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Paying Creditors before Bankruptcy or Proposal

I do not have any secured creditors, and I have 3 unsecured creditors (Canada Revenue Agency back taxes and credit cards from 2 different banks). I owe alot more on my taxes than I do to the banks, and I think I will need to file some type of bankruptcy or proposal within the next month. I have enough money in my bank account right now to completely clear off the credit cards, but that would leave me with a huge debt to the government. My question is: am I better off splitting the amount I have 3-way to my creditors, or should I wait until I file bankruptcy/proposal. Is there a priority I should be giving to my creditors depending on who they are or the important of the amount ? I really wanted to clear my credit cards and just have 1 creditor to deal with (Revenue Canada), but I am afraid this would look suspicious by them just before filing the bankruptcy/proposal. Any suggestions ?

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One Response to “Paying Creditors before Bankruptcy or Proposal”

Barton Goth, GCO Inc. Bankruptcy Trustees said...

It is good that you asked this question prior to acting as paying selected creditors and not others can cause you a number of difficulties. One of the main tenants of the Bankruptcy & Insolvency Act is to ensure all creditors are treated in a fair an equal manner. If a debtor, on the eve of bankruptcy, selectively pays off certain of his creditor, this is defined as a fraudulent preference. When these preferential payments have occurred the trustee is required to request the monies back from the creditors in question (which is often a difficult thing to do and can often be expensive due to all the necessary court activity) and ensure these funds are distributed on a pro rata basis to all the creditors according to the legislated priorities. As well, if the creditor (CCRA) in this case is really concerned that the monies were paid to the other parties to purposely prejudice the creditor in question, they often may oppose your discharge and request the court to either prolong the bankruptcy or impose some other sort of penalty. As a result of all this you are much better to keep the money on hand, bring it in to your trustee’s office as a component of your proposal or bankruptcy and that way you will avoid any of the above ugliness.