Second Time Bankruptcy and Bankruptcy Discharge

Navigating Through the Maze of Second-Time Bankruptcy and Bankruptcy Discharge

Filing for bankruptcy is a legal course of action, often approached by individuals submerged in overwhelming debt. However, there’s a stark difference between filing for bankruptcy for the first time as opposed to a second time. In the case of a second-time bankruptcy, the debtor does not qualify for an automatic bankruptcy discharge within nine months as opposed to first-time personal bankruptcy.

Second-time bankruptcies, although not uncommon in Canada, come with stricter regulations, yet they still offer a fresh start to the debtors.

A Deeper Look into the Duration of Bankruptcy – The 2009 Amendments

In September 2009, transformations were made to Canada’s Bankruptcy and Insolvency Act (BIA), which resulted in a lengthened process of second-time bankruptcy compared to the first. Presently, instead of receiving an automatic discharge after nine months (given no surplus income for the debtor), a debtor filing a second-time bankruptcy may remain in bankruptcy for up to twenty-four months. This period can extend to at least thirty-six months if the debtor is obligated to make surplus income payments into the bankruptcy.

Decoding the Concept of Surplus Income

In the context of bankruptcy or consumer proposal, surplus income is essentially the amount of money earned by an individual that exceeds the existing government threshold within a one-month time period. If your income surpasses this threshold by $200 per month or more, you are required to contribute a portion of it into your bankruptcy.

The philosophy behind this is that it is only fair for the creditors to receive a part of your income for a certain time period, if you can afford to, since otherwise, they will reclaim very little of what you owe them.

Creating surplus income is not a wrong or bad practice as you will retain a part of this money. Only 50% of your income that is above the threshold amount is paid into your bankruptcy.

However, when you have surplus income, irrespective of whether it is a first or second bankruptcy, you will remain in bankruptcy for a longer duration than if you did not have surplus income.

Can Bankruptcy Duration Exceed 36 Months?

Your first or second bankruptcy could potentially last longer than the minimums mentioned earlier if a creditor or your Trustee contests your bankruptcy discharge.

Although challenges to bankruptcy discharge are not a frequent occurrence, if a creditor or your Trustee suspects that you have not dealt with them honestly, or have not fulfilled your duties in bankruptcy, they may apply to the Court to schedule a hearing. Awaiting the Court date, and completing any further duties required of you, will postpone the discharge of your bankruptcy.

Exploring Alternatives

In certain situations, a consumer proposal may prove to be a more feasible option than a second bankruptcy. A common aspect of most consumer proposals is that your monthly payment remains constant and is not influenced by any changes in your income during the proposal’s duration.

Before making the decision to file for a second bankruptcy in Canada, you must comprehend all of its implications, including the extended bankruptcy discharge. We advise that you get in touch with a Licensed Insolvency Trustee today and set up a complimentary initial consultation.

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In the journey of second time bankruptcy and bankruptcy discharge, understanding the nuances and complexities is crucial. By making informed decisions and with the guidance of a licensed insolvency trustee, you can navigate this challenging journey and ultimately, regain control of your financial situation.

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