A government overpayment is where the federal or provincial government paid you a benefit, and then they come back later and say that they paid you too much. And now they want it back. The most common examples are employment insurance, child tax benefit (AKA “baby bonus”) and the GST/HST credit.
If you were eligible for these programs, it means that at some point you had modest income. For many people, they are simply unable to pay back an overpayment to the government. When I meet with people in this kind of situation, they naturally ask if an overpayment is included in a personal bankruptcy or consumer proposal. Here’s where it gets a little tricky. The Bankruptcy & Insolvency Act specifies which types of debts do not go away as part of a bankruptcy or proposal. Nowhere in there does it list government overpayments. However, the government view is that the overpayment was received as part of some sort of misrepresentation or fraud. Those types of debts are on the excluded list.
So what does this mean? Honestly, the answer is unclear. If you file a bankruptcy today, I don’t know for certain what the government will do in the future regarding the overpayment. The most common scenario is that they withhold future benefits that you are entitled to. Here’s a worse scenario. If a creditor can prove that a debt is a result of fraud or misrepresentation, that creditor has the right to use normal legal means to collect that debt. That could mean something like a wage garnishee. However, whether it’s the Canadian government or a credit card company, a creditor can’t go running around using the f-word (fraud) to get around the bankruptcy laws. Fraud is something that has to proven in a court of law.
If you have already been discharged from bankruptcy (or completed a consumer proposal) and the government is trying to collect an overpayment, you do have some options. You can consult with a lawyer. You might also talk to your local member of parliament. The public image of taking benefits from families with modest incomes is sometimes sufficient to stop collection action. What if you were thinking about filing for bankruptcy or a consumer proposal? If a government overpayment is your only issue, you might rethink your plans.
Why would you go through a bankruptcy only to fight with the government once you are discharged? The answer is likely different if you also have a mountain of credit cards or other debts to deal with. If you have debts, but are not sure about how an overpayment or any other debt will be treated, send us an email – we’d be happy to answer your questions about how they will be treated in a bankruptcy or consumer proposal.