Bankruptcy Discharge and its Consequences for the Bankrupt

Bankruptcy discharge is a complex legal concept that carries significant implications for individuals who have filed for bankruptcy. This article aims to break down the intricacies of bankruptcy discharge and its consequences for the bankrupt individual.

Defining Bankruptcy Discharge

When an individual is declared bankrupt, they are usually burdened by a mountain of debt that is impossible to pay off. A bankruptcy discharge is the legal process that absolves the bankrupt individual from the obligation to pay off certain debts that were present at the time of filing for bankruptcy.

However, there are some exceptions to the types of debt that can be discharged. These include:

  1. Alimony and child support payments
  2. Court-imposed fines or penalties
  3. Debts arising from fraudulent activities
  4. Student loans, provided that at least seven years have passed since the debtor ceased being a full-time or part-time student

For more in-depth information on the types of debt that can and cannot be discharged, it’s advisable to consult with a Licensed Insolvency Trustee.

The Discharge Process

The process of being discharged from bankruptcy is not immediate. For first-time bankrupt individuals, an automatic (“absolute”) discharge usually happens nine months after the bankruptcy filing, given certain conditions are met:

  1. They have attended two financial counseling sessions
  2. They are not obligated to contribute a part of their income to the bankruptcy estate
  3. Their discharge is not opposed by a creditor, the Licensed Insolvency Trustee (LIT), or the Office of the Superintendent of Bankruptcy (OSB)

If the bankrupt individual is required to contribute a portion of their income to the bankruptcy estate, their eligibility for an automatic discharge extends to 21 months.

In the case of a second bankruptcy, the rules differ slightly. If the debtor meets the same conditions as a first-time bankrupt, they will be eligible for automatic discharge 24 months after the date of bankruptcy. If they are required to contribute a portion of their income to the bankruptcy estate, they will be eligible for automatic discharge after 36 months.

Please note that different rules apply to bankruptcies filed before September 18, 2009. For more details, contact the OSB at 1-877-376-9902 (toll-free).

Challenging a Discharge

A bankrupt’s discharge can be opposed by creditors, the LIT, or the Bankruptcy and Insolvency Act (BIA) if the bankrupt has failed to meet their obligations or has committed an act of misconduct. In such cases, the court will review the opposition and make a decision.

There are four types of discharge:

  1. Absolute discharge: The bankrupt is released from the legal obligation to repay debts that existed on the day the bankruptcy was filed, with the exception of certain types of debt.
  2. Conditional discharge: The bankrupt must meet certain conditions to obtain an absolute discharge. Generally, these conditions involve paying a certain amount of money over a specific period.
  3. Suspended discharge: An absolute discharge that will take effect at a later date.
  4. Refused discharge: The court has the right to refuse a discharge.

Consequences of Not Being Discharged

The implications of not being discharged from bankruptcy are serious. A bankrupt individual (i.e., not discharged from bankruptcy) cannot borrow more than $1,000 without informing the lender that they are bankrupt. Failure to do so is a punishable offense under the BIA that could lead to a fine, imprisonment, or both.

The information pertaining to bankruptcy remains on an individual’s credit file for 6-7 years following the discharge of a first-time bankrupt. However, this duration may vary across provinces/territories.

Conclusion

Understanding the implications of a bankruptcy discharge is crucial for individuals facing bankruptcy. While it can provide a fresh start by absolving individuals from certain debts, it carries serious implications for their future financial endeavors. It’s advisable to seek professional advice from a Licensed Insolvency Trustee to fully understand the process and consequences of bankruptcy discharge.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.