IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Smith (Re), 2009 NSSC 261 Date: September 1, 2009 Docket: 32349 Registry: Halifax District of Nova Scotia Division No. 01 Halifax Court No. 32349 Estate No. 51-1087203 IN THE MATTER OF THE BANKRUPTCY OF ANGELA LYNN SMITH Registrar: Richard W. Cregan, Q.C. Heard: June 18, 2009 Present: Angela Lynn Smith, represented by Tim Hill Darryl Haley, of Haley Associates Inc., the Trustee, represented by Rubin Dexter Introduction [1] This is an application by Angela Lynn Smith to be discharged from bankruptcy. [2] Ms. Smith filed Proposal to Creditors on July 9, 2008 The Proposal was defeated at the general meeting of creditors on July 30, 2008. As result she was deemed to have made an assignment in bankruptcy that day. Her unsecured debts totaled $203,149. The major creditor was George Toulany who held judgment against her for $147,149. The remaining debts were to financial institutions. It was the negative vote of Mr. Toulany which resulted in the defeat of the Proposal. PricewaterhouseCoopers Inc. had been the Trustee under the Proposal. Haley Associates Inc. has been the Trustee under her assignment, having been elected at the first meeting of creditors. Darryl Haley is the personal Trustee. Mr. Toulany is the Inspector. [3] Ms. Smith is 41 years of age. She has four children whom she supports. Their ages are 12, 14, 16 and 21. The youngest three live with her and the eldest is away at university, but she continues to support this child. [4] She had served in the Canadian Armed Forces as paramedic. This service ended with her being discharged in 2003 because of illness arising from active service. Specifically she suffers from Post Traumatic Stress Disorder, Major Depression Disorder, and Chronic Adjustment Disorder with Mixed Anxiety and Depression and Borderline Personality Organization. These illnesses entitle her to pension from the Department of Veterans Affairs. [5] Her home was destroyed by fire in October 2007. She and her children lived in motel for eight months while the home was being repaired. [6] She now asks that she be discharged from bankruptcy. This application is opposed by the Trustee. There are number of issues of disagreement between her and the Trustee. shall deal with them one by one. Lawn Mower and Horse Trailer [7] At the time of her bankruptcy Ms. Smith owned ride-on lawnmower and horse trailer. They were not declared as assets. She took them with her to her new residence. The Trustee claims ownership and seeks possession of them or alternatively $3000 in compensation. [8] Ms. Smith’s position is that they have little or no value or alternatively that she should be allowed to keep them in compensation for the certain exempt personal property which has been taken from her. [9] She says these two items were not reported to the Trustee, as Ms. MaGee of the Trustee’s office gave her the impression that the Trustee was not interested in things valued less than $500. Ms. MaGee denies that she ever made such statement. do not need to make any findings as to who is correct on this point. [10] Ms. Smith says that the mower is worth no more than $400. Apparently the trailer was damaged by fire. She says it will not pass safety inspection. It may be worth very little. [11] It should be remembered that with respect to the Trustee’s interest in an asset, what is of concern is the net proceeds the Trustee can receive for an asset after covering all expenses in selling it. Values, given even by knowledgeable appraisers, may mean very little when one confronts the market. [12] doubt very much that significant amount could have been or can now be realized for the benefit of the estate from the mower. In any event think it may fairly be considered as exempt under section 45 of the Judicature Act, R.S.N.S. 1989, c. 240, being “household furnishings and furniture which are reasonably necessary for the debtor and his family”. It is something reasonably needed to maintain one’s household. Such items mentioned in this section are not property divisible among the creditors because of the provisions of Paragraph 67(1)(h) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, (BIA). [13] do not think the horse trailer qualifies as exempt property. As condition of her discharge Ms. Smith must allow the Trustee to inspect this trailer. The Trustee shall be entitled to either take possession of it at the expense of the estate or be entitled to be paid its agreed value. If the parties cannot agree on its value, shall hear the parties and set the value. Assets in the Barn [14] When Ms. Smith gave up possession of her home she advised the Trustee that she had left various assets in the barn, some of which she claims are exempt, and that she would collect them later. On her return to remove these assets, she found they were gone. Her solicitor asked for an explanation but has not received one. She relates in her affidavit an account provided by friend who observed that Mr. Toulany caused these items to be removed shortly after she vacated the property. [15] There is list of these items in an e-mail from Bruce Clarke, her former solicitor, to Mr. Haley dated October 3, 2008, being Exhibit of Ms. Smith’s affidavit evidence. There is further e-mail correspondence in which Mr. Haley gives his position as to whether these items are exempt or not. Generally he considers the items which relate to horses as not exempt but properly may be considered as property vested in the Trustee for the benefit of the creditors. Most of the other items he admits are exempt, particularly pieces of furniture made by her father and kids’ movies. [16] There is little evidence before me to make detailed analysis of what is exempt and what is not exempt, nor to place values. am not asked by Ms. Smith to do this. What she wants is that there be set off recognizing the approximate value of exempt assets against what might be demanded of her for rent. [17] Shortly after Ms. Smith became bankrupt the Trustee insisted that, if Ms. Smith was to continue to reside in her home, she should pay rent or maintain the mortgage in its current position. The monthly payment on the mortgage was $1,345.52. She left the home by September 1st. Thus in issue is whether she should in one way or other compensate the Trustee for one month’s occupation of the home. [18] think it fair to say that the relationship between the Trustee, the Inspector and Ms. Smith was not conducive to reasoned discussion regarding the turning over of the home to the Trustee, nor for the working out of reasonable period of transition. It must be remembered that she had presumably in good faith made proposal. She had some hope it would be accepted. With its rejection and deemed assignment, which immediately followed, she had the added stress of having to deal with immediately finding new home for her family. [19] Normally bankrupt is able to discuss such practical problems, as what will happen to one’s house, with the Trustee before making the assignment. She did not choose her Trustee. Mr. Toulany did. Counsel for the Trustee and for Ms. Smith elected not to lead any evidence of the past between Ms. Smith and Mr. Toulany giving rise to her indebtedness to him. However, there was enough said for me to fairly conclude that for one reason or other the administration of her estate has been characterized by certain hostility that should have been avoided particularly considering Ms. Smith’s health. [20] think it fair that she has to pay something for use and occupation, but there are mitigating factors. She had little time to make arrangements. She incurred expenses in moving. She had to act quickly under very stressful circumstances. Some of the assets taken by Mr. Toulany may well be exempt. They may have value which should be recognized. Note is also to be made that she left the house with full tank of oil. Considering these factors conclude that she shall be required to pay $500 for rent as condition of her discharge. [21] The Trustee claims that Ms. Smith should pay the Trustee $9,159.45 in insurance proceeds. Ms. Smith’s position throughout is that this sum was to cover her loss of household goods which under section 45 of the Judicature Act are exempt. The Trustee and his counsel have not accepted her claim that this money is exempt. They suggest that she should have provided some hard supporting evidence such as proof of loss. [22] She has sworn in her affidavit as to the nature of this money and confirmed it on cross examination. It is a modest sum. see no reason why her evidence should not be accepted. The money was used to replace lost personal exempt assets. The replacement assets are then exempt. The Trustee should have no claim to insurance money paid to replace exempt assets. The Trustee is not entitled to this sum. (See: Brown, Re (2006), 2006 ABQB 436 (CanLII), 23 C.B.R. (5th) 46 (Alberta, Q.B.)) VIN and Income Tax [23] The Trustee reports that he needs the VIN number on the 2007 Cobalt vehicle to properly identify the vehicle to the secured creditor. [24] The Trustee also reports that he requires information from Ms. Smith to allow him to complete an income tax return. [25] Supplying this information will be condition of Ms. Smith’s discharge. [26] There are three horses which the Trustee claims are property in the estate. They were taken by Ms. Smith to her new home. On the list of assets they are given nominal value of $1.00. [27] quote from the Trustee’s affidavit of June 8, 2009 where he speaks of meeting with Ms. Smith on August 5, 2008: 5. During the said meeting Ms. Smith informed me and do verily believe as follows: Neither the Trustee nor any horse or livestock broker on behalf of the Trustee would be permitted on the property by Ms. Smith, for the purpose valuing and inspecting of the three (3) horses which are listed in Ms. Smith’s Statement of Affairs true copy of which is attached as Exhibit “B” and having nominal value of $1.00. Ms. Smith further stated that the said three (3) horses belonged not to her but to her daughter. Ms. Smith has subsequently provided an appraisal of the value of the horses which is attached as Exhibit “C”. [28] The following is the text of this appraisal prepared by Barbara Claussen. It is prefaced by the questions of Bruce Clarke: Subject: Angela Smith Dear Ms. Claussen, further to our conversation, would very much appreciate receiving your opinion concerning (1) the condition of the three horses, (2) their possible value, (3) their costs of storage for sale (if that was to occur) and (4) any information you may have concerning the current market for such horses. Your assistance is most appreciated, Bruce Clarke Dear Mr. Clarke, in my opinion to the above questions can state the following: 1) all in good shape, the older mare is lame for the last 2-3 weeks 2) foal: maybe around $800 older mare: maybe $1,000 is not lame anymore, if lameness persists meat price might be $400. year old mare: green broke as far as know, no papers, maybe $1,000 3) pasture board: about $150 200 month, which would run from May to October, boarding in 24/7 facility is about $300 350 month per horse. 4) Current market situation: usually the most popular website to sell your horse through is Atlanticrider.com. In the past years there were about 350 horses at all times for sale, now there are 550..... Everybody in the horse world is talking about flooded market. have horse for sale that had months of professional training, very good reining blood lines, no vices and I’m asking for him $2,000. finally had to give him away after several months of internet exposure. I’m more than happy to talk to anybody about the horses, current market for them or any other concern. With best regards, Barbara Claussen [29] The overall thrust of the evidence is that these horses are considered as family pets or alternatively as belonging to one or more of her children. The Trustee’s position is that they are assets of the estate. There are two questions, first to whom do they belong, Ms. Smith and now her estate or one or more of her children, and second what is their net value, that is, what could the estate be able to realize from them for the benefit of the creditors. [30] As noted above she mentioned them in her list of assets but gave nominal value. She was asked at the hearing why she listed them as her assets but is now saying they belong to her children. Her response was that she was asked whether the family owned anything. do not think anything turns on this inconsistency. One has to look at the question of who really owns the so called family assets. [31] I understand Ms. Smith first bought the horses as pets for her children. They became part of the household goods, like furniture, automobiles, lawn mowers, etc. [32] Children can own things. Property can be transferred to them by deed, registration papers, etc. and as well by delivery. There are no papers respecting these horses. Have the children acquired title by delivery? Effective delivery depends on the circumstances and the subject matter. If parent who bought bicycle and gave it to child says, “Here is new bicycle bought for you. Take it. It is yours.”, and the child rides off to show his friends, think there would be effective delivery and the bicycle would belong to the child. [33] horse is quite different. First it may have been purchased at very significant cost. The parent supplies the barn, buys the feed, pays the veterinary, makes sure it is properly fed and groomed, takes the responsibility imposed by law for the care of domestic animals, and carries insurance, all things which normally mid teen child would not have the resources nor ability to do on her own without parental oversight and contribution. [34] In the present situation, I do not think one can fairly say that one or more of the children have acquired title to the horses. Their mother owns them and provides for them. Saying they belong to her children at most means that she owns them for the use of her children. They are things the use of which loving parent provides for her children. [35] Technically with the bankruptcy they become the property of the Trustee. Ms. Smith is accountable to the Trustee for them. [36] note that section 45 of the Judicature Act in paragraph (1)( exempts “All grain and other seeds, and all cattle, hogs, fowl, sheep and other livestock which are reasonably necessary for the domestic use of the debtor and his family.” (underlining added) think it would be stretching the meaning of these underlined words to find that they cover these horses. There must be clear element of necessity which do not think extends to horses used for recreation. [37] The only material before me helpful in determining value is the report from Barbara Claussen quoted above. Her “maybe” valuation of the foal is $800 and of each mare $1,000 for total of $2,800. However she says that there is “flooded market”. At the hearing the Trustee conceded that the only way anything could be recovered would be to dispose of them for their meat. Ms. Claussen’s report suggests “meat price” of $400 for the older mare. [38] There would be expenses for transportation. The net recovery would not justify the efforts required nor the stress which would be caused. However, the Trustee is entitled to something, if Ms. Smith and her children are to keep the horses. There is little evidence to guide me. set the amount to be paid by Ms. Smith to keep the horses at $300, i.e. $100 per horse. VAC Pension [39] Ms. Smith is the recipient of disability pension benefit from Veterans Affairs Canada. must decide whether it should be included in the calculation of surplus income. She receives this pension because she suffers from Post Traumatic Stress Disorder and other related disorders which are connected with her past services in the Canadian Armed Forces. The payments are approximately $1,500 per month. They are tax free. [40] It is well established law that any cause of action arising from bodily injury, mental suffering, or injury to reputation or character or the proceeds thereof is personal and does not vest in the trustee. quote Houlden and Morawetz: Bankruptcy and Insolvency Law of Canada, Fourth Edition, F§241, Page 4-176: Where cause of action arises from bodily injury or mental suffering or from injury to reputation or character, the cause of action belongs to the bankrupt and does not vest in the trustee. It is not the policy of the law to convert into money for creditors the mental or physical anguish of the bankrupt. Put another way the creditors are not entitled to benefit from that which bankrupt receives to make whole her injured body, mind or reputation. [41] In Duffney, Re (2007), 2007 NBBR 142 (CanLII), 32 C.B.R. (5th) 72 (N.B. Q. B.). Registrar Bray extended this principal to danger pay received by members of the Canadian Armed Forces serving in Afghanistan, which incidentally also is not taxable. quote from paragraph 7: Those who in the course of their rehabilitation, however, render exemplary service to their nation should be allowed to keep the stipend offered in recognition of such efforts. [42] would put it this way. Risk allowance or danger pay is that paid to soldiers in addition to their regular stipend for taking on serious risks to their person. These risks are personal to the soldiers and their families. The creditors do not take the risks and therefore should not be allowed to share in benefits given for taking the risks. The law does not require bankrupts to take risks to their person for the benefit of their creditors. [43] Ms. Smith is paid this pension because Veterans Affairs Canada recognizes that in the service of Canada she has been adversely affected in body and mind. It gives this pension to do what money can do to make her whole. think it morally offensive that her creditors could take portion of this pension away from her and in effect take something of her person. [44] think that the policy lying behind cause of action for personal injury being personal to the bankrupt and soldiers being able to keep their danger pay, extends to pensions such as Ms. Smith has. She has the pension not because she earned it, rather she has it because she was injured in the service of Canada and it helps in limited way to make her whole. Creditors cannot be allowed to benefit from her misfortune. [45] Counsel for the Trustee quotes from Roderick J. Wood: Bankruptcy and Insolvency Law (2009), Irwin Law at page 112: Surplus income is defined as the portion of the total income of an individual bankrupt that exceeds the amount that is necessary to enable the bankrupt to maintain reasonable standard of living. Total income is defined as all of bankrupt’s revenues from whatever nature or source that are received between the date of the bankruptcy and the discharge. [46] This is followed by several examples of what has been considered as income or not as income but as property. As well the author notes that provincial exemptions do not apply to income. This may well be so, but is not relevant. What we have is pension which essentially is form of income and not property. Just as for matters of public policy an award of damages for bodily injury or mental suffering is not considered property of the bankrupt distributable to the creditors, so pension like Ms. Smith’s should not be considered as income for the purposes of calculating surplus income. [47] As to Duffney note the following commentary in Wood at page 115: Military-danger pay is not considered income for the purposes of the surplus income calculation or after-acquired income. The debtor may retain these amounts, and in this respect the payments are akin to amounts received for personal injuries. (underlining added) [48] In Ford (Re), 2009 NSSC 124 (CanLII), reviewed in some length what is meant by “income” and “revenue” for the purposes of S.68, in the context of determining whether care giver amount under the Income Tax Act is income. said the following: [44] It follows that wide and generous meaning should be given to what constitutes revenue and thus the income subject to this section. It clearly covers what one might call the bankrupt’s pay, the bankrupt’s wages, commission, benefits in lieu thereof and what other modest periodic receipts they have and are expected to use for the expenses of daily life. [49] urged an overall comprehensive construction of “income” and “revenue” which could well help in making case for inclusion of Ms. Smith’s pension as income. But think the policy issue mentioned above overrides this definition or makes an exception in the case of this pension, much as this policy issue overrides the definition of property when dealing with damages for bodily injury or mental suffering. It should make no difference whether the compensation is one time damage award or periodic payments like Ms. Smith’s pension. [50] am satisfied that for the foregoing reasons this pension should not be factor in calculating surplus income. June 16, 2009 letter [51] The Trustee wrote letter to me dated Jun 16, 2009, raising number of points. think they were covered in the course of the hearing. [52] First, he asks whether Ms. Smith had provided funds for the purchase of her present residence in Wilmot. Ms. Smith’s evidence at the hearing was that she did not. [53] Second, he referred to the substantial amount of money Ms. Smith received from her insurers and raises the question of whether she has amounts of undisclosed and undeclared cash assets at the time of her bankruptcy. He asks for bank statements for twelve months prior to bankruptcy. [54] do not think that this should be an issue in her discharge. There are other ways either under the BIA, particularly section 163, or under the Civil Procedure Rules whereby this information might have been obtained and possibly may now be obtained. There was ample time for this to have been addressed already. [55] would observe that insurance companies are known for not advancing money to cover losses without first thorough accounting and appropriate assurances that it is properly directed such as to contractors and mortgagees. [56] will give no direction regarding these matters. Surplus Income [57] According to the information provided in Ms. Smith’s affidavit and reviewed in Mr. Haley’s affidavit the following appears to be her best recent monthly income: VAC Pension $1,509.39 CPP Pension 1,466.36 Child Support 1,814.00 Superannuation Pension 374.35 Child Tax Benefit 937.79 $6,101.89 There are some months where it has been less because of less child support being received. [58] have ruled that the VAC Pension should not be included in calculating surplus income. This reduces her best income for this purpose to $4,592.50. The 2009 Superintendent Standard under Directive No. 11R for family of five is $3,941.00. This leaves surplus of $651.50. Following this directive the amount to be paid would be 50% of this surplus, that is $325.75, but rounded to $325.00. Ms. Smith has not made any payments for surplus income. Trustees are permitted to make recommendations of up to twenty-one months, that is nine months for the initial bankruptcy period and further twelve. [59] The administration of this estate has been unusually stressful. am not convinced that Ms. Smith is responsible for this stress to the extent implied by the Trustee. There should be significant amount of equity in the home which will be realized by the Trustee when it is sold. [60] I think it important that Ms. Smith be able to stabilize her family finances as soon as possible. I have discretion in determining surplus income. think in the circumstances it is appropriate that she as condition of her discharge pay surplus income of $325.00 per month for the basic bankruptcy period of nine months. However, if there have been in the meantime changes in her income which would justify her paying lesser amount, will hear the parties before the discharge order is granted and consider making an adjustment. [61] The Trustee asks for s.68 order. am not prepared to grant one at this time. If Ms. Smith falls behind in her payments, an application can be made then. [62] My authority for granting discharges is section 172 of the BIA. The conditions am imposing are beyond that provided in subsection 172(1), but are within the scope of subsection 172(2). However, cannot rely on the latter subsection without there being proof of fact under section 173. Although have some reservations about the manner in which Ms. Smith has been treated in the administration of her estate, there nevertheless are duties which technically she has failed to perform, for example providing information for completion of income tax returns. Technically fact under paragraph 173(1)(0) has been proved. Conclusion [63] In summary, Ms. Smith will be entitled to an absolute discharge once the following are done:1. She resolves the matter of the horse trailer as provided in paragraph [13] above.2. She pays the Trustee $500 for rent.3. She provides the Trustee with the VIN number on the 2007 Cobalt vehicle and with the information required to complete the income tax returns which the Trustee is required to file.4. She pays the Trustee $300 for the horses.5. She pays surplus income as provided in paragraph [60]. R. Halifax, Nova Scotia September 1, 2009
The Trustee opposed the bankrupt's application for a discharge on various grounds. The bankrupt supported four children and had been discharged from the military due to illness arising from her active service. The bankrupt will be entitled to an absolute discharge once certain conditions are met, including the payment of one month's rent, the value of the horses and surplus income for nine months to the Trustee. The bankrupt's disability pension from Veterans' Affairs was not included in the calculation of surplus income as the public policy reason behind the exemption for proceeds received due to personal injury and a soldier's danger pay applied to this disability pension. The Trustee had no claim to the insurance proceeds received by the bankrupt following the loss of her home by fire as it was a modest sum used to replace lost personal exempt assets; the three horses were found to be owned by the bankrupt as opposed to her children, for whom she had purchased them as pets and were included in the value of her estate; the court exercised its discretion in determining the amount of surplus income, noting that the administration of the estate had been unusually hostile and it was important that the bankrupt be able to stabilize her family finances.