Statute-barred claim is NOT a provable claim in bankruptcy

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One of the documents in a bankruptcy is the bankrupt’s sworn Statement of Affairs, which lists the bankrupt’s assets and liabilities. Even though a debt is listed in a statement of affairs, the creditor must still prove that the debt is not only owed but collectable.

In the case of John Trevor Eyton (Re), 2021 ONSC 3646, a Statement of Affairs filed by the bankrupt listed a claim in the name of the appellant, and the appellant filed an unsecured proof of claim. The Trustee disallowed the claim on the basis of the claim being statute barred under s. 4 of the Ontario Limitations Act, 2002, since the last payment constituting an “acknowledgment” was made more than 2 years prior to the bankruptcy.

The creditor unsuccessfully appealed the disallowance of its claim to the Registrar pursuant to s. 135(4) of the Bankruptcy and Insolvency Act (“BIA”). In the subsequent appeal from the Master’s order, the appellant submitted that section 121(1) of the BIA defines provable claims without any qualification in relation to debts affected by provincial limitation periods and that s. 4 of the Limitations Act, 2002 is only procedural in effect because it does not purport to extinguish a debt subject to its provisions.

Justice S. F. Dunphy decided that a statute-barred debt is not a claim provable in bankruptcy since allowing it has the effect of elevating the status of the debt from “uncollectable” to “collectable.” He held that a statute-barred claim is not of the same rank as an enforceable claim because the creditor cannot enforce payment of it. The Court dismissed the appeal holding that the argument advanced by the appellant would lead to an absurd result as it would require the Court to find that a claim that was statute-barred and unenforceable would suddenly become enforceable by virtue of a bankruptcy intervening.

Hence, the appellant’s claim was not provable in bankruptcy within the meaning of s. 121(1) of the BIA because the bankrupt was not subject to the claim.

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