READ OUR REVIEWS

Bankruptcy discharge: a guide

Posted on 16 October 2022

Written by Chris Galea

If you are looking to eliminate your debts and put a stop to creditors contacting you once and for all, you may well be interested in filing bankruptcy. Bankruptcy is the process of assigning any non-exempt assets over to your Licensed Insolvency Trustee to go towards your debt repayments. This is in exchange for the clearance of your debts, and protection from your creditors. The true advantages of filing bankruptcy, however, do not really begin until bankruptcy discharge. In this article, we explain what a bankruptcy discharge really is, and share everything you need to know about what is required to become discharged from bankruptcy.

What is a bankruptcy discharge?

When an individual is discharged from bankruptcy, they no longer have the obligation to make their debt repayments. The only exception for this is a few types of debt – child support payments, fines or penalties, fraud related debts, and student loan debts if you stopped being a student less than seven years ago. Bankruptcy discharge is the final step of filing bankruptcy in Canada. When you are discharged from bankruptcy and have completed all of your duties, your Licensed Insolvency Trustee will issue your certificate of discharge. At this point, life after bankruptcy may begin. Discharge from bankruptcy is the key advantage of filing bankruptcy. Although many people think that you are discharged from your debts when you file bankruptcy, you just stop making your debt payments at this point. It is only when you are discharged from bankruptcy that you are no longer responsible for the debts, and are finally released from your debt obligations.

When do you get discharged from bankruptcy?

An individual filing bankruptcy will become automatically discharged nine months after bankruptcy, provided it is a first time bankruptcy and their bankruptcy duties have been fulfilled. These bankruptcy duties include attending two credit counselling sessions and paying some of their income into the bankruptcy estate, where required. In order to become discharged, there must be no opposition by any creditors, the Licensed Insolvency Trustee, or the Office of the Superintendent of Bankruptcy. If it is a second bankruptcy, it will take a little longer to become discharged – if the individual does not need to pay their income into the bankruptcy estate in line with the Office of the Superintendent of Bankruptcy and fulfils their other duties, it will take around two years to become discharged. If they have outstanding duties, this will take closer to three years. Until the point of discharge, this will remain an undischarged bankruptcy.

What do you need to do to become discharged from bankruptcy?

In order to become discharged from bankruptcy, you must fulfil all of your bankruptcy duties. This means you must make all of your required payments, assign any non-exempt assets over to your Licensed Insolvency Trustee where relevant, and attend two compulsory credit counselling sessions. You must also attend any creditor meetings, examinations, or court hearings if you are required to do so. If you fail to complete your bankruptcy obligations, it will likely delay your discharge from bankruptcy. While some people do not fulfil their duties, commit an offence under the Bankruptcy and Insolvency Act, or have an opposition from their creditors, the Superintendent of Bankruptcy, or their Licensed Insolvency Trustee, most bankruptcies in Canada will end in an automatic discharge.

What are the different types of bankruptcy discharge?

Some Canadians filing bankruptcy are surprised to note that there are a number of types of bankruptcy discharge. There are five common types of bankruptcy discharge:

Automatic discharge

The most common sort of bankruptcy discharge is an automatic discharge. If you are able to fulfil your bankruptcy duties on time and there are no objections, you will receive an automatic discharge. You will be released from all your debts filed in the bankruptcy, and you can begin a fresh financial start.

Absolute discharge

This is where the bankrupt individual is released from the obligation to repay their debts that existed when they first filed bankruptcy. The only exception to this law is certain types of debt including child support payments or penalties. After an absolute discharge, you are no longer bankrupt.

Conditional discharge

In this scenario, the individual who filed bankruptcy needs to meet some conditions in order to obtain an absolute discharge. This could include needing to pay an amount of money over a set period of time. Once these conditions have been met, an absolute discharge will be granted.

Suspended discharge

This is where an absolute discharge will happen at a later time. A court may decide to delay your bankruptcy outcome because of a breach of your duties, or if you have an ongoing criminal investigation, or even if you have filed for bankruptcy before.

Refused discharge

The Court may decide to refuse a discharge in this instance. Although it is rare, your bankruptcy can be refused by the court. If this happens to you, you will not be released from your debts, and you will remain bankrupt.

What happens if you are not discharged from bankruptcy?

If you are not discharged from bankruptcy, you will remain in an undischarged bankruptcy. This has a number of different consequences, including the inability to borrow any further credit without letting the lenders know that you are bankrupt. You must inform them legally, or it could lead to further consequences including imprisonment. If you find a lender willing to lend you credit, it will likely come at a high interest rate due to the increased risk for them. Being in an undischarged bankruptcy can also have consequences if you apply for a role which requires a credit check, or if you wish to secure a rental property. Bankruptcy will remain on your credit report for around six to seven years following a bankruptcy discharge. This means that while you are in an undischarged bankruptcy, it is very difficult to rebuild your credit score.

What happens when there is opposition to your bankruptcy discharge?

There are some instances when your bankruptcy discharge will be opposed. This can happen in the following instances:

  • You have not paid the agreed amount of surplus income
  • You may have been able to file a consumer proposal instead, but chose to file bankruptcy
  • You failed to attend the obligatory credit counselling sessions
  • A creditor objects to your bankruptcy discharge because of unusual transactions before you filed bankruptcy
  • Your bankruptcy was caused by gambling
  • You refuse to tell the truth about any questions on your bankruptcy
  • Your Licensed Insolvency Trustee has evidence that you committed fraud

If a creditor or your Licensed Insolvency Trustee opposes your bankruptcy discharge, your trustee will then arrange a court hearing. They will inform you of the reasons and logistics of the meeting. They will also need to notify all of your creditors of this hearing. Your trustee will then prepare a court report which indicates the details of your bankruptcy estate and your behaviour during the bankruptcy.

What happens after your bankruptcy discharge?

Once you receive your bankruptcy discharge, you are cleared of your debts and begin a fresh financial future. While your bankruptcy will remain on your credit report for six to seven years after your bankruptcy discharge (if it was your first time filing), you can begin again. You will need to earn the trust of creditors right from the beginning again. The great thing about receiving a bankruptcy discharge is that you can begin rebuilding your credit score. The first thing you should do is obtain a copy of your credit report. You should review it to ensure everything is accurate on your report, and query any entries you are unsure of. At this point, you can also apply for a secured credit card which can offer you credit provided you are able to make your repayments on time. By doing so each month, you can begin to slowly build a more positive credit score. You should also be able to implement the knowledge you learned in your credit counselling sessions. At Spergel, we can help you on the pathway to a fresh financial future following your bankruptcy discharge.

If you are thinking about filing bankruptcy, book a free consultation with an experienced Licensed Insolvency Trustee at Spergel. Unlike other bankruptcy firms, you will be assigned your very own Licensed Insolvency Trustee to walk you through each step of the bankruptcy process up until discharge, instead of passing you from person to person. We can answer any questions you have around the bankruptcy discharge process.

Chris Galea

Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

Schedule a Free Consultation with Chris Galea (or your local Spergel LIT) by:

Phone 1-877-501-4321 (toll-free)

24/7 live chat (with a human) on our website

Facebook messenger

Email (hello@spergel.ca)

Online booking calendar

Be Debt Free. You Owe It to Yourself.

You may be interested in: