Urgent Info: How Bankruptcy Affects Your COVID-19 Government Benefits

We have been receiving inquiries from people:

1. who are either contemplating bankruptcy or have already filed bankruptcy and haven’t yet been discharged; and
2. are concerned about the impact bankruptcy will have on the various benefit programs that were introduced under the COVID-19 Emergency Response Act.

What follows is an e-mail issued to all Licensed Insolvency Trustees earlier today from the Office of the Superintendent of Bankruptcy. This should give you some guidance on how your bankruptcy will affect your benefits under the various programs.

Note: “OSB” is an acronym for the Office of the Superintendent of Bankruptcy

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Guidance re: COVID-19 Emergency Response Act

The Government of Canada has introduced the COVID-19 Emergency Response Act to help Canadians pay for essentials like housing and groceries, provide additional support to families with children, and help businesses to pay their employees and their bills during this time of uncertainty.

The OSB wishes to emphasize the importance that funds received pursuant to the COVID-19 Emergency Response Act go to debtors, and not to estates, in furtherance of the intention of Parliament and these unprecedented circumstances. The OSB also wishes to highlight the importance of promoting fairness and avoiding unintended and prejudicial impacts on debtors in bankruptcies, whose funds may have otherwise flowed to the estate, versus debtors in proposals, who would have been more likely to keep their funds.

Canadian Emergency Response Benefit (CERB)

Part 2 of the COVID-19 Emergency Response Act enacts the Canada Emergency Response Benefit Act to authorize the making of income support payments – the Canada Emergency Response Benefit (CERB) – to support workers who lose their income as a result of the COVID-19 pandemic.

The benefit covers Canadians who have lost their job, are sick, quarantined, or taking care of someone who is sick with COVID-19, as well as working parents who must stay home without pay to care for children who are sick or at home because of school and daycare closures.

Additionally, workers who are still employed, but are not receiving income because of disruptions to their work situation related to COVID-19, would also qualify for the CERB. The CERB is available to Canadian workers affected by the current situation whether or not they are eligible for Employment Insurance (EI).

Pursuant to the COVID-19 Emergency Response Act, the CERB:

(a) is not subject to the operation of any law relating to bankruptcy or insolvency;

(b) cannot be assigned, charged, attached or given as security;

(c) cannot be retained by way of deduction, set-off or compensation under any Act of Parliament other than this Act; and

(d) is not garnishable moneys for the purposes of the Family Orders and Agreements Enforcement Assistance Act.

Therefore, debtors are entitled to keep income support payments received pursuant to the COVID-19 Emergency Response Act, and these payments should not be included as property or income pursuant to the BIA.

GST/HST credit payments

Part 1 of the COVID-19 Emergency Response Act provides additional assistance to individuals and families with low and modest incomes with a special top-up payment under the Goods and Services Tax (GST) credit and the Harmonized Sales Tax (HST) credit.

A Licensed Insolvency Trustee’s (LIT) powers to receive and retain GST/HST credit payments from a bankrupt are limited pursuant to paragraph 67(1)(b.1) of the BIA, Rule 59, and section 67 of the Financial Administration Act (FAA).

The basic character of GST/HST credit payments is that they are property exempt from execution or seizure, except if they are required to satisfy the LIT’s fees and disbursements. If there is sufficient money to make a dividend available to creditors, GST/HST credit payments are considered exempt.

Pursuant to the FAA, GST/HST credit payments cannot be assigned. Agreements that purport to do so are ineffective and, when administering a bankruptcy, the LIT is to return the GST/HST credit payments to the bankrupt (section 67 of the FAA). As GST/HST credit payments cannot be assigned, it is inappropriate for LITs to request that they be assigned in a conditional order of discharge.

Keeping in mind the intention of the Government of Canada in introducing the COVID-19 Emergency Response Act, the OSB strongly encourages LITs to allow debtors to keep increases in GST/HST payments they receive pursuant to the COVID-19 Emergency Response Act, in spite of Rule 59 which may permit LITs to accept such amounts for fees and where no dividend is payable to creditors.

Temporary Increase in Canada Child Benefit

Part 1 of the COVID-19 Emergency Response Act gives additional assistance to families with children by providing temporary additional amounts under the Canada Child Benefit (CCB). 

Pursuant to subsection 122.61(4) of the Income Tax Act, the CCB:

(a) shall not be subject to the operation of any law relating to bankruptcy or insolvency;

(b) cannot be assigned, charged, attached or given as security;

(c) does not qualify as a refund of tax for the purposes of the Tax Rebate Discounting Act;

(d) cannot be retained by way of deduction or set-off under the Financial Administration Act; and

(e) is not garnishable moneys for the purposes of the Family Orders and Agreements Enforcement Assistance Act.

Therefore, debtors are entitled to keep the CCB received pursuant to the COVID-19 Emergency Response Act, and these payments should not be included as property or income pursuant to the BIA.

Other COVID-19 Relief Payments

LITs are encouraged to interpret the enacting legislation providing other COVID-19 relief payments, for example from provincial governments. The interpretation and guidance above should apply, as appropriate.