she took a real estate course, completing it in September 2009. She has worked part time as a real estate agent.

One year she made $5,000, but it is not work she can effectively do during the school year. [ 7 ] Presently she is employed with the Eskasoni School Board where she is filling in for a teacher who is on stress leave. She initially was being paid $1,184 biweekly, but received a raise to $1,400 biweekly effective March 2012. This work could end anytime. She has no tenure. [ 8 ] Her husband is a carpenter. He works for a small construction company. He has periods of unemployment. They have two children, ages five and seven. During periods of unemployment, they each receive Employment Insurance.

She also receives Family Allowance. [ 9 ] Her husband owns a mini home in which they had previously lived. It had been rented, but since the tenant left, they have been fixing it up with a view to selling it. The expenses of carrying it are $463 per month. They have been living in a house owned by her husband ’ s aunt. The arrangements with the aunt were not made clear, but my impression is that they are temporary but generous in Ms. Lahey and her husband ’ s favour. [ 10 ] They own a 2008 automobile which they bought last August for $6,000. The financing is through the Sydney Credit Union.

Weekly travel to and from school totals at least 500 km. [ 11 ] She is concerned that her children have healthy recreational activities. They are involved in appropriate sports, school and cultural activities. There are expenses, but she considers them very important for the children ’ s development. She lists the usual expenses in running a family home, telephone, cell, internet, cable, etc. There is no suggestion of extravagance on her part. [ 12 ] As to her efforts to make payments on the loans, it is convenient for me to simply quote what she says in her affidavit: 3.

Since 2009 I have made payments on both these loans. I have a payment arrangement with Canada Revenue Agency to pay $50.00 a month. From October 2009 - May 2010, I made payments of $110.00 this is when I was employed full time. In regards to the loan with Service Nova Scotia & Municipal Relations, I have a payment arrangement with them to pay $75.00 a month. From October 2009 - May 2010, I made payments of $150.00 this is when I was employed full time. I continue to make monthly payments of 75.00 and 50.00.

In February 2012, I was contacted by Canada Revenue Agency saying our arrangements are no longer good because they have record that I am working. I am currently working with them to provide them the information they require to prove that I am still not financially able to pay these debts. The commitment I made to them at $50.00 a month is all I can commit to at the time because although I have worked full time hours since January 2012, my job is filling in for

someone who can come back to her position at any time. I do believe there is a judgement against me on my credit report from these student loans. 4. I did make use of interest relief on both of these loans, but as far as any other programs I did not make use of because I have no knowledge of any programs that will help lower this debt. I have made a payment arrangement with them under the consideration of my on call work and unpredictable income. [ 13 ] Her budget includes regular credit card payments. The credit cards are in her husband ’ s name.

I presume that they relate to current expenses and they may be in arrears. [ 14 ] Child care is listed at $550 per month. This is incurred when both she and her husband are working. [ 15 ] Her present teaching position will expire when the regular teacher is able to return or at the end of the current term. If the regular teacher is not able to return for the next term, the position will be posted.

She will apply for it, but will have to compete with everyone else. [ 16 ] Both of them are usually entitled to Employment Insurance during periods of unemployment. [ 17 ] Subsection 178(1.1) requires that I be 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. [ 18 ] Analysis - Good Faith Ms. Lahey used the money to become a teacher. It appears that she is a respected teacher. She has taken all the supply and term work available to her. The money borrowed has been well used. She has the asset of her education and qualifications.

Her difficulty is that through no fault on her part, she has not been able to fully utilize it nor to establish herself sufficiently to have assurance that she will be fully employed in the foreseeable future. She takes what she can find. She has qualifications in real estate and has done what she can with it. [ 19 ] She has payment arrangements with both agencies. One might argue that she should have been paying more.

However, with the uncertainty of work, the expenses of her children and all the other contingencies of life, I do not think she has been less than responsible. [ 20 ] I see no suggestion that she has been less than honest. She and her family do not engage in extravagancies. They are entitled to a reasonable amount of recreation. [ 21 ] I am satisfied that she has acted in good faith. [ 22 ] Analysis - Financial Difficulty I must now consider the second test of financial difficulty. [ 23 ] At the present time without a permanent position her income is uncertain. Her take home pay presently is $2,369.58 per month.

Her husband ’ s is $2,418.16. Family allowance is $289.73. This totals $5,077.47. These figures assume full employment for both of

them. He is subject to unemployment from time to time when work is not available. She is not paid during the summer months.

The figures above are for peak periods. [ 24 ] The following is the calculation of her surplus income in accordance with the Superintendent Directive No. 11 R2-2012, following Appendix B: Bankrupt ’ s available monthly income: Take home pay $2,369.58 Family Allowance $ 289.73 $2,659.31 Other family unit member ’ s available monthly income $ 2,418.16 $ 5,077.47 Non-discretionary expenses child care expenses $552.00 expenses associated with a medical condition $ 130.00 $ 682.00 $4,395.47 Superintendent ’ s Standards for a family of four $ 3,680.00 Total monthly surplus income $715.47 Family situation adjustment 2,659.31 ÷ 5,077.47 = 52% $716.47 x 52% $372.04 Payment required from bankrupt $372.04 x 50% $186.02 [ 25 ] Thus in her present situation she would be required to pay each 12 months a total of $2,232.27.

I understand the current rate charged on student loans is 7 ¼ % per annum. The interest for a year on the loans totalling about $46,000 would be $3,335, or $278 per month. It clearly follows that unless her income significantly increases in the near future she will not be able to cover the interest, let alone the principal. [ 26 ] To pay off a loan of $46,000 at 7 ¼ % in ten years would require monthly payments of $537, in seven years, $697 and in five years $913. [ 27 ] I rely in this decision, as I have in several previous decisions, on the Superintendent ’ s Standards regarding surplus income.

The Directive is provided to help trustees determine the proper amount, consistent with the purposes of the BIA , bankrupts should be expected to pay into their estates, but allowing to them what is needed to maintain a reasonable lifestyle.

[ 28 ] The Standards are reviewed annually and are reflective of various economic indicators. They are binding on trustees in setting conditions of discharge, but are always reviewable by the court so that special circumstances of individual bankrupts may be taken into account. I see that making a determination under Paragraph 178(1.1) (

b) as an exercise similar to the setting of surplus income to be paid as a condition of discharge. The Standards are a guide for determining what one may reasonably, equitably and within the overall intent of the BIA be expected to pay to liquidate one ’ s student loans. [ 29 ] I reviewed these issues in Cook (Re) , 2010 NSSC 224 and take the liberty of quoting the following paragraphs: Analysis [23] The main point is how long Ms. Cook should continue to be burdened with this debt. At worst it could take her up to 25 years to pay these loans with her current surplus income.

I do not think that absent some issue of moral turpitude in incurring the debt, such as in motor vehicle judgment cases, the law expects one to be burdened for 25 years. Ms. Cook will be 62 then and retired, or seriously thinking of retiring. Again I do not think, absent such an issue, one should expect her to be paying more than the surplus determined by the Superintendent’s Standards. They are set to assure fairness for both the bankrupt and the creditors as to required contributions to estates during bankruptcy and as conditions of discharge.

I think they should equally apply as guidelines in making determinations under Subsection 178(1.1) . A similar degree of fairness should be applied. I appreciate that her surplus income will probably increase as her salary increases and when her son becomes independent.

However, it is likely that she will be supporting him to a degree for the next five to ten years. [24] Any improvement in her circumstances which can be reasonably expected will not change the fact that paying this debt will take many years. [25] One should consider the policy of the BIA and of bankruptcy practice generally with respect to how long bankrupts should be expected to be bound by conditions of discharge. The BIA is there to help the honest debtor who has experienced misfortune to be reestablished freed of debts of the past which have become unmanageable.

The bankrupt may be expected to make contributions to creditors, but it normally is for a short period of time. This is reflected in the provisions for discharge, particularly in paying surplus income during bankruptcy and as a condition of discharge, and in consumer proposals being required to be performed within five years (Subsection 66.12(5)). As well Division I proposals normally anticipate completion within five or fewer years. [26] The history of Subsection 178(1.1) has some bearing. Originally, student loans were preferred loans, being debts to the Crown. The preference was lost.

They became ordinary debts, but the courts soon imposed special considerations, finding a high moral duty to pay such loans particularly where one has benefitted from the education. This benefit is correctly looked upon as an asset. This was followed by a two year waiting period between ceasing to be a student and making an assignment for the loan to be dischargeable in bankruptcy. This was increased to ten years, then reduced to seven years as it now is. The waiting periods in Subsection 178(1.1) have changed in tandem with the foregoing changes in Subsection 178(h).

Now it is five years. [27] This subsection has addressed the concern that bankrupts have sought to rid themselves of these loans too soon after completing their education. It imposes a waiting period. It gives them time to establish themselves professionally, socially and financially. Once established most will be able to pay their loans. Others during this time may not be so successful and not be able to manage their loans, even with the best will. They may need to use Subsection 178(1.1) . [28] I have to interpret “financial difficulty” and being “unable to pay”.

In doing so I must operate within the context of the BIA , its objects, the practice in how it is applied, and the legitimate culture surrounding it. [29] As well it must be remembered that I must consider the entire debt, all $90,000. Whether Ms. Cook can make manageable contributions against the debt, and I think she could, is not a relevant question. Subsection 178(1.1) does not provide for such a resolution. Such is only possible with a subsequent bankruptcy.

I can only relieve her of the debt in full or deny the application. [ 30 ] Contributing in periodic payments using the surplus income approach could take her up to twenty-five years. This would take her close to the age where she would be closing her career as a teacher. As mentioned earlier, rarely is one required, except in cases involving moral turpitude, to continue to make payments under the BIA beyond a five year period. To require her to fully discharge this debt in full is, I think in the circumstances, far beyond the spirit of the BIA .

[30] Making projections from Ms. Lahey ’ s present financial situation results in it being very clear that she will not be able to liquidate the debts within any reasonable period of time, if at all, and at the same time provide a reasonably basic standard of living for her family. If not relieved in this application, she will have to consider making another assignment which will be at great cost to her, 36 months of surplus payments and fourteen years of having her credit rating marked. This in itself strongly suggests that she meets the test of Paragraph 178(1.1) (b). [ 31 ] Ms.

Lahey hopes that she soon acquires a permanent position. But she has been hoping for a number of years. Opportunities for teaching are few throughout Nova Scotia and particularly in Cape Breton. Teaching positions are being reduced and schools closed. The demographics are not good. She and her family might move elsewhere, but I do not think there are many enticing places. She might become more active in real estate, but the success needed to be able to address these debts may be elusive. [ 32 ] One might dismiss this application with liberty to reapply in a year or two.

She might in the meanwhile find a permanent position resulting in an increased and stable income or she might be no further ahead. [ 33 ] If the present situation is to continue, I am quite satisfied that she will meet the test of Paragraph 178(12)(b). [ 34 ] I have no specific evidence of what her additional take home income would be with a permanent position.

Suppose, however, it would be $1,000 per month. [ 35 ] Let me calculate what her surplus income would be: Bankrupt ’ s available monthly income: Take home pay $3,369.58 Family Allowance $ 289.73 $3,659.31 Other family unit member ’ s available monthly income $ 2,418.16 $6,077.47 Non-discretionary expenses child care expenses $552.00 expenses associated with a medical condition $ 130.00 $ 682.00 $5,395.47 Superintendent ’ s Standards for a family of four $ 3,680.00 Total monthly surplus income $1,715.47 Family situation adjustment 3,659.31 ÷ 6,077.47 = 60%

$1715.47 x 62% $1063.59 Payment required from bankrupt $1063.59 x 50% $531.79 [ 36 ] As indicated in paragraph [26] above monthly payments of $531.79 would take about ten years to liquidate the debt. [ 37 ] As I have suggested before, ten years is too long to burden one with obligations under the BIA , unless there is some issue of moral turpitude, which there is not in the present situation. [ 38 ] I am satisfied that Ms. Lahey will continue to experience financial difficulty so as to be unable to pay the debt. [ 39 ] Conclusion She is entitled to relief under Subsection 178(1.1) . R. Halifax, Nova Scotia June 26, 2012