A Guide to Bankruptcy Discharge in Canada

Obtaining an absolute discharge from Bankruptcy  is a big deal in Canada when you’re dealing with money troubles. It’s like hitting the restart button and getting a chance to fix things. We’ll break down this process, keeping it simple and easy to understand. There are several different possible types of discharge to be aware of. Not receiving an absolute discharge can create problems in your financial future. Generally speaking, filing for Bankruptcy is the start of your journey. The finish line is getting that automatic discharge. How long does that take? Here is a guide to Bankruptcy discharge in Canada.

Filing for Bankruptcy  protection provides immediate creditor protection and relief from collection pressure. This powerful process is regulated by the Canadian Federal Government via the Office of the Superintendent of Bankruptcy (OSB). The OSB has the power to grant licenses to the people who administer Bankruptcies in Canada. These folks are called Licensed Insolvency Trustees (LITs). That is us.

Pro tip: Be careful of obtaining advice from debt consultants or other organizations that the internet may make look good. They are not bound by the same regulations and, more importantly, can charge you whatever they want. Buyer beware!

The creditor protection that a Bankruptcy  provides effectively puts your unsecured debts on hold. However, the real goal is to receive your Certificate of Discharge. Getting an absolute discharge from Bankruptcy will legally eliminate dischargeable debts. The Government has made some types of debt non dischargeable via Bankruptcy such as support payments. Please call for details.

Types of Bankruptcy Discharge

Automatic Discharge:

• This is the most common type of discharge. In fact, greater than 90% of the people that we help obtain an automatic discharge which means that their dischargeable debts are legally gone.
• An automatic discharge means the same thing as an absolute discharge, which is what is granted in a Court setting. The receipt of an automatic discharge is noted by a Certificate of Discharge that is issued by the Licensed Insolvency Trustee office that you are dealing with.
• Automatic discharges are issued after 9 or 21 months if you are filing Bankruptcy for the first time and have completed your duties. The 9 month timeline is applicable if your income is modest. The 21 month timeline would be a function of your average take home pay exceeding the standards set by the OSB which is referred to as having surplus income.
• If it is your second time filing for Bankruptcy  protection then getting a discharge takes a little longer. Those people with modest income are not eligible for an automatic discharge until 24 months have passed. If your average income results in surplus income, then the automatic discharge is available after 36 months. This longer timeline is one of the factors that have made filing a Consumer Proposal more attractive.
• But what happens if you did not do your non monetary duties or a creditor has objected to your discharge? Then it is not possible to receive your automatic discharge and the LIT will arrange for a discharge hearing at the Court.

Conditional Discharge:

• This type of discharge is ordered by the Court if you have not performed one of your duties, such as attending your financial counselling session or if you have not cooperated with your agreed upon payments into your Bankruptcy. As a result, you have to perform a condition before you can get an absolute discharge.
• A conditional discharge could also be a result of a creditor, such as Canada Revenue Agency, objecting to your discharge because of the amount of income tax that you owe. This could result in the Court ordering that your discharge is conditional upon paying some additional funds into your Bankruptcy. After you accomplish the condition, the Court will grant you an absolute discharge.

Suspended Discharge:

• This type of discharge is a bit more rare. It is a discharge that is ordered by the Court, sometimes in the case where there has been more than two prior Bankruptcies, and means that a certain amount of time has to pass before you receive an absolute discharge.

Adjourned Generally:

• In this situation the automatic discharge was not available because there were too many duties outstanding. As a result, the matter of the discharge would be brought before the Court by the LIT. Usually, at the recommendation of the LIT, the Court will order that the discharge application be adjourned generally. Once the outstanding matters have been resolved, the LIT will reapply to Court for a discharge hearing where an absolute discharge would likely be granted.
• There is a danger here if a person continues to ignore their responsibilities to comply with their duties or perhaps loses contact with their LIT office. In these situations, the OSB prompts the LIT to close the file resulting in the person remaining undischarged. This opens the door for creditors to begin collecting again. Even if there was no collection pressure, future financial dealings can get more complicated without an absolute discharge. This includes if you needed to file for Bankruptcy sometime later in life. You are not allowed to file for subsequent Bankruptcy  protection until you receive a discharge from your prior Bankruptcy .

Refused:

• This type of discharge order is very rare. The only times that we have seen it happen is when a person has been very uncooperative in the course of the Bankruptcy  and even hostile. The Court will order the discharge be refused for a period of time which means they won’t even consider it. Kind of like being sent to the penalty box.

A Fresh Start: What Happens After Bankruptcy

The goal of Bankruptcy is getting what’s called an absolute discharge. This means you’re free from most debts. Think of it as a fresh start. It can happen in a few ways, like Automatic discharge (complete freedom), Conditional discharge (freedom with after some conditions performed), or Suspended discharge (freedom a bit later). There’s also a less common ending called Refused discharge.

Smart Money Moves: Financial Counselling

Before you’re done, you’ll have to do two financial counselling sessions. It’s like a crash course in handling money better. This helps you avoid falling into the same problems and sets you up for a smoother ride ahead.

Your private financial counsellor will help you identify what were some of the causes of your financial difficulties and provide you with some useful tools to help make different choices in the future. You will be able to improve your financial literacy and know where to go to for more guidance

You will work on a budget and set some short term and long term goals.

Perhaps most importantly, you will get lots of encouragement and come to an understanding that there are better financial times ahead.

Conclusion: Hope for a Fresh Start

So, there you have it. Going from filing Bankruptcy  for creditor protection to a Certificate of Discharge is a journey of hope and second chances. With the help of your Licensed Insolvency Trustee, and a bit of financial counseling, you’re on your way to a new beginning. It’s like hitting the reset button on your financial life, and you’ve got the tools to make it happen.

Contact one of our convenient offices for a no cost initial assessment to see if this is a good option for you.