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Bankruptcy and Property Claims

It is important to understand that once someone declares bankruptcy, all his or her rights to bring on claims in court with regard to property vest in the Trustee of that bankruptcy.  Section 30(1)(d) of the Bankruptcy and Insolvency Act, RSC 1985, c.B-3 states that,30. (1) The trustee may, with the permission of the inspectors, do all or any of the following things:(d) bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt;In Tinant v. Tinant, 2003 ABCA 211, the Alberta Court of Appeal reviewed the question and determined that, not only could an undischarged bankrupt not bring on a matrimonial property claim, that bankrupt could not even be assigned the right to bring on that claim by the Trustee.  In the words of the Honourable Mr. Justice Ritter, who penned the decision:
[11]           There are good reasons why the capacity to act is vested in the trustee. First, the assets of the bankrupt are in the control of the trustee. If the proceeding is unsuccessful it is likely that there will be a costs consequence. A costs order against the bankrupt will generally be meaningless. Further if any of the property of the bankrupt is available to satisfy the costs award then it is likely that the property should have been turned over to the trustee. Also, if the bankrupt has legitimate means to raise costs, those means would generally be better spent on contribution to his or her creditors.
 
[12]           Second, one of the purposes of cost awards is to ensure that parties will carefully consider whether there is any merit to a proceeding. When a party is bankrupt that careful consideration is easily set aside as the party is insulated from costs consequences as he or she has already lost all his or her assets to the trustee. Also the party against whom costs consequences have some meaning, the trustee, has already assessed the risks and has determined that the potential benefits of the proceeding are outweighed by the risks of a costs award.
 

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