Understanding Bankruptcy Discharge in Canada
When an individual finds themselves in a dire financial situation, bankruptcy might be a viable option. It’s crucial to understand what a bankruptcy discharge entails, especially in Canada. Absolute discharge bankruptcy Canada is a term that will come up often in your research. This article aims to shed light on this concept in detail.
Defining Bankruptcy Discharge
A bankruptcy discharge in Canada is a legal status that releases a bankrupt individual from the obligation to repay certain debts that were present when the bankruptcy was declared. However, there are exceptions to this rule. The following categories of debt are not covered by a bankruptcy discharge:
- Alimony or child support payments;
- Court-imposed fines or penalties;
- Debts resulting from fraudulent activities;
- Student loans, as long as less than seven years have passed since the debtor ceased being a student.
The Timing of Bankruptcy Discharge
A bankrupt individual is automatically granted absolute discharge nine months after filing for bankruptcy if it’s their first bankruptcy. Here are a few conditions that must be met:
- The individual must attend two financial counselling sessions;
- The individual is not required to pay a portion of their income into the bankruptcy estate, as per standards set by the Office of the Superintendent of Bankruptcy (OSB);
- The discharge is unopposed by a creditor, the Licensed Insolvency Trustee (LIT), or the OSB.
Licensed Insolvency Trustees
Licensed Insolvency Trustees (LITs) play a crucial role in the bankruptcy process. They offer financial advice and assistance in filing for bankruptcy. Here are some resources for understanding and finding a LIT:
What is a Licensed Insolvency Trustee?
Find a Licensed Insolvency Trustee
If the bankrupt individual is required to pay a portion of their income into the bankruptcy estate, the eligibility for automatic discharge extends to 21 months.
Second Bankruptcy and Discharge
For second-time bankrupts who are not required to pay a portion of their income into the bankruptcy estate, the terms change slightly. They are eligible for automatic discharge 24 months after the bankruptcy date if they’ve attended two counselling sessions and no one opposes the discharge. If they are required to contribute to the bankruptcy estate, their eligibility for automatic discharge extends to 36 months.
Challenging a Discharge
Sometimes, a bankruptcy discharge may be opposed by creditors, the LIT, or the BIA if the bankrupt individual has failed to fulfill their obligations or committed an act of misconduct under the Bankruptcy and Insolvency Act (BIA) (refer to section 173 (1) of the BIA). The court reviews the opposition and makes a decision.
Types of Bankruptcy Discharge
There are four possible outcomes when a discharge is considered:
Absolute discharge
The bankrupt individual is released from the obligation to repay certain debts.
Conditional discharge
The bankrupt individual must meet certain conditions before being granted an absolute discharge.
Suspended discharge
An absolute discharge is granted but will only take effect at a future date.
Refused discharge
The court can refuse to grant a discharge.
Consequences of Not Being Discharged
Not securing a discharge can have significant repercussions for a bankrupt individual. For instance, they can’t borrow more than $1,000 without informing the lender of their bankruptcy. Failure to do so is a punishable offense under the BIA.
Moreover, the record of bankruptcy stays on an individual’s credit file for 6-7 years after the discharge of a first-time bankrupt. However, this duration may vary across provinces/territories.
In conclusion, understanding the process of absolute discharge bankruptcy Canada is crucial for anyone considering bankruptcy. It’s advisable to consult with a Licensed Insolvency Trustee and thoroughly understand all the implications before making such a decision.
