Consumer Proposal & Bankruptcy Discharge: Why Is It Important?
Making the decision to get protection from your creditors by way of a federally regulated Consumer Proposal or bankruptcy filing is a big step. The stated goal is to provide the honest but unfortunate person a fresh start with their finances.
In reality, that decision starts you on a pathway to a better place financially that must be walked day by day over a period of time. The end of that pathway is signified by a Certificate of Discharge in a bankruptcy filing or a Certificate of Full Performance in a Consumer Proposal.
In a bankruptcy proceeding, there are a variety of duties that must be complied with in order to remain eligible for an automatic discharge, which is scheduled to occur at the conclusion of 9 or 21 months, depending on your income and whether it is your first bankruptcy. We feel that the majority of those duties are not difficult. They include keeping the Licensed Insolvency Trustee (LIT) advised of your address, disclosing your assets, attending two financial counselling sessions (these are good!), reporting what your monthly income is, and providing your income tax information for the LIT to file your tax return, among other duties.
Unfortunately, on occasion, some people either ignore their duties or choose not to perform them. Let’s explore what that looks like in a bankruptcy. In those situations, the LIT will file an objection to the discharge, which creates a Bankruptcy Court hearing. If the person still ignores their duties after the Bankruptcy Court hearing, the LIT will close its file. Afterwards, things can get awkward and difficult for the person that did not receive a discharge. For example:
- Creditors can start to collect again. Some will and some won’t but the exposure still exists to collection calls and other collection actions. This can cause extreme problems with the Canada Revenue Agency as it has the ability to collect on tax debt with a garnish on income or freezing a bank account.
- Future financial transactions – if you have not received a discharge from bankruptcy, future financial transactions could be problematic. For example, this could arise if a person tried to apply for a mortgage or a vehicle loan. The loan is unlikely to be approved if the person was not discharged from their earlier bankruptcy.
- Making a second bankruptcy filing – yes this happens and it is not so uncommon. However, a person cannot make a second bankruptcy filing if they have not been discharged from the first bankruptcy. It can take some time to make arrangements to get discharged from the first bankruptcy. In the meantime, there would be no relief from your current creditors collecting.
So what do you do if you have chosen to walk the bankruptcy pathway but did not receive a discharge? The first step would be to contact your original LIT and be nice. The LIT has no further obligation to assist you and we know of several offices that take this position. In our office, we usually try to help, so long as you are courteous and willing to actively cooperate. Sometimes getting that discharge is relatively easy. Other times it may require a monetary amount. Everyone’s situation is different.
Another option would be to approach the Bankruptcy Court on your own or with the assistance of a lawyer and make an application for your discharge. The cost of the legal help can vary and would not have been necessary if the automatic discharge had been achieved.
Obtaining a Certificate of Discharge is a noteworthy accomplishment and for the majority of people we see, it is automatically granted. It is very much like crossing a finish line. The best way to get it automatically is to pay attention to your duties and stay in touch with your LIT.
As a Licensed Insolvency Trustee, we are committed to supporting you in reaching that finishing line successfully.