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Bankruptcy Discharge

The Last Step in Bankruptcy: Bankruptcy Discharge

Filing for Bankruptcy is a big step on your journey toward debt freedom. When you declare Bankruptcy there are several immediate benefits. Wage garnishment and collection calls will stop, as will any creditor lawsuits against you. These initial benefits may allow you to take a sigh of relief however, this is just the first step. You aren’t legally released from your debt obligations until you are discharged.

This article will explain what Bankruptcy discharge is, the different types of discharge, and what happens if you are not discharged from Bankruptcy.

Being discharged from Bankruptcy is the final step in the process. When you are discharged from Bankruptcy, you are released from your legal obligation to repay debts held on the day you filed. There are some debts that you are not released from in a Bankruptcy discharge, including:

  • Child or spousal support
  • Fines or penalties from the Court
  • Debts from fraud
  • Student loan debt if it’s been less than seven years since you stopped being a full or part-time student.

Absolute Discharge

An absolute discharge is when your Bankruptcy is automatically discharged nine months after you file without having to make a court application. To be eligible for an absolute discharge, you have to meet several requirements, including:

  • It’s your first bankruptcy
  • You’ve attended two financial counselling sessions
  • You aren’t required to pay surplus income into your estate
  • Your discharge has not been opposed by a creditor, your Licensed Insolvency Trustee, or the OSB

If you have to pay surplus income into your estate, you are eligible for an automatic discharge after 21 months.

If you are filing for your second Bankruptcy and you’ve attended two financial counselling sessions, you don’t have to pay surplus income, and there is no opposition to your discharge, you will be eligible for automatic discharge 24 months after the date of the Bankruptcy. If you have to pay surplus income into your estate, you will be eligible after contributing for 36 months.

Opposition to Discharge

It is possible for a creditor, your LIT, or the OSB to oppose your discharge if you fail to meet your obligations or if you have committed an act of misconduct according to Section 173 of the Bankruptcy and Insolvency Act (BIA). Your discharge can be opposed if:

  • You continue to trade after you’re aware of being insolvent
  • You fail to surrender all of your credit cards to the LIT
  • You didn’t provide your trustee with all of your monthly income and expense statements
  • Your Bankruptcy is a result of gambling
  • You fail to comply with a requirement to pay
  • You could have filed for a Consumer Proposal but instead chose Bankruptcy
  • You’re found guilty of fraud

If there is opposition to discharge, it is up to the Court to review the opposition and decide how to progress. Before going to court, your LIT will prepare a report that gives a summary of your financial situation and includes details of your financial affairs, the cause for Bankruptcy, how you performed your Bankruptcy duties, your conduct before and during Bankruptcy, and if you were convicted of any offences under the BIA.

After reviewing this information, the Court can then decide how they want to move forward. Know that you can hire a Bankruptcy lawyer and have them assist you during the court hearing. The Court may decide on one of the following discharge options:

Conditional Discharge

If the Court decides on a conditional discharge, you will have to meet certain conditions before you can obtain an absolute discharge. This may require you to pay more money within a certain amount of time. Once you meet all of the conditions, you will receive an absolute discharge.

While a conditional discharge ultimately offers the same end as an absolute discharge, you may have to jump through a few more hoops to get there.

Suspended Discharge

A suspended bankruptcy discharge is the same as an absolute discharge, but it takes effect at a later date. A suspended discharge can occur if this is not your first insolvency or if there is misconduct. When a discharge is suspended it will take place at a future date determined by the Court.

Refused Discharge

While it is rare, there are cases when the Court may refuse your Bankruptcy discharge. This means you are not released from your debt obligations and will keep your bankrupt status. If you conduct misconduct or engage in criminal activities this could result in a refusal.

What Happens if You Are Not Discharged From Bankruptcy?

With an undischarged bankruptcy, you remain bankrupt and your creditors can come after you as if you never filed for Bankruptcy. You also can not file another Bankruptcy. While you remain bankrupt, you can not borrow more than $1,000 without telling the lender that you are bankrupt. If you fail to do this, you risk a fine, potential jail time, or both.

What Happens When You Are Discharged From Bankruptcy?

Once you are discharged from Bankruptcy, the Bankruptcy process is complete, your eligible debts are cleared, and you get a fresh financial start. It’s important that you use this opportunity to make different financial choices to better manage your finances and avoid falling back into debt.

Contact an LIT Today

If you have questions about the Bankruptcy process or other debt management options, reach out to a Licensed Insolvency Trustee. We can help you decide if Bankruptcy is the right choice for your debt situation. For a free, no-obligation give us a call at 519-310-JOHN or reach us online.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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