Bankruptcy discharge is an incredibly important part of the bankruptcy process in Canada – it is essentially the end goal. It marks the end of the bankruptcy process and symbolizes a fresh start for individuals or businesses struggling with overwhelming debt. While filing bankruptcy is an important step in gaining clearance of your unsecured debts, it is not complete until you are discharged from bankruptcy. Once you have completed all of your bankruptcy requirements, your Licensed Insolvency Trustee will ask the Canadian court to discharge you from bankruptcy. Once you are discharged, you are released from your bankruptcy obligations and duties, and the bankruptcy process is officially complete. In this article, we will explore ‘what is bankruptcy discharge?’ Canada, the criteria to gain a bankruptcy discharge, and its implications for you if you are going through the process.
What is bankruptcy discharge?
Contrary to popular belief, filing bankruptcy is not a one-day event – it is the beginning of a legal process to clear your unsecured debt. While the process typically takes around 9 months to complete (unless it is your second bankruptcy or you have surplus income), gaining discharge from bankruptcy is the primary goal. Bankruptcy discharge is a legal status granted by the Canadian court that relieves the debtor from their bankruptcy obligations and debts. Once you have been discharged, you are no longer responsible for the outstanding debts, and creditors are no longer able to collect on the debts or take legal action against you thanks to a stay of proceedings. When you have gone through all of your duties, your Licensed Insolvency Trustee will issue your certificate of discharge.
What types of bankruptcy discharge are there?
There are six primary types of bankruptcy discharge in Canada:
- Automatic discharge: in some scenarios, you may be eligible for an automatic discharge from bankruptcy, without having to attend a discharge hearing. This often happens for first-time bankrupts, without objections from your Licensed Insolvency Trustee or creditors. You will receive a copy of your discharge, and your fresh financial future begins
- Court-ordered discharge: if your bankruptcy discharge is not automatic, or if there are complexities, you may need to attend a discharge hearing where a judge will decide if the discharge should be granted
- Absolute discharge: if a court hearing is needed, but you complete all your bankruptcy duties, you will be issued an Order of Absolute Discharge and are no longer bankrupt
- Conditional discharge: a court may decide that you need to meet some conditions before you are released from your debts. This include include making agreed payments, or completing some duties you may have missed
- Suspended discharge: a suspended discharge is an absolute discharge that is delayed to a specific date. This could be because you have not met all of your duties, or there is an ongoing criminal investigation.
- Discharge refused: although this does not happen often, your bankruptcy discharge might be refused by the court. It means you will not be free from your debts, and you will continue to remain bankrupt.
What is the criteria for a bankruptcy discharge?
Debtors must meet specific criteria to be eligible for bankruptcy discharge in Canada. These include:
- Complying with surplus income payments.
- Completing your bankruptcy duties, in line with the Bankruptcy and Insolvency Act. This includes complying with your Licensed Insolvency Trustee and attending credit counselling sessions.
- No objections from your Licensed Insolvency Trustee or creditors.
- Making any required payments.
- Surrendering your assets to your Licensed Insolvency Trustee.
If you fail to complete these duties or commit an offence under the Bankruptcy and Insolvency Act, your bankruptcy discharge could be delayed.
What if you are not discharged from bankruptcy?
If you do not follow your bankruptcy duties and gain your discharge, you are left in an uncertain legal position. This can prove to be a difficult situation, and your financial situation may be put on hold until the circumstances are resolved. You might need to hire a new Licensed Insolvency Trustee, and it can take some time and money to get resolved. This is known as ‘undischarged bankruptcy’. If you are worried that you may not be able to fulfil all of the duties of your bankruptcy, you should speak to your Licensed Insolvency Trustee as soon as you possibly can.
What happens after a bankruptcy discharge?
Once the bankruptcy process is complete, you are free to enjoy life after bankruptcy. After your credit counselling sessions, you should be better equipped to handle your finances and control your habits. Bankruptcy will, however, remain on your credit report for seven years for a first time bankruptcy. While you can begin to get your financial plans in order now that you have a fresh financial start, you may find that it is difficult to obtain any new credit. For this reason, it is important to begin rebuilding your credit. At Spergel, our experienced Licensed Insolvency Trustees can help you to do this, and we can assist with things like creating a budget. The key is to make your payments in full and on time, and monitor your outgoings versus your income. You might want to apply for a secured credit card so that you can begin building a positive credit score, provided you make your payments accordingly.
How long does discharge from bankruptcy take?
If you are filing bankruptcy for the first time, and you do not have surplus income, you are likely eligible for an automatic discharge from bankruptcy within 9 months. If you do need to pay surplus income, you will likely need to do so for 21 months. If it is a second or third bankruptcy, you could be waiting even longer. Should you fail to complete your bankruptcy duties, this will also take longer. It could be that you face opposition from your Licensed Insolvency Trustee or creditors, in which case this can complicate the process further.
What happens if somebody opposes your bankruptcy discharge?
Oppositions to bankruptcy discharge can happen, often in one of the following circumstances:
- You did not pay the amount of surplus income you owed
- You could have filed a consumer proposal, but opted instead to file bankruptcy
- You did not attend the required credit counselling sessions
- You face opposition from a creditor or your trustee due to excessive purchases made before filing bankruptcy
- Your bankruptcy was caused by gambling
- You refuse to answer questions about any element of your bankruptcy
Essentially, an opposition to bankruptcy discharge happens if you either offend or fail to meet your duties. If you face an opposition to your bankruptcy discharge by either a creditor or your Licensed Insolvency Trustee, your trustee will organize a court hearing. The reason for this will be clearly explained to you. Your trustee will also need to inform all of your creditors who have filed bankruptcy claims. They will also prepare a court report, summarizing your finances, bankruptcy estate, and your behaviour during the bankruptcy process.
If you are considering filing bankruptcy, or have more questions on ‘what is bankruptcy discharge?’, book a free consultation with Spergel today. Our experienced Licensed Insolvency Trustees treat every individual with compassion and understanding, and will help you to have a successful bankruptcy. We will help you to navigate the complexities of bankruptcy and work towards a fresh financial future. We will also review your financial circumstances and inform you on all of your options.