Understanding Canadian Undischarged Bankrupts: A Comprehensive Guide
Bankruptcy, a term that often evokes fear and uncertainty, is a legal process designed to provide financial relief to those overwhelmed by debts. However, the path to debt freedom via bankruptcy is not always a straightforward one. Particularly in Canada, the concept of undischarged bankrupts often raises many questions. This article delves deep into understanding the intricacies of undischarged bankruptcy in Canada, its implications, and the possible alternatives.
1. Demystifying Bankruptcy in Canada
Bankruptcy in Canada is a legislated process administered by Licensed Insolvency Trustees (LITs), professionals authorized by the Superintendent of Bankruptcy. The bankruptcy process is designed to alleviate the financial burden of insolvent individuals and corporations by transferring their assets, excluding those exempt by law, to the appointed LIT, who then liquidates them to repay creditors.
2. Defining Undischarged Bankrupts
When an individual or company declares bankruptcy, they become “undischarged bankrupts“, a status that continues until they receive their discharge. The discharge, a critical milestone in the bankruptcy process, frees the bankrupt from the obligation to repay most of the debts they had at the time of filing bankruptcy.
3. The Journey from Bankruptcy to Discharge
Upon declaring bankruptcy, an individual or corporation becomes an “undischarged bankrupt”, a status that continues until they receive their discharge. The discharge is a crucial phase in the process, liberating the bankrupt from the obligation to repay most of the debts accumulated at the time of filing bankruptcy.
Attaining the discharge, however, is contingent on fulfilling certain duties, such as full disclosure of all assets and liabilities to the LIT, surrendering non-exempt assets, attending mandatory counselling sessions, and other required meetings.
4. Debts Exempt from Bankruptcy Discharge
While bankruptcy discharges most debts, certain obligations survive the process. These include:
- Support payments for ex-spouses or children;
- Court-imposed fines and penalties;
- Debts resulting from fraudulent activities; and
- Student loans if bankruptcy is declared within seven years of study.
Moreover, secured loans, which are loans backed by an asset as collateral, are outside the bankruptcy process. The secured creditor can enforce their loan agreement and repossess the asset if the debtor fails to make payments.
5. Consequences of Remaining an Undischarged Bankrupt
The implications of remaining an undischarged bankrupt are substantial. These could entail:
- Restrictions on borrowing beyond a certain limit without informing the lender of the bankruptcy status;
- Inability to work in certain professions or roles that require security clearance or managing trust accounts;
- Negative impacts on credit scores and duration of bankruptcy information on credit reports; and
- Limitations on property ownership and potential surplus income payments to the LIT.
6. Discharge from Bankruptcy: Understanding the Process
The process of obtaining a discharge from bankruptcy depends on various factors, including whether it’s a first or subsequent bankruptcy, the bankrupt’s income level, and whether they are subject to surplus income payments.
While first-time bankrupts with no surplus income requirements can get an automatic discharge after nine months, those with surplus income need to make payments for 21 months before they’re eligible for a discharge. The timelines extend for those declaring bankruptcy for the second time or more.
