Filing for bankruptcy is an important first step in eliminating debts, but the full process is not complete until you obtain your bankruptcy discharge.
Here is everything you need to know about what is necessary to become discharged and what a bankruptcy discharge means.
What Is a Bankruptcy Discharge?
Simply put, a bankruptcy discharge is the final step of the bankruptcy process in Canada. After you’ve gone through all of the requirements, your Licensed Insolvency Trustee will issue your certificate of discharge.
To be discharged from bankruptcy means that you are released from all obligations to repay debts included in your bankruptcy filing.
A full and complete discharge is the primary advantage of filing bankruptcy when an insolvent person seeks relief under the Bankruptcy and Insolvency Act.
You may think that you are discharged from your debts as soon as you declare bankruptcy. True, you do stop making debt payments as soon as you file. You make the required bankruptcy payments to your trustee instead. However, you remain legally liable for the debts until the end of the process. It is the final discharge that releases a bankrupt from their debt obligations.
Not all debts are released
Bankruptcy deals with unsecured debts. Credit card debts, personal loans, payday loans, unpaid bills are common examples of debts cleared by bankruptcy.
There are certain debts and financial obligations that are exempt from discharge under bankruptcy law.
- Spousal support and child support payments
- Fines and penalties imposed by the court
- Debts that arose due to fraud
- Student loans if you have been a student within the last seven years
Requirements to Obtain a Discharge
To be discharged, you must complete all of your bankruptcy duties. That means:
- Making all your required payments
- Handing over all assigned property to the trustee
- Attending two mandatory credit counselling sessions
- Attending any meeting of creditors, examination or court hearing if required
Failure to complete your duties will hold up your discharge. The majority of Canadian bankruptcies end in an automatic discharge with no court hearing. However, if you don’t complete your requirements, or you commit an offence under the Bankruptcy & Insolvency Act, this will jeopardize the discharge process.
How long does this take?
A first time bankrupt, who does not have to pay surplus income, is eligible for an automatic discharge in 9 months. If you are subject to the surplus income penalty, you will be required to make surplus income payments for 21 months. Longer bankruptcy times apply to second and third bankruptcies.
Failure to complete your duties in this time period means it will take longer for you to receive your discharge from bankruptcy.
It is also possible for a creditor, the Superintendent of Bankruptcy, or your trustee to oppose your bankruptcy discharge.
Opposition to Discharge
An opposition to discharge usually happens if one of the following has occurred during your bankruptcy period:
- You did not pay the agreed amount of surplus income.
- You could have filed a viable consumer proposal, but instead chose to claim bankruptcy.
- You refused, or neglected, to receive the required counselling sessions.
- A creditor objects to your discharge due to unusual or excessive transactions prior to bankruptcy
- Your bankruptcy was caused by gambling
- You refuse to respond truthfully to any examination of the bankrupt
In other words, opposition to a discharge happens if you fail to finish your duties, or you make an offence under section 173 (1) of the BIA.
If the trustee has evidence that you have committed fraud or have not been honest in your disclosure, or you have not completed your payments or credit counselling, a trustee has a duty to oppose a bankrupt’s discharge.
An unsecured creditor can also oppose a bankrupt’s discharge. Creditor opposition happens for the same reasons – creditors suspect fraudulent behaviour, dishonesty in disclosure, or believe you could financially have afforded to pay more.
If a creditor or your trustee opposes your discharge, your trustee will arrange a court hearing. Your trustee will advise you of the reasons, date, and time of this meeting. The trustee must also notify all creditors who have filed bankruptcy claims of this hearing. The trustee then prepares a court report outlining a financial summary of your bankruptcy estate and your conduct during the administration of the bankruptcy.
Do you need a bankruptcy lawyer?
You may want to consider having a bankruptcy lawyer attend at your discharge hearing. The role of the Licensed Insolvency Trustee is to act as a referee, an unbiased party who ensures all parties follow the rules and behave fairly in the bankruptcy process. Your trustee can advise if the issues raised will be significant enough for you to consider independent representation.
5 Types of Bankruptcy Discharge
The most common type of discharge is an automatic discharge. If you complete your duties on time, and if there are no objections, you receive an automatic discharge. There is no court hearing required, and you are released from all debts included in the bankruptcy. If this is the case, your Licensed Insolvency Trustee sends you a copy of your bankruptcy discharge papers, and that will be the end of it. You’ll then be able to begin a fresh start.
Order of Absolute Discharge
If a court hearing is required, and if you satisfy the court that all duties are completed, the court will issue an Order of Absolute Discharge. After an absolute discharge, you are no longer bankrupt.
There are certain situations where the court will not grant an Absolute Discharge Order.
If this is your third bankruptcy, you don’t complete your duties, or if your creditor opposes the bankruptcy discharge you will have to attend a court discharge hearing, and the court will then decide on the type of Discharge Order to grant.
At the court hearing, your trustee will let the court know about any relevant details about your bankruptcy. These details can include information about the creditor’s opposition or the duties that you didn’t complete.
The court will take many factors into account when issuing an order of discharge, including:
- your conduct during your bankruptcy
- your income and bankruptcy payments
- how you got into debt in the first place
- even the education and age of the bankrupt
The court may still grant you an Order of Absolute Discharge, or they can issue an order with conditions, suspend your discharge for a period of time, or refuse your release from bankruptcy outright.
Order of Conditional Discharge
The court may rule that, as a bankrupt, you need to satisfy one or more conditions before you can be released from your debts. The condition might be to make certain additional payments over a specified time frame, or complete some duties you did not finish.
While absolute and conditional discharges have their differences, they aim to achieve the same result. The goal is to relieve the individual of bankruptcy and help them begin a new debt-free start.
While an absolute discharge produces that outcome immediately, a conditional discharge postpones that result until specific terms are met.
Order of Suspended Bankruptcy Discharge
A suspended discharge is essentially an absolute discharge that won’t be effective until a specific date. A court might demand a delay in the bankruptcy outcome due to a breach of your duties or an ongoing criminal investigation. You also might face a suspended bankruptcy discharge if you’ve had a prior bankruptcy. In other words, sometimes, based on the situation, the court may feel you need to be bankrupt longer than the statute specifies.
While it’s rare, your bankruptcy discharge may be refused by the court. When this happens, you won’t receive any kind of release from your debts, and you remain bankrupt.
What To Do After Bankruptcy Discharge
Once you receive your discharge, your debts are wiped clean. However, a record of your bankruptcy, will stay on your credit report for seven years for the first time bankrupt, longer for a subsequent bankruptcy.
The good news is that once discharged, you have no more debt. You will have a fresh start to earn the trust of creditors from the ground up.
Once you’re discharged, you can start right away at rebuilding your credit.
The first step is to take a look at your credit report after the discharge. You want to make sure that all of the information about your bankruptcy (and debts included in your bankruptcy) is accurate.
If you haven’t done so already, apply for a secured credit card. This card gives you revolving credit. That means you’ll be able to access available credit so long as you maintain your payments. You want to pay off your new credit card in full each month. This will help you establish a positive credit report.
Take advantage of the financial education you received during your credit counselling sessions. If you are a client of Hoyes Michalos, access our Fresh Start recovery material to help you manage your money and avoid the behaviour that got you into debt in the first place. Sign up for our Debt Free in 30 Newsletter for monthly personal finance and money advice.
If you’re considering declaring bankruptcy, then contact us today and schedule your free and confidential consultation. In order to have a successful and smooth bankruptcy experience, you must work with a Licensed Insolvency Trustee who makes you feel comfortable. With Hoyes, Michalos, you can expect a trustee who will provide you with expert advice to not only file bankruptcy, but help you build a stronger financial future.
Hoyes Michalos & Associates provides personal bankruptcy services in the following locations
- Niagara Falls
- North York
- Ottawa West - Kanata
- St. Catharines
- Toronto Downtown
- Toronto Etobicoke
- Toronto Yonge & Bloor
- Personal Bankruptcy in Toronto
Other service areas
We offer the convenience of phone and video-conferencing only services for the following additional areas. Many people find it advantageous to begin the initial consultation and debt assessment over the phone or by video. If you decide to file, you can sign and complete your paperwork electronically. Credit counselling sessions can also be completed through video conferencing, which eliminates the need to miss work or schedule a time to attend the office.