Bankruptcy is supposed to be a once-in-a-lifetime flotation device thrown at a sinking debtor, from which he will recover and learn. If everyone used bankruptcy as just a tool for financial management  the cost to society would be overwhelming.

There is a hidden tax in bankruptcy as those who take the hit pass on the cost to other, more responsible consumers. VISA and MasterCard are for-profit corporations so any loss they suffer, they pass on. Millions of dollars in unpaid taxes - and bankruptcy proceedings costs - are lost to personal and corporate bankruptcies. The government passes these costs on to the responsible taxpayers.

As American law-maker G. Gekas said in a committee of the US House of Representatives in 1997:

"Historically, bankruptcy was intended as a last resort, pursued only under the most dire of circumstances; for instance, the loss of a job, an illness in the family, death of a spouse. Unfortunately, bankruptcy has become a way for reckless spenders to escape their debts."

Nudged into the Canadian Bankruptcy and Insolvency Act is the judicial discretion of the court to refuse a quick or unconditional discharge if it is not the bankrupt's first time around. But that then leaves the bankrupt within the justice system, to be managed as an undischarged bankrupt. The court file remains open and the bankruptcy trustee's job is not ended.bankrupt bankrupt bankrupt

This, in turn, drains money from trustees and Court services.

Therefore, judges are motivated to cut the bankrupt loose.

Nonetheless, serial bankruptcies attract attention. The BIA, when one reads §172 and §173 together, a judge can refuse to discharge a bankrupt if:

"... the bankrupt has on any previous occasion been bankrupt or made a proposal to creditors."

There is no guarantee any judge will refuse discharge, or at least make it conditional, but in Canada, this remains the best and only statutory weapon against serial bankrupts.

In the courthouses of O! Canada, one finds Re Hardy, a 1979 decision out of Ontario.

Mr. Hardy had gone bankrupt in 1958 and 1974. In 1977, he completed his hat trick. But when he appeared before Justice Anderson of the Ontario Supreme Court, he was in for a rude but welcome welcome:

"In my view, a third bankruptcy is one too many. The well-recognized principle underlying bankruptcy law is that a debtor may, in proper circumstances, be relieved of his obligations and enabled to re-establish himself financially. I do not consider that he should be enabled to do so upon a recurring basis. The process of the Act and of the court should not be considered to bestow a licence to incur debts and be purged of them at periodic intervals. It may be that at some time in the future the court, upon evidence that the bankrupt has undergone some change such as to make him financially responsible, may be disposed to make an order of discharge."

Judicial interest in the threshold of three bankruptcies, or a three-strike rule continued.

In Re Willier:

"By the time an individual has entered a third bankruptcy the purpose and the intent of the Act shifts from its remedial purpose of assisting well-intentioned but unfortunate debtors to one of protecting society, and in particular unsuspecting potential creditors. The best intentions and hopes of such bankrupts become subordinated to the need to protect others from the bankrupt’s demonstrated financial incompetence, negligence, and carelessness. If there can be a concept of debtors’ recidivism, it is demonstrated in stark relief by a third time bankrupt.

"To even consider a discharge for a third time bankrupt the court must be satisfied that the bankrupt has gained sufficient insight and made sufficient changes in his or her life that it is not reasonably possible that further bankruptcy will occur."

Still, judicial discretion can be a double-edged sword.

In Re Volk, the Saskatchewan Court of Queen's Bench had before it a twice-bankrupt and still granted an unconditional discharge. However, the facts of the case drew strongly from the court's natural inclinations of taking care of a child's best interests: the debtor was a single parent with two teenage sons.three strikes

But, still, a three-strikes-you're-out rule seemed solid.

Creditors and their lawyers were giddy when the 2005 edition of the venerable Bennett on Bankruptcy (at page 375) came out and simply said what all were thinking:

"If a bankrupt has been in bankruptcy three times, there will be no (discharge) order made."  

In April of 2006, the same British Columbia Supreme Court judicial officer that had written Re Willier (see above), considered the case of Terry Langill who went bankrupt in 1976, 1986 and 2005. Langill wanted out of his third bankruptcy. In Re Langill, the Prince George judge bought the application, line, hook and sinker:

"I am satisfied that Mr. Langill, notwithstanding his third strike, should not be refused a discharge. Many third time bankrupts, when closely questioned, are inclined to blame anyone but themselves for their financial disasters. I have heard third time bankrupts blame government, energy prices, business relationships in which another party expects the bankrupt to meet contractual obligations, and divorce. I even heard one blame the weather.

"Mr. Langill is not one of those people. He readily acknowledged that, other than the economic downturn that caused his first bankruptcy, he was personally responsible for his financial woes. But mea culpas are often easily offered, and frequently hollow. Mr. Langill added substance to his remorse."

Three months later, in July of 2006, Justice Cregan of the Nova Scotia Supreme Court had before him the facts of George and Doreen Pace. In Re Pace, the couple was trying to wriggle out of their third bankruptcy and were looking for a sympathetic judge. The Paces seemed to be just going through their paces: bankruptcies appeared to be on ten-year cycles: 1983, 1992 and the most recent assignment, 2005.

But the Honourable Mr. Justice Ruchrad Cregan blew hot and cold.

First, he refused the discharge and then stymied the growing doctrine by declaring:

"(T)here is no rule of law that a third time bankruptcy must result in refusal of discharge..."

It seems very unfortunate that common law judges don't like hard and fast rules such as a three-strike-you're out rule for serial bankrupts.

A review of recent bankruptcy cases shows that not all is lost. Avoiding the three-strike approach seems to be the exception; not the rule. In a 2009 decision of the British Columbia Supreme Court (Re Mooney) refused to discharge James Money because:

"... he had not learned much from his previous bankruptcy experience and that he had no plan in place to avoid another third bankruptcy."

In Re Kusch,the bankrupt was asking for discharge of his 4th bankruptcy. The court was asked to suspend discharge for 15 years but declined; instead sending him away for at least two years. Why? Because:

"... there is little or no indication though that he accepts any personal responsibility for (his bankruptcy)."

In Re Mulligan, another fourth bankrupt was denied discharge. Keena-Mae Mulligan went bankrupt in 1979, 1983 and 1991. She was back in the bankruptcy trustee's office in 2005 albeit this time with a consumer proposal which failed and she declared bankruptcy in 2006. The court gave her a whopping 15-year suspension of discharge stating the obvious:

"Society does need to be protected from Mrs. Mulligan's incompetent use of credit."

Canadian bankruptcy law coasts along with a soft three-strike rule in consumer bankruptcies. The present state of the law is tantamount to a presumption against discharge in the event of a third bankruptcy. But given that in several cases, the federal superintendent of bankruptcy has argued against discharge and for long suspensions in the event of serial bankruptcies, the days of the serial bankrupt in Canada may soon be at an end.

The American example is interesting but does appear to go far enough in dissuading bankruptcy abuse. At §727(a)(8) and (9) of Chapter 11, United States Code (Bankruptcy Code), the United States, circa 2009, has a one-discharge-every-six or eight-years rule, depending on the circumstances of the bankruptcy.


  • Bankruptcy and Insolvency Act, Revised Statutes of Canada 1985, Chapter B-3
  • Bennett, F., Bennett on Bankruptcy, 8th Ed. (Toronto: CCH Canadian, 2004). In 2006, 2007 and 2008, the same statement was repeated in the 9th and 10th and, the most current, the 11th edition.
  • Jensen, S., "A Legislative History of the Bankruptcy Abuse, Prevention and Consumer Protection Act of 2005", American Bankruptcy Law Journal 485 (2005)
  • Re Hardy 30 CBR (NS) 95
  • Re Kusch 2007 BCSC 618
  • Re Langill 2006 BCSC 540
  • Re Mooney 2009 BCSC 79
  • Re Pace 24 CBR 5th 229
  • Re Volk 1999 Sask. Reports 1
  • Re Willier 14 CBR 5th 130
  • US Code, Title 11, Bankruptcy
  • Weston, L., The Secret Struggles of Serial Bankruptcy, MSNMoney, June 30, 2004