Bankruptcy Relief

Understanding the Intricacies of Bankruptcy Relief

Bankruptcy relief is a legal provision that allows individuals or businesses to eliminate or repay a part or all of their debts under the protection of the federal bankruptcy court. It is a complex process, governed by specific laws and timelines. This article breaks down the various aspects of bankruptcy relief, focusing on the time limits under the new Act applicable to bankruptcies filed after September 18, 2009.

1. Initial Bankruptcy: The First Encounter

For individuals filing for bankruptcy for the first time, the time limits and conditions vary based on whether or not they have surplus income.

 

No surplus income

The automatic discharge, in the absence of opposition, is set for 9 months.

With surplus income

The discharge period extends to 21 months.

Note: Surplus income refers to the portion of the income that exceeds what a family needs to maintain a reasonable standard of living.

2. Second Bankruptcy: Dealing with Recurrence

The stakes and timelines increase for individuals filing for bankruptcy a second time.

 

No surplus income

The automatic discharge extends to 24 months.

With surplus income

The discharge period further extends to 36 months.

3. Multiple Bankruptcies: The Third Strike and Beyond

For individuals who find themselves filing for bankruptcy for the third time or more, the process becomes more stringent. A mandatory court hearing is set for the 12th month from the date of the bankruptcy filing. It is at the discretion of the court to extend the bankruptcy period based on the circumstances.

4. Significant Tax Debts

For bankruptcies involving significant tax debts – $200,000 or more, representing at least 75% of the total debt, a mandatory court hearing is required. The court, based on the specifics of each case, will impose varying conditions of release.

5. The Role of Surplus Income

The new Act has introduced a dynamic component in the form of surplus income. If at any point during the bankruptcy process the individual has surplus income, the duration of the bankruptcy will be extended by the specified number of months.

For instance, a salary hike or a bonus could push the average income into the surplus income bracket. Consequently, the bankruptcy duration would be extended for the time mentioned above.

6. Reduction in Bankruptcy Duration

Conversely, if an individual starts the bankruptcy with surplus income and then experiences a reduction in income during the first 6 months (or 21 months for a second bankruptcy), the duration of the bankruptcy will be reduced.

7. Duty of the Trustee

The trustee holds a pivotal role in the bankruptcy process. They are obliged to require proofs of income at the beginning of the application process and then again two months before the discharge.

8. Calculating Surplus Income

The calculation of surplus income is a critical aspect of the bankruptcy process. It is the trustee’s responsibility to calculate the surplus income. The calculation is done monthly and is based on the income of all family members, the size of the family, and the standards set by the Superintendent of Bankruptcy.

9. Impact of Surplus Income on Discharge

The amount of surplus income impacts the discharge process. If an individual’s average monthly income exceeds the limit set by the Superintendent, they must make surplus income payments, which extends the bankruptcy period.

10. The Path to Discharge

Discharge from bankruptcy is the final goal of the process. It legally releases the individual from the obligation to repay the debts included in the bankruptcy. The path to discharge is influenced by the number of bankruptcies, the presence of surplus income, and the individual’s cooperation during the process.

In conclusion, the new Act has added a layer of complexity to the bankruptcy relief process with the introduction of surplus income. It underscores the importance of responsible financial management and the implications of straying from it.

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.