One of the last options creditors will employ to recovery unpaid unsecured debts is a writ of enforcement which can put the equity in your assets in jeopardy. In this blog we explore writs and how they work, how they work in a bankruptcy and proposal, and the difference between CRA writs and the writs filed by all other creditors.
What Is a Writ of Enforcement?
The CRA can use its certification of debt to file a writ of enforcement against you. This CRA writ is different than writs of enforcement available to other creditors. For clarity sake when we refer to “writs” it refers to all writs, “CRA writ” will refer to a writ that only CRA can obtain and “common writ” will refer to writs filed by any other creditor besides CRA. All writs are a tool for recovering unsecured debt owing to the creditor. All writs can be registered against “personal property” – property that is moveable – such as:
- Serial number goods such as: vehicles, equipment, recreational equipment, trailers,
- Non-serial number goods such as: household goods, artwork, other collections
Writs can also be registered against “real property” as such as:
- Bare land, land with non-dwelling structures
- Houses, cottages
The writ provides your creditor with leverage because you are now no longer able to sell your property without paying for the writ. Creditors could also initiate the seizure and sale of any asset on which the writ is issued; however this is not the most likely outcome. A writ does not take priority over secured creditors – if the asset you have is currently fully secured by a loan then the writholder is not able to access any equity in that asset today. That being said it important to note that while the writ will continue to reside on this property – provided the writholder renews the registration as required – and as you continually pay down this debt you will not be growing any equity instead your will be increasing the amount available to the writholder until the writ is paid in full.
How is a Common Writ different from a CRA Writ?
The Process for Obtaining a Writ
A common writ is the final outcome of being sued. When you are sued you receive a statement of claim with the words “you are being sued” therein. If you do not defend the claim the creditor can receive a “Default Judgment.” If you agree with the claim you can sign off on a “Consent Judgment.” If you are being sued through a foreclosure process and there is a shortfall owing or if you oppose the claim made by the creditor but the court agrees with the creditor, the creditor can receive a “Judgment.” Each of these has the same outcome – it is an acknowledgment that the creditor is owed money and it allows the creditor to issue a writ of enforcement against your property. A CRA writ is the outcome of an internal CRA process – a court application is not required for CRA to receive a writ of enforcement. CRA will usually have to go through considerable collection attempts prior to utilizing a writ of enforcement against a taxpayer.
Writholder Entitlements Without A Bankruptcy or Proposal
A common writ – even though it is registered against property – remains an unsecured claim. By registering the writ on property what it does is ensure that any proceeds from the assets are not available to the debtor. If the property is sold – by the debtor or by actions taken by the secured creditor or the writholder – the proceeds from the sale will be subject to the writ. The selling cost and the secured claims against the property will be distributed first. Second the owners are entitled to up to a $40,000 exemption in Alberta if the property is their principal residence. After all of these considerations the remaining funds – subject to the writ – will be submitted to the court on behalf of the unsecured creditors of the debtor. For example if a house is worth $400,000 and the secured claims and selling costs total $350,000 then the equity position in this property is $50,000. If the individual lives in the property they will be entitled to their share of the exemption totally $40,000. The non-exempt equity that is subject to seizure by unsecured creditors totals $10,000 and any creditors with common writs against the property will have an entitlement to these funds up to the value of the writ. If the writ is valued at $78,000 then the creditor can just leave the writ on the property and any additional equity – from the paying down of the mortgage or increasing property values – can increase the amount available for the writholder, limited by the value of the writ. If the creditor did not receive the full outstanding balance the creditor would still be owed an unsecured amount that could be enforced against other assets or a garnishment against wages or bank accounts. If the property is sold – by the debtor or by actions taken by the secured creditor or the writholder – the proceeds from the sale will be subject to the writ. The selling cost and the secured claims against the property will be distributed first. Second the owners are entitled to up to a $40,000 exemption in Alberta if the property is their principal residence. After all of these considerations the remaining funds – subject to the writ – will be submitted to the court on behalf of the unsecured creditors of the debtor. For example, if a house is worth $400,000 and the secured claims and selling costs total $350,000 then the equity position in this property is $50,000. If the individual lives in the property they will be entitled to their share of the exemption totally $40,000. The non-exempt equity that is subject to seizure by unsecured creditors totals $10,000 and any creditors with common writs against the property will have an entitlement to these funds up to the value of the writ. If the writ is valued at $78,000 then the creditor can just leave the writ on the property and any additional equity – from the paying down of the mortgage or increasing property values – can increase the amount available for the writholder, limited by the value of the writ. Based on the information above so far the only difference between a common writ and a CRA writ is that CRA doesn’t share the proceeds with other creditors while the proceeds for the common writholder will be remitted to court and will be subject actions by other unsecured creditors of the debtor.
Writholder Entitlements In A Bankruptcy or Proposal
A common writ is a registration of an unsecured claim as a mechanism for collecting funds for their unsecured claim. When a bankruptcy or a proposal occurs this unsecured creditor receives their pro-rata share of the dividends through the bankruptcy or proposal process as such at the end of the bankruptcy and proposal process the writ must be removed from the property of the debtor. The Trustee would determine what non-exempt equity is available for all unsecured creditors – ignoring the writ because it is no longer enforceable – and the value of the non-exempt equity, if any, would need to be paid into the estate. In the example above the $10,000 non-exempt equity in the house would need to be paid into the bankruptcy through either payments made by the bankrupt or through the sale of the property if that was agreeable by all parties. The dividends available from the contribution of the $10,000 would be shared by all unsecured creditors. As noted above the CRA writ is a certification of debt that results in a secured charge on the property. When a bankruptcy or proposal occurs this secured claim remains enforceable. This means that the CRA Writ will remain on the property and CRA is still entitled to this non-exempt equity. Like the mortgage this debt is not paid out by funds in the bankruptcy or proposal so you are now required to pay these funds – directly to CRA – in addition to your bankruptcy or proposal contributions. If the writ is valued at $78,000 then the CRA can just leave the writ on the property and any additional equity – from the paying down of the mortgage or increasing property values – can increase the amount available for CRA, limited by the value of the writ. This writ is not discharged by a bankruptcy or a proposal.
Can you Negotiate in a Consumer Proposal When There is a Writ?
For a common writ there is no need to negotiate with the writ holder. This debt may be registered on personal or real property but it is an unsecured debt and as such it will be dealt with in the consumer proposal. Like all other unsecured creditors this creditor will be able to file a claim and receive a dividend from the proposal. And once the proposal has been successfully completed then this writ must be removed from the proposal. This is different from a CRA Writ – the bad news is that once a CRA writ is issued against your property the equity in your property is now secured by the CRA writ just like a mortgage debt would be. The good news is that you can negotiate with the CRA to pay down the writ to safeguard future equity in your house from CRA. This is important in situations where the value of the writ is greater than the non-exempt equity in the property. Let’s return to our example where there is non-exempt equity of $10,000 and a writ of $78,000. It is valuable for this individual – if they are filing a consumer proposal – to include a term to settle the CRA writ for the equity available at the date of the proposal, in this case $10,000. This caps the CRA payment at $10,000 even though the writ is registered for considerably more than that. instead of leaving the writ on the property at the full amount registered. CRA would received monthly payments directly from the individual for a total of $10,000 over the course of the proposal. Once the total of $10,000 is received the CRA will discharge the writ. Without this clause in the consumer proposal the writ would remain on the property perpetually undoing any equity growth until the full $78,000 is allocated to the CRA.
An Overview
| Common Writ | CRA Writ | |
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| Bankruptcy |
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| Proposal |
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Summary
While the issuance of a writ is an enforcement tool that allows for the recovery of unpaid liabilities there are definitely strategies for dealing with writs that can help you get moving forward from financial distress to financial successTM. To learn more, contact us at 587-269-3009 or reach out by email to HELLO@frederickand company.ca
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