How to Navigate Discharge From Bankruptcy in Canada: A Comprehensive Guide
Being declared bankrupt is a stressful and challenging event that significantly impacts one’s life. However, the process of being discharged from bankruptcy can often be equally daunting. This guide aims to provide a thorough understanding of the process of discharge from bankruptcy in Canada, its implications, and how to successfully navigate it.
Understanding Bankruptcy Discharge
Bankruptcy discharge refers to the legal procedure that frees an individual from the obligation to pay off debts incurred before the declaration of bankruptcy. However, this process does not absolve certain debts such as support payments to a former spouse or children, court-imposed fines, debts resulting from fraud, and student loans (if the individual stopped being a full- or part-time student less than seven years ago).
The Timeline to Discharge
The duration for the bankruptcy discharge process varies based on whether it’s a first or second bankruptcy. The timeline can range from 9 months for first-time bankruptcies to 36 months for second-time bankruptcies. This process requires cooperation with the trustee and fulfilling bankruptcy requirements diligently.
The Role of the Trustee
The trustee is an officer of the Bankruptcy Court who plays a crucial role in the discharge process. They are responsible for alerting the Office of the Superintendent of Bankruptcy (OSB) to any actions of the debtor that may jeopardize the bankruptcy application. For instance, maxing out credit cards before declaring bankruptcy might complicate the bankruptcy application or even make the debtor ineligible.
Understanding First and Second Bankruptcy Discharges
First-time and second-time bankruptcies have different eligibility criteria for an automatic discharge.
For a first bankruptcy, one is eligible for an automatic discharge after 9 months if no one from the OSB office, the trustee, or a creditor is opposing the discharge, the individual has attended the required financial counselling sessions, and surplus income was not required to be paid into the estate.
If surplus income payments were required, an automatic discharge is eligible after 21 months, given all other conditions are met.
For a second bankruptcy, if surplus income payments are not required, the automatic discharge can occur after 24 months. If surplus income payments are required, the automatic discharge can take place after 36 months, provided all other conditions have been met.
Types of Bankruptcy Discharge
The court may grant one of four types of discharge:
Absolute discharge: The debtor is freed from the legal obligation to repay the debts that existed on the day the bankruptcy was filed, except for certain types of debt.
Conditional discharge: The debtor must fulfill certain conditions to obtain an absolute discharge.
Suspended discharge: An absolute discharge that comes into effect at a later date.
Refused discharge: The court can refuse to grant a discharge.
Consequences of Not Being Discharged
Remaining an undischarged bankrupt has significant consequences. The individual cannot borrow more than $1000 without disclosing their bankruptcy status to the lender. Failure to do so is an offense that could result in a fine, imprisonment, or both.
Applying for Bankruptcy Discharge in Canada
When the trustee completes their duties with respect to the administration of the debtor’s property, they apply for a discharge. This process follows the completion of bankruptcy duties such as providing income and expense statements, attending required financial counselling sessions, and/or making surplus income payments.
Preparing for the Discharge Hearing
The debtor must prepare a notice of hearing for a bankrupt person’s application for discharge, an affidavit explaining why they believe they are entitled to the discharge order sought, an affidavit of service, and a draft of the order sought. The debtor must also serve these documents on any creditor that filed an opposition to the discharge, creditors who attended an earlier discharge hearing, their Licensed Insolvency Trustee, and the Office of the Superintendent in Bankruptcy.
The Discharge Hearing
During the hearing, the debtor presents their case to the Associate Justice/Registrar in Bankruptcy. They clearly state what order they are seeking, outline the facts supporting their application, and explain how the law applies to their case. The Judge or Registrar may ask questions relating to the affidavits and documents filed and make suggestions or give directions.
Post Discharge Process
Once the formal discharge order is granted and signed by the Judge or Registrar, the debtor receives a copy of the signed order, and the discharge becomes official. The debtor must then provide a copy of the order to the Office of the Superintendent of Bankruptcy, who will notify credit bureaus and the Canada Revenue Agency of the discharge.
Seeking Professional Help
Navigating the process of discharge from bankruptcy in Canada can be complex. It may be beneficial to retain a bankruptcy lawyer to assist with the application for discharge. Dedicated professionals can provide practical advice and workable solutions to help individuals and businesses in financial difficulty. They can help people in finding the relief they need and assist in tailoring a new debt restructuring procedure based on unique economic situations and needs.
In conclusion, the process of discharge from bankruptcy in Canada may seem overwhelming, but it is not insurmountable. With the right knowledge, preparation, and professional help, one can successfully navigate the process and start afresh on a sound financial footing.
