Filing bankruptcy on $18,000 of unpaid rent owed to landlord

My sister recently moved out of her apartment that she hasn’t paid rent for in a close to a year.

She owes about $18k in total and the apartment was damaged so she might owe more.

She has now found a good job and trying to get her life back together but is worried that this might come back to haunt her.

Since she left, the landlord hasn’t tried contacting her.

Should she just ignore this or declare bankruptcy to get rid of this owed rent? This is in Ontario

Victor Fong, Licensed Insolvency Trustee replies

Since she left, the landlord hasn’t tried contacting her.

Did your sister even provide her landlord with her phone number, email or new mailing address?

Maybe he tried contacting her but she never provided him with her new contact info.

And if that’s the case, the landlord could very well have obtained a default judgment against her and she’s not even aware of it.

Should she just ignore this or declare bankruptcy to get rid of this owed rent?

Filing for personal bankruptcy does not automatically get rid of debt.

What it does is that it temporarily suspends the ability of a debtor’s creditors to initiate or continue legal proceedings to recover money from her – i.e., she’s put under bankruptcy protection.

If she files bankruptcy for the first time, her bankruptcy will last for either 9 months or 21 months. Whether it’s 9 or 21 months will depend on whether she has any surplus income, which in turn will depend on:

1. Her average net monthly income for the first 9 months of her bankruptcy; and
2. Whether she has any dependents such as underaged children

Let’s call this 9 or 21 month period the Bankruptcy Period.

If your sister complies with all of her legal obligations during the Bankruptcy Period she’ll be eligible for an automatic discharge, which means that her debts become legally extinguished at the end of 9 or 21 months, as the case may be.

Her obligations include:

1. Attending two financial counselling sessions
2. Providing her Licensed Insolvency Trustee with a record of her monthly income and expenses during the Bankruptcy Period
3. Assisting the LIT in the realization of her assets, if she has any
4. Paying her surplus income obligations, if any

However, any one of her creditors can oppose her automatic discharge and request that her bankruptcy file be reviewed by the Bankruptcy Court.

Therefore, in theory your sister’s landlord can oppose her discharge and:

1. Request that the Court refuse her discharge from bankruptcy; or
2. Require that your sister’s discharge be conditional upon the performance of some task, such as the payment of additional monies into the bankruptcy estate for the benefit of the creditors. And if the landlord is the only creditor, that money will go to him after the LIT’s fees are paid from the estate.

TL;DR – a bankruptcy isn’t a “get out of jail free” card like in a Monopoly game.

If the landlord opposes your sister’s discharge, the onus on your sister will be to prove to the Bankruptcy Court that she was an “honest but unfortunate debtor”.

The onus on the landlord will be to prove to the Court that she was not.