Understanding what bankruptcy discharge is, when it happens, and its consequences is crucial for anyone going through the bankruptcy process. This article aims to detail the essential aspects of the bankruptcy discharge process in Canada.
Understanding Bankruptcy Discharge
Bankruptcy discharge marks the end of the bankruptcy process, freeing the bankrupt from the obligation to repay certain debts incurred before filing for bankruptcy. However, not all debts are wiped out. Some exemptions include:
- Alimony and child support.
- Court-imposed fines or penalties.
- Debts arising from fraudulent activities.
- Student loans, if less than seven years have passed since the debtor ceased to be a full-time student.
When Does Bankruptcy Discharge Occur?
A debtor usually receives an “absolute discharge” nine months after filing for bankruptcy under these circumstances:
- It’s their first bankruptcy.
- They’ve attended two financial counselling sessions.
- They’re not required to pay a portion of their income into the bankruptcy estate according to the standards set by the Office of the Superintendent of Bankruptcy (OSB).
- The discharge isn’t opposed by a creditor, the Licensed Insolvency Trustee (LIT), or the OSB.
If the debtor is required to contribute part of their income to the bankruptcy estate and it’s their first bankruptcy, they’re eligible for an automatic discharge after contributing for 21 months.
For second-time bankruptcies, the debtor is eligible for automatic discharge 24 months after the bankruptcy date if they meet similar conditions as first-time bankrupts. If second-time bankrupts are required to contribute part of their income, they can receive an automatic discharge after 36 months.
Licensed Insolvency Trustees
Licensed Insolvency Trustees (LITs) are essential to the bankruptcy process. They provide financial advice and help debtors navigate through bankruptcy. Here are some resources about LITs:
- What is a Licensed Insolvency Trustee?
- Find a Licensed Insolvency Trustee
- Discussing your options with a Licensed Insolvency Trustee (Video)
Challenging a Bankruptcy Discharge
A bankruptcy discharge may be challenged by creditors, the LIT, or the BIA if the debtor fails to meet obligations or commits misconduct under the Bankruptcy and Insolvency Act (BIA). The court then reviews the opposition and makes a decision.
Types of Bankruptcy Discharge
There are four types of bankruptcy discharge:
- Absolute discharge: The debtor is released from the legal obligation to repay certain debts incurred before filing for bankruptcy.
- Conditional discharge: The debtor must meet specific conditions to obtain an absolute discharge. This usually involves paying a certain amount over a defined period.
- Suspended discharge: An absolute discharge that will take effect at a future date.
- Refused discharge: The court can refuse a discharge.
Consequences of Not Being Discharged
If a debtor isn’t discharged, they can’t borrow more than $1,000 without informing the lender of their bankruptcy status. Failing to do so is an offence under the BIA, which can result in a fine, imprisonment, or both.
Bankruptcy information remains on an individual’s credit file for 6-7 years following the discharge of a first-time bankrupt. This duration can vary across provinces/territories.
Timeframe for Bankruptcy Discharge
Most debtors qualify for an automatic discharge after nine months. However, several factors can impact this timeframe:
- Previous Bankruptcies: Second-time bankrupts aren’t eligible for discharge in nine months. Their bankruptcy will be extended to 24 months.
- Surplus Income: If a debtor’s surplus income exceeds the government-set minimum, their bankruptcy period can be extended.
The following table summarizes the discharge periods:
| Automatic Discharge Period | No Surplus Income | Surplus Income |
|---|---|---|
| First Time Bankrupt | 9 months | 21 months |
| Second Time Bankrupt | 24 months | 36 months |
Ineligibility for Automatic Discharge
Not everyone is eligible for automatic discharge. Here are some reasons why a debtor might not qualify:
- They didn’t complete their duties, such as providing proof of income, attending counselling sessions, providing tax information, or making required payments.
- A creditor opposes their discharge. This is rare but can happen if the creditor believes the debtor didn’t fulfill their duties or should have filed a consumer proposal instead of bankruptcy.
- For a third bankruptcy, the debtor must go to court to be discharged.
Conclusion
Bankruptcy discharge is a critical step in the bankruptcy process as it officially eliminates your debts. If you’re considering filing for bankruptcy, consult a trustee to understand the implications thoroughly. You can contact a bankruptcy trustee for more information.
