What Happens If Bankruptcy Is Not Discharged in Canada?

Understanding the dynamics of bankruptcy and its implications is essential for anyone dealing with financial challenges. Among the numerous facets of bankruptcy, one crucial aspect is the discharge. This article delves into the consequences and actions surrounding what happens if bankruptcy is not discharged in Canada.

Non-Discharge of Bankruptcy: An Overview

Bankruptcy discharge refers to the release of an individual from the debt obligations that existed at the time of filing bankruptcy. However, specific types of debt like support payments to former spouses or children, court-imposed fines or penalties, debts arising from fraud, and student loans (if less than seven years have passed since the debtor ceased to be a full or part-time student) are exempted from this.

The Timeline of Bankruptcy Discharge

A debtor is typically discharged from bankruptcy automatically (“absolute discharge”) nine months after filing the bankruptcy, provided:

 

  • This is a first-time bankruptcy.
  • The debtor has attended two financial counselling sessions.
  • The debtor is not needed to pay a portion of his/her income into the bankruptcy estate as per the standards set by the Office of the Superintendent of Bankruptcy (OSB).
  • The discharge is not opposed by a creditor, the Licensed Insolvency Trustee (LIT) or the OSB.

If the debtor is mandated to pay a portion of his/her income into the bankruptcy estate, and this is a first-time bankruptcy, the debtor will be eligible for an automatic discharge after contributing to the estate for 21 months.

Second Bankruptcy and Discharge

In the case of a second bankruptcy, if the debtor is not required to pay a portion of his/her income into the bankruptcy estate as per the standards established by the OSB, has attended two financial counselling sessions, and if no one is opposing the discharge, the debtor will be eligible for automatic discharge 24 months after the date of the bankruptcy. Second-time bankrupts who are required to pay a portion of their income into the bankruptcy estate will be eligible for automatic discharge after contributing to the estate for 36 months.

Challenging a Bankruptcy Discharge

A bankruptcy discharge might be challenged by creditors, the LIT, or the BIA if the debtor has failed to meet his/her obligations or has committed an act of misconduct under the Bankruptcy and Insolvency Act (BIA). The Court will then review the opposition and render a decision.

Types of Bankruptcy Discharge

Absolute discharge: The debtor is released from the legal obligation to repay debts that existed on the day the bankruptcy was filed, with the exception of certain types of debt.

Conditional discharge: The debtor must meet certain conditions to obtain an absolute discharge. Generally, the debtor will be required to pay a certain amount of money over a specific period. However, the Court may also impose other conditions. Once all conditions have been met, an absolute discharge will be granted.

Suspended discharge: An absolute discharge that will take effect at a later date.

Refused discharge: The Court has the right to refuse a discharge.

Consequences of Not Being Discharged

Not being discharged carries significant consequences for a bankrupt individual. For instance, a person who is bankrupt (i.e., not discharged from bankruptcy) may not borrow more than $1,000 without informing the lender (e.g., a credit card company) that he/she is bankrupt. Failure to do so is an offence under the BIA that is liable to a fine, imprisonment, or both.

Information related to bankruptcy remains on an individual’s credit file for 6-7 years following the discharge of a first-time bankrupt.

Importance of Legal Advice

In the complex world of bankruptcy, it is crucial to seek professional legal advice. A Licensed Insolvency Trustee can provide valuable insights and guidance on how to navigate the challenges and implications of bankruptcy.

Conclusion

Understanding what happens if bankruptcy is not discharged in Canada is vital for any individual dealing with bankruptcy. The consequences are severe, impacting one’s credit history and the ability to borrow money. Therefore, seeking professional advice and understanding the dynamics of bankruptcy discharge can make the journey less cumbersome and more manageable.

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