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Bankruptcy Discharge and its Consequences for the Bankrupt
What is a bankruptcy discharge?
When a bankrupt is discharged from bankruptcy, he/she is released from the legal obligation to repay debts that existed on the day that the bankruptcy was filed, except for the following types of debt:
- Support payments to a former spouse or to children;
- Fines or monetary penalties imposed by the Court;
- Debts arising from fraud;
- Student loans if fewer than seven years have passed since the bankrupt stopped being a full- or part-time student.
When is a bankrupt discharged?
A bankrupt is automatically discharged ("absolute discharge") nine months after the bankruptcy is filed if:
- This is a first bankruptcy;
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- The bankrupt has attended two financial counselling sessions;
- The bankrupt is not required to pay a portion of his/her income into the bankruptcy estate as per the standards established by the Office of the Superintendent of Bankruptcy (OSB);
- The discharge is not opposed by a creditor, the Licensed Insolvency Trustee (LIT) or the OSB.
If the bankrupt is required to pay a portion of his/her income into the bankruptcy estate, and this is a first bankruptcy, the bankrupt will be eligible for an automatic discharge after contributing to the estate for 21 months.
In the case of a second bankruptcy, if the bankrupt is not required to pay a portion of his/her income into the bankruptcy estate as per the standards established by the OSB, has attended two financial counselling sessions and if no one is opposing the discharge, the bankrupt will be eligible for automatic discharge 24 months after the date of the bankruptcy. Second-time bankrupts who are required to pay a portion of their income into the bankruptcy estate will be eligible for automatic discharge after contributing to the estate for 36 months.
Different rules apply to bankruptcies filed before September 18, 2009. Please contact the OSB at 1-877-376-9902 (toll-free) for more information.
When is a discharge challenged?
A bankrupt's discharge may be opposed by creditors, the LIT or the BIA if the bankrupt has failed to meet his/her obligations or has committed an act of misconduct under the Bankruptcy and Insolvency Act (BIA) (see section 173 (1) of the BIA). The Court will then review the opposition and render a decision.
There are four types of discharge:
- Absolute discharge—The bankrupt is released from the legal obligation to repay debts that existed on the day the bankruptcy was filed, with the exception of certain types of debt.
- Conditional discharge—The bankrupt must meet certain conditions to obtain an absolute discharge. Generally, the bankrupt will be required to pay a certain amount of money over a specific period. However, the Court may also impose other conditions. Once all conditions have been met, an absolute discharge will be granted.
- Suspended discharge—An absolute discharge that will take effect at a later date.
- Refused discharge—The Court has the right to refuse a discharge.
What are the consequences for a bankrupt of not being discharged?
Not being discharged has important consequences for a bankrupt.
A person who is bankrupt (i.e., not discharged from bankruptcy) may not borrow more than $1,000 without informing the lender (e.g., a credit card company) that he/she is bankrupt. Failure to do so is an offence under the BIA that is liable to a fine, imprisonment or both.
Information pertaining to bankruptcy remains on an individual's credit file for 6-7 years following discharge of a first-time bankrupt. Times may vary across provinces/territories.
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