What is Bankruptcy Discharge & What Does It Mean?

Understanding Bankruptcy Discharge & Its Implications

Bankruptcy discharge, as a concept, is often shrouded in confusion and misconceptions. This article aims to clarify what exactly bankruptcy discharge entails, its implications, and what you need to know if facing such a situation.

Decoding Bankruptcy Discharge

Bankruptcy discharge is essentially the final phase in the bankruptcy process in Canada. Once you have fulfilled all necessary formalities and obligations, your Licensed Insolvency Trustee will grant your bankruptcy discharge certificate.

Bankruptcy discharge means the legal release from all responsibilities to pay back debts that were included in your bankruptcy filing. This complete and unconditional discharge is the principal benefit of filing for bankruptcy when a person is insolvent under the Bankruptcy and Insolvency Act.

The Misconception

Many individuals wrongly assume that declaring bankruptcy instantly discharges them from their debts. While it is true that you cease making debt payments immediately upon filing, you remain legally obliged to repay the debts until the end of the process. The final discharge is the legal act that releases a bankrupt individual from their debt obligations.

Exceptions to Discharge

It’s important to note that bankruptcy primarily addresses unsecured debts. Common examples of unsecured debts that can be cleared through bankruptcy are credit card debts, personal loans, payday loans, and unpaid bills. However, certain financial obligations are exempt from discharge under bankruptcy law. These include:

  • Child and spousal support payments
  • Court-imposed fines and penalties
  • Debts arising from fraudulent activities
  • Student loans if the individual has been a student within the last seven years

Requirements for Discharge

To qualify for discharge, you must fulfill all your bankruptcy duties, including:

  • Making all necessary payments
  • Surrendering all assigned property to the trustee
  • Attending two mandatory credit counselling sessions
  • Attending any meeting of creditors, examination, or court hearing if required

Failure to meet these requirements can delay your discharge.

Opposition to Discharge

Sometimes, a trustee, creditor, or the Superintendent of Bankruptcy may oppose your bankruptcy discharge. This usually happens if you:

  • Failed to pay the agreed amount of surplus income
  • Could have filed a viable consumer proposal but chose to claim bankruptcy
  • Refused or neglected to receive the required counselling sessions
  • Engaged in unusual or excessive transactions prior to bankruptcy
  • Caused your bankruptcy through gambling
  • Refused to respond truthfully during any examination

Types of Bankruptcy Discharge

There are five primary types of bankruptcy discharge:

  1. Automatic Discharge: The most common type, granted if you complete your duties on time and face no objections.
  2. Order of Absolute Discharge: Granted by a court if you fulfill all duties and if a court hearing is required.
  3. Order of Conditional Discharge: The court requires you to satisfy certain conditions before you can be released from your debts.
  4. Order of Suspended Bankruptcy Discharge: An absolute discharge that won’t be effective until a specific date.
  5. Discharge Refused: In rare cases, when the court refuses your bankruptcy discharge, you won’t receive any kind of release from your debts, and you remain bankrupt.

Post-Bankruptcy Discharge

With your discharge, your debts are wiped clean. However, a record of your bankruptcy will remain on your credit report for seven years for the first time bankrupt, longer for subsequent bankruptcies.

Rebuilding Credit

Once you’re discharged, you can begin rebuilding your credit immediately. It’s important to check your credit report after the discharge to ensure accuracy of all information related to your bankruptcy and the debts included in it.

Working with a Licensed Insolvency Trustee

If you’re considering declaring bankruptcy, it’s crucial to work with a Licensed Insolvency Trustee who makes you feel comfortable. With Bankruptcy Canada, you can expect a trustee who will provide you with expert advice to not only file bankruptcy but help you build a stronger financial future.

Conclusion

Understanding what bankruptcy discharge means is crucial if you’re considering filing for bankruptcy. Working with a licensed insolvency trustee can make the process smoother and less stressful. Remember, bankruptcy is a legal process designed to give you a fresh start. It’s not an end, but a beginning.

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