Gambling debt and insolvency in Canada: proposals, bankruptcy and discharge

Two legal routes, one federal law

Insolvency in Canada is governed by one federal statute, the Bankruptcy and Insolvency Act (BIA), and supervised by the Office of the Superintendent of Bankruptcy (OSB). Both formal options for a person who cannot pay their debts are filed through a licensed insolvency trustee (LIT): a consumer proposal, which is a deal to repay part of the debt, and a bankruptcy, which hands non-exempt assets to the trustee in exchange for a discharge from most debts. Money owed on credit cards, lines of credit or payday loans used for gambling is ordinary unsecured debt in either process.

The OSB keeps a public directory of licensed insolvency trustees that can be searched by name or location. A trustee is the only professional who can file either a proposal or a bankruptcy, so anyone promising to settle debts "without a trustee" is offering something else.

Consumer proposal: repaying part of the debt

Under section 66.11 of the BIA, a consumer debtor is a person whose aggregate debts, excluding any mortgage on their principal residence, are not more than $250,000 or any other prescribed amount. Because the Act allows the limit to be changed by regulation, confirm the current figure with a trustee before deciding.

The OSB's consumer proposal guide sets out how the process runs:

1. The proposal is prepared and administered by a licensed insolvency trustee, and the debtor attends two counselling sessions.
2. Creditors have 45 days to accept or reject it. A meeting of creditors is held only if creditors holding 25 per cent of the claims ask for one, and it must take place within 21 days.
3. If accepted, there are 15 days in which a court review can be requested.
4. Payments are made to the trustee. Under section 66.12(5), a consumer proposal must provide for completion within five years.
5. The proposal is deemed annulled if payments fall three months behind.
6. When all terms are met, the trustee issues a certificate of full performance.

Section 173 does not apply to a proposal, because a proposal ends with a certificate rather than a court discharge. For someone whose debt came largely from gambling, that is often the deciding difference.

Bankruptcy and the automatic discharge

A bankruptcy ends with a discharge, and the timing is set by section 168.1:

The automatic discharge happens only if no opposition to the discharge has been filed; section 168.1 also excludes the bankrupts covered by section 172.1 from this automatic route. Under section 157.1, the trustee must provide counselling, and a bankrupt who refuses or neglects to receive it loses the right to an automatic discharge. If the discharge is opposed, the case goes to a court hearing.

The gambling clause in section 173

Section 173(1) lists the facts that, once proved, affect a discharge. Paragraph (e) reads:

the bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagance in living, by gambling or by culpable neglect of the bankrupt's business affairs

Other paragraphs in the same list often appear alongside it, including assets worth less than 50 cents on the dollar of unsecured liabilities (paragraph a), a previous bankruptcy or proposal (j), failure to make required surplus income payments (m), choosing bankruptcy when a viable proposal was possible (n), and failure to perform the bankrupt's duties (o).

What happens if a section 173 fact is proved is set by section 172(2). The court must do one of three things: refuse the discharge, suspend it for a period, or grant it on condition that the bankrupt perform acts or pay money. Under section 172(3), a bankrupt can apply to have a conditional order modified after one year. In other words, gambling does not bar a person from filing or from eventually being discharged, but it can make the discharge slower or conditional.

What a trustee asks about gambling

The trustee prepares a report for the court. Under section 170, that report covers the affairs of the bankrupt, the causes of the bankruptcy, the bankrupt's conduct, and any fact that would justify the court in refusing an unconditional discharge. Gambling losses therefore have to be described honestly. Section 170(2) adds the timing: the report is filed with the court at least two days before the discharge hearing, and copies go to the bankrupt, the Superintendent and creditors who asked for one at least ten days before it. That gives the bankrupt time to read what the trustee has said about the causes of the debt before the hearing.

The questions come largely from the sworn statement of affairs. The OSB's Form 79 for non-business filers asks, among other things:

• whether, in the 12 months before the filing, you sold property, made payments to creditors beyond regular payments, or had property seized;
• whether, in the five years before the filing while insolvent, you disposed of property or made gifts over $500;
• whether you have filed a proposal or been bankrupt before;
• whether you expect money other than income in the next 12 months;
• the reasons for your financial difficulties.

The form does not have a separate gambling box, but money moved to casino accounts, large cash withdrawals and repayments to friends or family can fall under these questions. Bank and card statements are the simplest way to answer these questions accurately, because they show where the money went and when. Being open about gambling at this stage is far less risky than having a creditor or the trustee raise it at a discharge hearing.

Getting help with the gambling itself

Section 157.1 counselling covers money management. It is not treatment for a gambling problem, and filing does not stop the urge to gamble. Free, confidential provincial lines are open around the clock:

• ConnexOntario: 1-866-531-2600, 24 hours a day, or text CONNEX to 247247. It covers problem gambling as well as mental health and addiction.
• B.C. Gambling Support Line: 1-888-795-6111, toll-free, 24 hours a day, with free counselling.
• Jeu : aide et référence in Quebec: 514 527-0140 in Montreal or 1 800 461-0140 elsewhere, 24 hours a day, free and confidential.

Other provinces and self-exclusion options are listed on the responsible gambling page and in the provincial guides.

What to do

1. Stop new borrowing for gambling and, where possible, use self-exclusion with the casinos and lotteries you use.
2. Collect statements for every card, line of credit and loan, plus bank records for the past 12 months.
3. Book a first consultation with a licensed insolvency trustee from the OSB directory and ask whether a consumer proposal fits your debt level.
4. Tell the trustee about gambling at the start. It affects whether a proposal or a bankruptcy is the safer route.
5. Call a provincial help line, such as ConnexOntario at 1-866-531-2600, for support with the gambling alongside the debt.