Question

Imelda, Lucy, Spiro and Juan are architects in business in Ottawa as a partnership (ILSJ Architects). They have been together for 20 years and have noticed that competition has driven down their profits. They prepare a bid in response to a tender from the City of Ottawa to design a new library. Spiro reaches out to the competing firms in Ottawa and strikes a deal with them whereby the other firms will make bids that exceed $3,000,000 to ensure ILSJ will win the bid at a price that will yield an acceptable profit. In exchange, he will bid too high in the next City of Ottawa tender opportunity. They are awarded the contract on October 31, 2019 at a price of $3,000,000 and must complete the design by March 31, 2020 Unfortunately, all of the partners get ill with the new coronavirus and cannot do the work. The contract in favour of the City of Ottawa is ironclad and the partners have no defence to the contract claim. All the partners manage to recover from COVID-19, but the City awards the contract to the next lowest bidder at $4,500,000. The City sues the 4 partners for the $1,500,000 difference. At this point Lucy learns of Spiro’s deal with the competitors and believes that the contract could have been completed for $2,500,000 so the City did not really suffer damages because the price of $4,500.000 is artificial. Lucy comes to you for legal advice. What do you tell her? Identify as many issues as possible. Note that the question is not about contract law so do not raise any contract law issues in respect of the contract with the City of Ottawa. Lucy has very little in assets and cannot afford to pay a judgment. Will she have to declare bankruptcy? If so, what is the process and what issues may emerge through the bankruptcy process? What other areas of law are relevant?

Answer 1

Yes, she have to declare bankruptcy. Some common reasons for filing for bankruptcy are unemployment, large medical expenses, seriously overextended credit, and marital problems. Chapter 7 is sometimes referred to as a "straight bankruptcy." A Chapter 7 bankruptcy liquidates your assets to pay off as much of your debt as possible. People can only file for bankruptcy under Chapter 13 if their debts do not exceed a certain amount. The specific cutoff is reevaluated periodically, so check with a lawyer or credit counselor for the most up-to-date figures. Under Chapter 13, you must design a three- to five-year repayment plan for your creditors.

If you're looking to erase only $2,000 worth of credit card debt, bankruptcy isn't worth the expense. Bankruptcy also might not be the best route if your creditors are willing to reduce what you owe by 30 to 60 percent because you offer them an immediate lump-sum payment.

Definition of Bankruptcy Law

Bankruptcy is a legal procedure initiated by an individual or a business that cannot pay their debts and seeks to have the debts discharged or reorganized by the courts. The three most common types of bankruptcy proceedings are Chapter 7 individual petitions, Chapter 11 business reorganization and rehabilitation petitions, and Chapter 13 wage earner’s plans.

Steps in Bankruptcy process

• Classifying Your Debts : In bankruptcy, debts are divided into two classes: secured debts and unsecured debts. A secured debt is one where you have pledged certain property as security for payment, such as with a mortgage or auto loan. An unsecured debt is not connected with any particular property, such as credit card debt and medical bills
• What Happens to Your Property : In bankruptcy, property is divided into two classes: exempt property and nonexempt property. Exempt property is property that either state or federal law has declared to be unavailable to creditors in trying to collect debt. Non exempt property is of minimal value. If the trustee determines that nonexempt property is of little value, or that it would be problematic to sell it, the trustee will abandon the property and you will keep it.
• Before Filing : Before filing for bankruptcy you must complete a credit counseling program with a court-approved agency. This should be done no more than six months before you file, and can often be done online. There is a fee for the program, but the fee may be reduced or waived if you meet certain low income requirements.
• Bankruptcy Forms : The federal bankruptcy courts have created numerous official forms. The basic form that must be prepared to file for Chapter 7 bankruptcy is the Voluntary Petition. Along with the Voluntary Petition, you will need to prepare numerous other forms, which outline your property, debts, income and expenses. It is important to list all creditors and their accurate mailing addresses.
• Filing with the Bankruptcy Court : Your forms will be filed with the bankruptcy court clerk. The typical practice is to file all of the forms at the same time; however, in an emergency (such as needing to immediately stop a foreclosure, eviction, or car repossession) it is permissible to file just the two-page Voluntary Petition, and file the other forms within fourteen days.
• Attending the Meeting of Creditors : A bankruptcy trustee is a person appointed by the court to take control of your property and assure that your creditors are paid as much as possible. The trustee’s pay is directly related to how much he or she gets for the creditors. The trustee will examine the forms you file with the court to be sure they are complete, try to identify nonexempt property, and look to see if you’ve improperly transferred any property.
• Discharge : After the creditors meeting, creditors and the trustee have 60 days in which to object to a discharge, or to the discharge of any particular debt. To do so, they need to file a lawsuit in the bankruptcy court. If there is no such lawsuit filed within the 60-day period, the court will issue an order discharging your unsecured debts.

​​​​​​​Bankruptcy is a legal status that usually lasts for a year and can be a way to clear debts you can't pay. When you're bankrupt, your non-essential assets (property and what you own) and excess income are used to pay off your creditors (people you owe money to). At the end of the bankruptcy, most debts are cancelled.

The main aim of insolvency law is to replace free for all legal regime with a proper process for orderly collection of the debtor's assets and fair distribution thereof. ... They allow honest but unfortunate debtors to obtain a fresh start by relieving them from their debt.

Some, but not all, states have also taken various action to limit mortgage foreclosures because of the COVID-19 pandemic. For example, California suspended judicial foreclosures until 90 days after the state lifts its state of emergency, New Jersey both halted foreclosure evictions until 2 months following the end of its state of emergency, and announced an agreement with over 40 private financial institutions generally to offer forbearances on mortgage payments for up to 90 days, and not start new foreclosures for 60 days, New York both barred foreclosures for 90 days, and generally required “New York regulated institutions” to make “widely available” forbearances on mortgage payments for 90 days, and Wisconsin prohibited foreclosures for 60 days. In addition to restrictions from Federal and state governments, many private financial institutions, recognizing the harsh economic conditions caused by COVID-19 issues, have issued their own forbearance plans and limitations on mortgage foreclosures.

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