Gwizd, (Re), 2017 BCSC 1975 – A bankrupt’s equity in real property and agreements with the trustee

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A recent decision of a British Columbia Master, sitting as a Registrar in Bankruptcy, has provided some much needed guidance to bankrupts and trustees with respect to non-exempt equity in a bankrupt’s home where there is an agreement with the trustee.

In Gwizd (Re), 2017 BCSC 1975, the Court granted the bankrupt a discharge on the condition that he make a payment to the trustee of approximately $27,000, enforcing an agreement entered into between the bankrupt and trustee almost two and a half years earlier at the outset of bankruptcy.

The payment amount represented a fair assessment of the bankrupt’s non-exempt interest in his home at the time; however, in the intervening years, the bankrupt’s share of the equity had substantially increased, attributable solely to the rising markets in the Lower Mainland of British Columbia.

In considering the appropriate terms for discharge, the Court considered and distinguished the 2015 Ontario Court of Appeal decision in Lepage (Re), 2016 ONCA 403, which case suggested that, even where a trustee in bankruptcy disclaims its interest in a bankrupt’s property, any increase in equity amounted to “after acquired property” which thereby formed part of the bankrupt’s estate. The Court in Gwizd declined to follow this analysis, noting the comments of the Court of Appeal in Lepage were obiter, and were not supported by the case law, suggesting increased equity is not after acquired property.

Ultimately, the Court found that the agreement between the bankrupt and trustee ought to be enforced, and that in exercising its discretion and considering the rehabilitation of the bankrupt, the interests of creditors, and the integrity of the bankruptcy process, a payment in accordance with the agreement was the appropriate condition of discharge.

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