Lundrigan (Re), 2012 NSSC 231

IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Lundrigan (Re), 2012 NSSC 231 Date: June 18, 2012 Docket: B 36348 Registry: Halifax District of Nova Scotia Division No. 03 - Sydney Court No. 36348 Estate No. 51-1464188 In the Matter of the Bankruptcy of Daniel George Lundrigan _________________________________________________________________ LIBRARY HEADING __________________________________________________________________ Registrar: Richard W. Cregan, Q.C. Heard: May 10, 2012 Written Decision: June 18, 2012

Summary: The applicant ’ s student loans were not discharged by his bankruptcy as he made his assignment before seven years had passed since he had ceased to be a student. He applied for relief under Subsection 178(1.1) of the Bankruptcy and Insolvency Act . Result: The court was satisfied that he had acted in good faith respecting the loans. As his resources were limited and he had family responsibilities the court was also satisfied that he would continue experiencing financial difficulty so that he would 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: Lundrigan (Re), 2012 NSSC 231 Date: June 18, 2012 Docket: B 36348

Registry: Halifax District of Nova Scotia Division No. 3 - Sydney Court No. 36348 Estate No. 51-1464188 In the Matter of the Bankruptcy of Daniel George Lundrigan __________________________________________________________________ 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. Rita Anderson, representing the Trustee, PricewaterhouseCoopers.

Daniel George Lundrigan, representing himself . [ 1 ] Background This is an application by Daniel George Lundrigan 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 have remained outstanding after his discharge from Bankruptcy. It is opposed by the Attorney General of Canada. [ 2 ] Mr. Lundrigan enrolled in a two year course at the Marconi Campus in Sydney in 2003.

However after completing one and a half years, his common law relationship ended leaving him responsible for debts totalling $27,000.00, in addition to two student loans, one under Federal sponsorship and the other under Provincial sponsorship, on which were owing on the date of his assignment, February 17, 2011, balances of $14,575.97 and $3,799.49 respectively. [ 3 ] He ceased to be a student in June 2004. This date is 4 months short of seven years from the date of his assignment. Accordingly, because of the provisions of Subsection 178(1) (

g) of the BIA , the student loans were not discharged with his automatic discharge on November 18, 2011.

[4] There was considerable pressure on him to deal with the indebtedness from his broken relationship. His father agreed to help him. They arranged a loan with the TD Bank for the $27,000.00. His father co-signed the loan on condition that he live at home and thus beable to make $600.00 payments each month against this loan. He had to leave his studies and find work. The loan apparently was paidin a timely manner. He then addressed his student loans. He had an understanding with the collection agency that he would pay $150.00per month. That was all he could pay as he was no longer living at home.

He only made 9 payments. [5] He has been working throughout as a cashier at the casino in Sydney. He has married. He and his wife, Michelle Lynn Lundrigan,have twins, born July 19, 2010. [6] His monthly take home pay averages $1,500.00. His wife’s monthly take home pay averages $1,084.00. She also receives theChild Tax Benefits of $223.00 and Universal Child Care Benefit of $200.00 each month. The total current household monthly income isnow $3,007.00. [7] He works the evening shift at the casino and she works during the day so that one of them is always able to look after theirchildren.

This way they avoid child care expenses. [8] The claims made in his bankruptcy, in addition to the student loans, consisted of a secured claim by TD Canada Trust for$10,875.47, and an unsecured claims of Capital One Services, LLC for $4,163.76. [9] Mr. Lundrigan’s work at the casino is steady but he does not see any opportunity for advancement. He does not see that there areother opportunities in the region for him which would pay more. [10] If he had completed the course at the Marconi Campus, he would be qualified for much better paying work. He needed anotherhalf year of study to complete it.

He doubts that he could now complete the course. He probably would have to start all over again asthe technology involved is always changing. [11] Law To be relieved of student loans under Subsection 178(1.1) a bankrupt must satisfy the court 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. [12] I must be satisfied that Mr. Lundrigan has acted in good faith with respect to these debts. The following is a review I have made ofcases and commentary on good faith. A number of points are relevant to Mr. Lundrigan’s situation. [13] I shall start by quoting what I wrote in Hankinson (Re), 2009 NSSC 211: [17] Re Minto (1999), (SK KB), 14 C.B.R. (4th) 235 (Sask., Registrar Herauf) is often referred to for its list offactors relevant to the determination of good faith.

In paragraph [62] he says: I agree with counsel that in the context of student loans one can look at certain factors considered in determining whether a condition

should be imposed on the discharge of a bankrupt with student loan liabilities; namely, whether the money was used for the purposeloaned, whether the applicant completed the education, whether the applicant derived economic benefit from the education (ie: is theapplicant employed in an area directly related to the education), whether the applicant has made reasonable efforts to pay the debts andwhether the applicant has made use of available options such as interest relief, remission, etc. [18] Registrar Sprout in Kelly, Re, (TCC), 2000 CanL II 22 497 (Ont., S.C.) after referring to these factors added: - the timing of the bankruptcy, and - whether the student loan forms a significant part of the bankrupt’s overall indebtedness as of the date of bankruptcy. [19] I would add the following: - whether the applicant had sufficient work and income to be reasonably expected to make payments on the loan, - the lifestyle of the applicant, - whether the applicant has had sufficient income for there to be surplus income under the Superintendent’s standards, - what proposals the applicant may have made to the loan administrators and the responses received, and - whether the applicant was at any time disabled from working by illness. [14] Black’s Law Dictionary (9th ed): gives the following definition: A state of mind consisting in (1) honesty in belief or purpose, (2) faithfulness to one’s duty or obligation, (3) observance of reasonablecommercial standards or fair dealing in a given trade or business, or (4) absence of intent to defraud or to see unconscionable advantage. -Also termed bona fides. “The phrase ‘good faith’ is used in a variety of contexts, and its meaning varies somewhat with the context.

Good faith performance orenforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of theother party; It excludes a variety of types of conduct characterized as involving ‘bad faith’ because they violate community standards ofdecency, fairness or reasonableness., and Barron’s Law Dictionary, 3rd edition, the following: GOOD FAITH a total absence of any intention to seek an unfair advantage or to defraud another party; an honest and sincere intention tofulfill one’s obligations.

In the case of a merchant, good faith refers to honest in fact and the observance of reasonable commercialstandards of fair dealing in the trade. U.C.C. §2-103(1)(b). More generally, the term means “honesty in fact in the conduct ortransaction concerned. “U.C.C. §1-201(19). [15] In Frank Bennett: Bennett on Bankruptcy, 14th ed, at page 564 the following factors are suggested: ●whether the money was used for the purpose loaned; ● whether the bankrupt completed the education;

●whether the bankrupt derived economic benefit from the education, namely whether the bankrupt obtained a job in the areadirectly related to the education; ● whether the bankrupt made reasonable efforts to repay the debts; ● whether the bankrupt had made use of available options such as interest relief, remission, etc.; ● the timing of the bankruptcy; ● whether the student loans form a significant part of the bankrupt’s overall debts. ● whether the bankrupt has acquired a significant estate, property, savings, investments or has the bankrupt incurred anddischarged other debts for non-necessaries, while continuing in default of the student loan; ●whether the bankrupt had sufficient work and income to be reasonably expected to make payments on the loan; ● the lifestyle of the applicant; ● whether the applicant has had sufficient income for there to be surplus income under the Superintendent’s standards; ● what proposals the applicant may have made to the loan administrators and the responses received; and ● whether the applicant was at any time disabled from working by illness. [16] The following is said in Roderick J.

Wood: Bankruptcy & Insolvency Law, Irwin Law, 2009, at page 295: The good faith requirement means that the debtor must have acted honestly both in the bankruptcy and in obtaining the student loan. [17] Houlden, Morawetz & Sarra: Bankruptcy and Insolvency Law of Canada, Fourth Edition, at H§40, page 6-185, says the following: “Good faith” implies honesty of intention. Failure to properly disclose the debtor’s marital status on the student loan application shows dishonesty of intention: Re Dustow (1999), (SK KB), 14 C.B.R. (4th) 186, 1999 Carswell Sask 831, 193 Sask. R. 159(Sask. Q.B.).

In determining whether the bankrupt acted in good faith, the following factors may be considered: 1. Was the money used for the purpose loaned? 2. Did the bankrupt complete the education or make an honest effort to do so? 3. Did the bankrupt derive benefit from the education in the sense of gaining employment in an area directly related to the education? 4. Did the bankrupt make reasonable efforts to pay the loan or did the bankrupt make an immediate assignment in bankruptcy? 5. Did the bankrupt take advantage of other options with respect to the loan such as interest relief or loan remission? 6.

Was the bankrupt extravagant or irresponsible with his or her finances?

7. Did the bankrupt fairly disclose his or her circumstances on the application for the loan in the sense of acting with an honest intention? [ 18 ] In Duke v. Nanaimo ( Regional District ) (1998), 50 M.P.L.R. (2d) 116 (B.C.S.C.) at paragraph 52 one finds the following: Although the phrase “good faith” always contains a component of honesty, it often connotes additional qualities depending on the circumstance in which it is used.

In my view, the requirement of good faith mandates genuineness, realism and reasonableness both subjectively and objectively. [ 19 ] Lowe, Re, 2004 ABQB 255 (Romaine J.) concerned a modest balance owing on a student loan of a bankrupt, the head of a family of eight. He ran a successful business. The family income was well in excess of $100,000. It was observed they lived very well - two cars, several computers, involvement in sports, the expenses for which were very high. He never made voluntary payments on the student loan in question. He spent his money on family priorities.

The point made in this case is that, although it is important that children be given access to sports, cultural activities etc., good faith requires that one ’ s priorities reasonably reflect community standards. Put another way, a certain life style is necessary to earn a living and be a part of a community, and children should be able to participate in community activities, sports, etc., but the expenditures must be reasonable; extravagance is not acceptable.

This observation applies to both the bankrupt ’ s good faith and ability to pay. [ 20 ] In Cardwell, Re , 2006 SKQB 164 , Registrar Herauf was first concerned with whether Subsection 178(1.1) relief was available to one who had made a consumer proposal. He determined that it did, but questioned whether making such was indicative of good faith. He said: 55. To put it bluntly, I have not been convinced that the applicant has satisfied the requirements in subsection 178(1.1) of the Act . The applicant made no attempt to make any payment until compelled to do so by enforcement action brought against him.

He did not take advantage of any interest relief mechanisms. While I certainly appreciate the effort by the applicant to complete a Consumer Proposal I cannot equate that effort as a show of good faith. It was judgment enforcement that prompted the Consumer Proposal and not a genuine effort by the applicant to pay down this debt. 56. I also agree with the respondent’s submission that the applicant is gainfully employed in a profession for which he received a student loan funded education. Furthermore, he will be employed in that area for the foreseeable future.

The applicant earns substantial remuneration for this work. To allow the application in the present circumstances would make a farce of this provision. [ 21 ] In Fournier, Re , 2009 Carswell Ont. 3522 , Registrar Nettie considered the need for the applicant to have acquired a new automobile when it was apparent that she could be well served by public transit, as she lived and worked in central Toronto. He said: 14. When what apparently gives in her budget at the same time that the car is leased are the payments to the student loans, I find this not to be acting in good faith in respect of those loans.

No evidence was offered of any real exploration of taking public transit, or of keeping the old car, either of which would have permitted continued or increased payments on the student loans, and I draw the adverse inference that either of those options could have resulted in money being paid under the loans, but that the Applicant chose to have a new car for reasons personal to herself, and not in keeping with her obligation to act in good faith to these two loan programs. 15. Turning to the second part of the test, financial difficulty, I find that while the Applicant certainly appears to be in financial

15. Turning to the second part of the test, financial difficulty, I find that while the Applicant certainly appears to be in financial difficulty, her present difficulty is of her own choosing - the car. But for that new car, which increases her regular transit costs from approximately $200.00 per month for bus passes to $800.00 or more, she would be able to make her support payments and pay something to the student loans. [ 22 ] Analysis - Good Faith Mr. Lundrigan has not benefitted from the education acquired with the money borrowed. The technology behind it is now stale.

The asset he acquired with the loans in now of little, if any, value to him. [ 23 ] One might criticize him for abandoning his studies with only six months left in the course. However, one must consider the situation he was in. In addition to these loans he was confronted with the debts he assumed from his previous relationship. No doubt he was being pursued by creditors more aggressive than the student loan authorities. He was a person with limited qualifications in an acknowledged depressed economic area. His father was willing to help him with the assumed debts.

He let him stay at home free, so that from a modest income he was able to repay them, no doubt with his father seeing that such happened as quickly as possible. His father ’ s generosity did not extend to the student loans. He had done his part. It might be argued that he preferred these creditors to his student loan creditors. I do not see this as a strong argument. He managed what he could with limited income. His father ’ s help was limited. [ 24 ] One can second guess what he did. Maybe he could have made a few more payments, but with his limited income the amount available would not be significant.

In the situation he found himself I do not see that he can be accused of acting unreasonably. There is no suggestion of extravagance on his part nor of dishonesty. With the birth of his children and with his limited income I see no basis for suggesting that he should be paying anything on these loans to prove that he has been acting in good faith. [ 25 ] As to the period before his children ’ s birth, there is nothing before me to suggest that he was not acting in good faith. He made some payments. He discharged the other loans, which would not have been possible without his father ’ s help and discipline.

There would have been little, if anything, left over. [ 26 ] Although the respondent has suggested bad faith on Mr. Lundrigan ’ s part, and one must be careful in this regard, no real incidents of it have been proved. The question is simply - Has Mr. Lundrigan, considering all the circumstances and looking at the total picture, acted in good faith? [ 27 ] He found himself in debt because of personal misfortune. He was fortunate that his father offered to help him out. He would not help him with the student loan, but at least he was relieved of the greater part of his indebtedness. There were few options for him.

He did what he could, maybe not perfectly. He would not have had any significant surplus income prior to the birth of his children, and certainly has had none since. The most he could find for the student loans would be very little. [ 28 ] Some flexibility and generosity regarding human nature has to be given in determining whether one has acted in good faith. One must look at his actions and ask whether he has he acted in good faith. His resources have been limited. To act in good faith does not require perfection. I think he, on the whole, has acted with honesty and reasonableness.

I am thus satisfied that he has acted with the good faith required of him. [ 29 ] Analysis - Financial Difficulty As to financial difficulty, the household monthly income is approximately $3,000.00. The Superintendent ’ s Standard for a family of four is currently $3,680.00. There is no reasonable expectation of any significant increase in the family income. He and his wife have two young children to raise on a modest income. Their circumstances are such that I am quite satisfied that they will continue to have financial difficulty and be unable to pay off these loans. [ 30 ] Conclusion

He is entitled to the relief provided by Subsection 178(1.1) of the BIA . R. Halifax, Nova Scotia June 18, 2012