Understanding the Financial Implications of Declaring Bankruptcy a Second Time in Canada
As a Canadian citizen, one might be under the impression that filing for bankruptcy a second time would entail similar rules and costs as the first. However, this is far from the truth. The reality is that there are distinct differences in terms of rules and expenditures when one declares bankruptcy for the second time. This article aims to elucidate the nuances of declaring bankruptcy a second time in Canada, primarily focusing on the costs involved.
How Much Does It Cost to Declare Bankruptcy a Second Time in Canada?
One of the first aspects to comprehend about filing for bankruptcy a second time in Canada is that it is invariably more expensive. It is vital to understand the various costs involved in this process in order to make an informed decision.
Base Contribution Cost
When you declare bankruptcy for the first time, you are required to make a base contribution of $1,800 to the court. This is usually paid in increments of $200 over a period of 9 months. However, if you find yourself declaring bankruptcy for the second time, the base contribution increases to $4,800. This amount is paid in monthly installments of $200 spread over a period of 24 months. This is the minimum amount you can expect to pay when declaring bankruptcy for the second time.
Surplus Income
In Canada, the government determines the minimum income required by an individual or a family to maintain a decent standard of living. If your income exceeds this threshold, the surplus is perceived as additional funds that can be used to repay your bankruptcy debt. This is referred to as surplus income. If your net income exceeds the yearly surplus income threshold determined by The Office of the Superintendent of Bankruptcy, you are mandated to make surplus payments. This also results in an extension of your bankruptcy term from 24 months to 36 months.
Calculating Surplus Income Payments
Surplus income payments are dependent on several factors such as your family income, the size of your household (number of dependents), and your deductible expenses.
Asset Cost
The total cost of bankruptcy also depends on the value of your assets such as your home, car, or investment accounts. If your debt is substantial, your assets that are not exempted from the process will be liquidated by a Licensed Insolvency Trustee (LIT) and sold to repay your creditors. This is one of the major drawbacks of filing for bankruptcy in Canada.
Duration of A Second Bankruptcy in Canada
Not only is a second bankruptcy more expensive and lengthy than the first one, but the rules governing it are different as well. While a first bankruptcy lasts for a minimum of 9 months, a second bankruptcy lasts for a minimum of 24 months. However, if you have surplus income, your second bankruptcy can be extended by an additional 12 months, totaling 36 months or 3 years.
Distinct Rules for Filing for Bankruptcy a Second Time
In 2009, the federal government of Canada implemented new bankruptcy rules for individuals who have filed more than once. According to these rules, a person who has filed for bankruptcy twice and has performed all their required duties during the bankruptcy period is entitled to an automatic discharge from bankruptcy in either 24 or 36 months. This depends on whether they need to make surplus payments or not.
Can You Declare Bankruptcy for a Third Time?
Yes, you can declare bankruptcy for a third time, provided you have successfully completed your previous two bankruptcies. However, there are additional conditions that you must meet when filing for bankruptcy for a third time.
No Automatic Discharge
Unlike the second bankruptcy, you will not be automatically discharged after your bankruptcy payments are finished for the third time. Instead, you will need to formally request a discharge from the court. This could result in additional time, effort, and legal fees.
Other Penalties
The court may also impose a time penalty and/or financial conditions on you. Any additional charges will depend on how long it has been since your previous bankruptcies and the creditors that were included in each filing.
How Many Times Can You Apply for Bankruptcy?
Technically, there is no legal limit to the number of times you can file or apply for bankruptcy. However, it is unlikely that any bankruptcy filings after your third one will be accepted or discharged. You must remember that your third bankruptcy involves asking a court to discharge you, and if you go back for a fourth time, there is a high likelihood that the court will refuse to grant you a discharge.
Other Costs to Consider
While declaring bankruptcy can help you become completely debt-free, there are serious consequences to consider beyond just the financial implications. These include:
Time Cost
Getting discharged from bankruptcy is neither easy nor quick, especially if you are declaring bankruptcy for the second time, which takes 2 to 3 years as compared to 9 months for the first time. The legal process is long and complicated, and you must regularly set aside time to check in and submit various paperwork with your LIT throughout the process.
Credit Cost
A second bankruptcy can cause a significant drop in your credit scores. When you declare bankruptcy, all the accounts involved in the bankruptcy will receive an R9 credit rating, which will show up on your credit report for 14 years after your discharge. This could prevent you from qualifying for new credit and favorable interest rates until your credit improves.
Alternatives to Second Bankruptcies
Considering the high costs and severe consequences of a second bankruptcy, it is crucial to explore all other debt-relief options before deciding to declare bankruptcy again. Some alternatives include:
Consumer Proposal
A consumer proposal is a similar but legally binding procedure that you can file for through a LIT if your debt ranges between $5,000 and $250,000. While you are required to repay a portion of your debts in monthly installments over a maximum of 5 years, the consequences are less severe than those of a second bankruptcy.
Final Thoughts
In conclusion, declaring bankruptcy for the second time in Canada is a significant decision that requires careful consideration. It involves higher costs, longer duration, and more severe repercussions on your credit. Therefore, it is crucial to thoroughly understand the implications and explore all other options before deciding to file for bankruptcy a second time. If you are contemplating a second bankruptcy, it would be wise to consult a Licensed Insolvency Trustee to understand the best course of action for your specific circumstances.
