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Second bankruptcies in Canada: what you need to know

Posted on 28 July 2022

Written by Chris Galea

As you are probably well aware if you are searching for second bankruptcies in Canada, filing bankruptcy is a legal process. It is the process of assigning any non-exempt assets that you may have over to a Licensed Insolvency Trustee in exchange for the clearance of any unsecured debts you may have. A second bankruptcy is no different in this respect. The primary difference, however, is that during a second time bankruptcy, you are usually ineligible for an automatic bankruptcy discharge. For a first time bankruptcy, you can be discharged in as little as nine months. For second bankruptcies, it will likely take longer. In this article, we discuss all you need to know about second bankruptcies in Canada, and your options for filing a second time.

How long are second bankruptcies in Canada?

Given that you are potentially ineligible for an automatic discharge when it comes to a second bankruptcy, you are probably wondering how long second bankruptcies in Canada actually last. Second bankruptcies in Canada are still relatively common and they still enable you to begin a fresh financial start. The primary difference is that the rules are a little stricter. Back in September 2009, some key changes were made to Canada’s Bankruptcy and Insolvency Act which made second bankruptcies a longer process than the first time round. Instead of a relatively straightforward automatic discharge from bankruptcy after nine months which is common (provided there is no surplus income), second bankruptcies in Canada can take much longer – typically around two years. Often, it can take three years if the debtor is required to make surplus income payments. That said, it is still possible to qualify for an automatic discharge. This usually happens in the following instances:

  • You could qualify for an automatic discharge within two to three years if you do not have surplus income and if you made a minimum payment of $100 per month
  • If you have a surplus income of under $200, you will not be required to make payments and will receive an automatic discharge two years after filing
  • If you have a surplus income of $200 or more, you will need to pay 50% of your surplus income monthly, and you will receive an automatic discharge three years after filing

If you receive an automatic discharge, your Licensed Insolvency Trustee will send you a copy of the discharge. This marks the end of your bankruptcy.

What happens if you have surplus income?

When it comes to filing either bankruptcy or a consumer proposal, surplus income is any money you earn that is in excess of the Canadian government’s threshold. For example – if you earn $500 over this set threshold each month, you will pay a portion of it into your bankruptcy. Only 50% of your income above the threshold is paid into the bankruptcy. This way, it makes it fairer to your creditors to pay them some of your income for a period of time if you are able to, otherwise they will likely only reclaim a very small amount of the amount of debt you owe them. You will still be entitled to keep the other 50% of any surplus income that you earn. The downside of having surplus income is that it means your bankruptcy will be longer than if you do not have any.

Can bankruptcy last for longer than three years?

Bankruptcy – including second bankruptcies in Canada – can indeed last longer than the minimum time periods we mentioned above. This is often the case if one of your creditors or even your Licensed Insolvency Trustee opposes your discharge from bankruptcy. While challenges to your discharge are relatively common, sometimes an opposition can occur. This is usually the case if a creditor or your Licensed Insolvency Trustee feels that you have not completed your obligatory duties during your bankruptcy, or if they feel you have not dealt with them honestly. In this scenario, they can apply to the Court for a hearing. Waiting for a court date and potentially completing any outstanding duties you may have can all extend your discharge from bankruptcy. Instead, complying where you can and meeting your obligations can typically mean you can enjoy life after bankruptcy sooner.

What if a second bankruptcy is not right for me?

For some individuals, second bankruptcies in Canada are the second chance they need for a fresh financial start. In fact, you may be wondering ‘how many times can I file bankruptcy?‘ For others, however, a second bankruptcy may not be the right option. Thankfully, there are alternatives to bankruptcy. For some Canadians, filing a consumer proposal may be a preferential option. This is often the case if you have assets you do not wish to lose during a bankruptcy, and it offers stability thanks to fixed, affordable payments over an agreed period of time. This means it will not be affected by any changes to your income throughout the consumer proposal period. It can be beneficial if you are expecting salary increases during your consumer proposal term. Before making your decision as to whether to go for a second bankruptcy or an alternative like a consumer proposal, ensure you understand your options. At Spergel, we will take the time to understand your financial circumstances and explain your options in full. Unlike other bankruptcy firms, you will be assigned your very own Licensed Insolvency Trustee to walk you through the debt relief process, instead of passing you from person to person.

If you are contemplating second bankruptcies in Canada, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees have been helping Canadians find debt relief for over thirty years. We will explain your debt relief options, including bankruptcy and consumer proposals, and show compassion towards your situation. Get the financial help you need – you owe it to yourself.

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:

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