For a lot of clients, filing for bankruptcy is a delicate decision.
However, when the decision is taken, our clients expect debt forgiveness.
They understand that the bankruptcy process is short.
It can be as quick as 9 months, at the end of which, the debt is officially discharged and forgiveness.
However, sometimes, the situation is not as straightforward as it seems.
They can’t stop you from filing bankruptcy if you are eligible according to the Bankruptcy & Insolvency Act.
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But they can object to the last step of the process, the discharge of your debt.
It is a certificate issued by the licensed insolvency trustee to mark the end of the bankruptcy plan and the beginning of your debt-free journey.
So why can creditors challenge your bankruptcy discharge and how to handle the situation?
What does the discharge mean?
The discharge is the confirmation that you, as a former debtor, have fulfilled all the bankruptcy requirements.
As such, your debt can finally get cancelled when the bankruptcy is completed, and the discharge is issued.
Filing for bankruptcy doesn’t eliminate your debt until you are officially discharged.
However, the process puts a hold on creditors’ actions until the end of the bankruptcy.
When creditors challenge the discharge, it essentially means that your debt is not cancelled.
You remain liable for the money you owe.
Why do creditors challenge the discharge?
While creditors can challenge the discharge, it doesn’t mean their actions will cancel the bankruptcy process.
There could be a variety of reasons why creditors oppose the discharge.
Most commonly, creditors think that you can afford to pay more than what was agreed during the bankruptcy filing.
They oppose the discharge in the hope of receiving further payments.
Perhaps they were not satisfied with the proposed terms.
More often than not, creditors may fail to understand which assets are exempt in the execution act for bankruptcy, which means that they believe you have more valuable assets than declared in the bankruptcy.
It could also be a case of misunderstanding the process and hoping to gain better insights into your ability to pay them back if they take you to court.
How to respond when a discharge is challenged
The challenge and the challenger’s details will be reviewed by the court, which invites both parties – creditors and bankrupt individuals – to a discharge hearing in the bankruptcy court.
You can choose to appear on your own or accompanied by a bankruptcy lawyer.
After the hearing, the decision is shared in writing by the bankruptcy registrar, which could happen immediately after the hearing or several months later.
The court can ignore the challenge, or require that you make additional payments or fulfill further duties before receiving the final discharge.
However, while a discharge challenge can delay your debt-free journey, your trustee will guide you through the process and produce a fit-to-purpose bankruptcy filing.
Alternatively, if you’re worried that bankruptcy may not be the right solution, your trustee can recommend avoiding discharge opposition by filing a consumer proposal instead.
While creditors can challenge your bankruptcy discharge, it doesn’t mean that you can’t get debt-free.
On the contrary, our licensed insolvency trustees can help you with the bankruptcy process.
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