Understanding The Bankruptcy Discharge Certificate in Canada
For those who have ever faced the threat of insurmountable debt, the concept of bankruptcy is not alien. In Canada, the legal process of bankruptcy is facilitated by a document known as the Bankruptcy Discharge Certificate. It is a critical document that signifies the end of the bankruptcy process for an individual. In this comprehensive guide, we will delve into the depths of what a bankruptcy discharge certificate in Canada entails.
Overview of the Bankruptcy Discharge Certificate
A Bankruptcy Discharge Certificate is a legal document issued in Canada that signifies the completion of the bankruptcy process for an individual. It is the final step in the bankruptcy journey that releases an individual from the obligation to repay most of their debts that existed at the time of filing bankruptcy. However, there are certain types of debts that are not discharged, which we will delve into later in this article.
Who Can Issue a Bankruptcy Discharge Certificate?
The power to administer bankruptcy and issue a Bankruptcy Discharge Certificate rests solely with a licensed insolvency trustee in Canada. If neither the trustee nor any creditor opposes the discharge, and the trustee has issued the certificate, it means the bankrupt individual has satisfactorily fulfilled all their obligations without needing a court hearing.
However, if the trustee or a creditor opposes the discharge, this leads to:
- In the case of trustee opposition, it indicates that the bankrupt individual has failed to meet all their duties when the trustee was determining if the bankrupt is entitled to a discharge.
- In the case of creditor opposition, it means that one or more creditors believe that there is information that needs court evaluation to determine the type of discharge the individual should get, if any.
- The court then decides on the type of bankruptcy discharge the individual should receive:
Absolute – Immediate discharge granted.
Conditional – Discharge granted after fulfilling one or more conditions.
Suspended – Discharge set for a later date.
Refused – Court refuses to hear the application.
“No order” – Trustee advises the court that the bankrupt has not fulfilled their duties.
Once all conditions set by the court are met, and/or the suspension period has ended, the trustee can then issue the Bankruptcy Discharge Certificate.
Duration of Bankruptcy
The duration for which an individual remains bankrupt varies. A first-time bankrupt person often qualifies for an automatic discharge after nine months. However, if you have been bankrupt before, your bankruptcy will be prolonged. A second bankruptcy lasts for a minimum of 24 months and can extend up to 36 months if there is surplus income. For a third-time bankrupt, the timeline is the same as the second time, but it is more likely that the trustee or one or more creditors will resist the bankrupt’s discharge.
Who Informs My Creditors About My Discharge?
After the bankruptcy discharge, the trustee notifies the Office of the Superintendent of Bankruptcy (OSB) that the individual has been released from bankruptcy. The Canadian credit bureaus, Equifax Canada and TransUnion Canada, are then informed, and they update all credit files with the corresponding bankruptcy information, including discharges.
What Debts are not Forgiven?
While the Bankruptcy Discharge Certificate releases you from most unsecured debts, certain debts cannot be discharged:
- Child support and alimony payments.
- Court-imposed fines or penalties.
- Debts arising from fraud or fraudulent breach of trust.
- Student loan debt if less than seven years have passed since the bankrupt ceased being a student.
These debts must be paid according to their terms. Also, debts that are secured by one of your assets, such as a mortgage or car loan, are not discharged.
What if Creditors Still Contact Me?
If creditors are consistently contacting you for payment, provide them with a copy of your Bankruptcy Discharge Certificate. If the creditor claims ignorance of your bankruptcy, also provide a copy of your sworn statement of affairs showing them listed as a creditor. If they are listed, it means the trustee had sent them a notice of bankruptcy.
What Does Trustee Discharge Mean?
After the trustee has completed the administration of the bankruptcy estate, they are entitled to their discharge. The trustee must prove to the OSB that they have completed the administration to receive their discharge. It is possible for the trustee to receive their discharge while the bankrupt remains undischarged. Once the trustee gets their discharge, an undischarged bankrupt loses the protection of the automatic stay of proceedings that were invoked upon the bankruptcy occurring. Once this protection is lost, the creditors are at liberty to once again pursue the bankrupt person for collection on the debts owing.
What if I Fail to Include a Creditor in My Bankruptcy?
If you forgot to include a creditor in your bankruptcy, and your trustee has not been discharged yet, simply instruct the creditor to contact your trustee to participate in your bankruptcy. If your trustee has been discharged, then the creditor is entitled to be paid the same returns your other creditors received from your bankruptcy- you will need to pay this amount.
What are the Benefits of Keeping My Bankruptcy Discharge Papers?
Keeping your Bankruptcy Discharge Certificate is vital as it is proof that you have been officially released from your debts included in your bankruptcy, except for certain debts that can’t be discharged. Any debts that you incur after the date of your bankruptcy are your responsibility and are not eliminated by your bankruptcy discharge.
How Long Does My Credit Score Take to Recover?
Your bankruptcy will remain on your credit report for six years from the date your Bankruptcy Discharge Certificate is issued. If you have been bankrupt more than once, then it might be reported for up to 14 years from the date of your discharge. However, having eliminated your debt problems, most individuals find that they can now build a stronger financial future.
2 Simple Steps to Improve Your Credit Score
Once discharged, it is advisable to immediately start rebuilding your credit. Here are two simple steps to help you do so:
- Apply for a secured credit card.
- Take out a small RRSP or TFSA loan.
Remember that if you do not stay current in paying off your secured credit card balance or your loan, this will further hurt your credit score.
Declaring personal bankruptcy is a significant life event. However, it is a necessary step for those burdened with crippling debt. The Bankruptcy Discharge Certificate marks the end of this journey, giving individuals a fresh start. If you find yourself facing significant financial challenges, remember there are professionals like the Bankruptcy Canada Team who can guide you through the complex restructuring process. By understanding your unique situation and devising a strategy as unique as your financial problems, they can help you regain your financial freedom.