What is an automatic discharge from bankruptcy?

An automatic discharge can occur when the legal requirements are met, including completion of required duties and the absence of an opposition that prevents discharge.

When can a creditor oppose a bankruptcy discharge?

A creditor or other authorized party may oppose a discharge in circumstances permitted by the Bankruptcy and Insolvency Act.

What happens if I do not receive an automatic discharge?

If an automatic discharge does not occur, the bankruptcy may require a court process or other steps before a discharge can be obtained.

How long does a bankruptcy discharge take?

Timing depends on the type of bankruptcy, completion of duties, surplus income obligations, oppositions and court requirements.

What happens to debts after discharge?

A discharge releases the bankrupt from debts affected by the bankruptcy, subject to debts that are not released under applicable law.

How long does a bankruptcy last?

The length of the bankruptcy depends on a few factors – whether you have ‘surplus income’ (see below) and whether you have been bankrupt before. If you have no surplus income and have never been bankrupt before, you will be eligible for an automatic discharge after nine months.

How long does the Consumer Proposal last?

A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.

What is a Consumer Proposal?

A Consumer Proposal is an offer to your creditors to pay back a percentage of what you owe them, based on your ability to pay. It is governed by the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. Unlike other negotiated debt settlement plans, it is legally binding on all creditors and usually involves paying back less than the total amount of your debt.

What is a Licensed Insolvency Trustee (LIT)?

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.

Bankruptcy Discharges

Q: What is a bankruptcy discharge?

A bankruptcy discharge is the legal release from debts affected by the bankruptcy, subject to the Bankruptcy and Insolvency Act and applicable exceptions.

Bankruptcy comes with a lot of new and unfamiliar terms. This article is designed to help anyone in or considering bankruptcy to understand more about the various ways a bankruptcy can end, or not end. It also addresses opposition to discharge, and the difference when your bankruptcy is ‘tax-driven’.

What is a Bankruptcy Discharge?

A bankruptcy discharge is the point when you are released from the legal obligation to repay most of the debts you had when you filed for bankruptcy. While filing for bankruptcy provides protection from creditors, receiving your discharge is what formally releases you from those debts.

However, not every debt is eliminated by a bankruptcy discharge. Some debts can remain after you are discharged, including support payments owed to a former spouse or children, Court-imposed fines or monetary penalties, debts arising from fraud, and student loans if fewer than seven years have passed since you stopped being a full-time or part-time student.

For most people, receiving their discharge is the final step in completing a personal bankruptcy. How and when that happens depends on factors such as whether you have filed for bankruptcy before, whether you have surplus income, whether you have completed your required duties, and whether anyone opposes your discharge.

How Does the Bankruptcy Discharge Process Work?

The bankruptcy discharge process depends on whether this is your first or second bankruptcy, whether you have surplus income, and whether you complete all of your required duties.

For an automatic discharge, the typical timelines are:

First bankruptcy, no surplus income: 9 months
First bankruptcy, with surplus income: 21 months
Second bankruptcy, no surplus income: 24 months
Second bankruptcy, with surplus income: 36 months

To qualify for an automatic discharge, you also need to:

Complete your required bankruptcy duties
Attend the required financial counselling sessions
Make any required surplus income payments
Have no opposition from the Office of the Superintendent of Bankruptcy, your Licensed Insolvency Trustee or a creditor

If you qualify for an automatic discharge, you do not need to attend a Court hearing. Your Licensed Insolvency Trustee will complete the required paperwork and provide you with a Certificate of Discharge, confirming that you have been discharged from bankruptcy.

Types of Bankruptcy Discharges

Not every bankruptcy ends in the same way. In many cases, someone may qualify for an automatic discharge, but there are other outcomes depending on whether all bankruptcy duties have been completed, whether surplus income is still owing, or whether the Court needs to become involved.

Automatic Discharge

An automatic discharge is the quickest and easiest way to be done with your bankruptcy. You’re eligible for an automatic discharge if you are a first- or second-time bankrupt, do not have high tax debts (personal income tax debt over $200,000, which also represents over 75% of claims filed in the bankruptcy), have completed all your duties, including paying surplus income if you had any to pay, and no one has opposed your discharge.

No Court date is needed for an automatic discharge. The LIT will file a report saying all your duties are complete and then issue your Certificate of Discharge.

Third-time and tax-driven bankruptcies are not eligible for automatic discharge. A Court application must always be made in these circumstances.

Mediation

This process occurs when all of your duties are completed except for paying the surplus income. It can also be used if you disagree with the LIT about how your surplus income has been calculated. Once an agreement has been reached, you’ll have an affordable monthly payment plan to pay the remainder of the surplus income. Once paid, the LIT will issue your Certificate of Discharge. Mediation also avoids the need for a Court date.

Adjourned Discharge

An Order Adjourning Bankrupt’s Discharge means that you have not completed your duties and have not yet been released from bankruptcy or your debts.

The LIT will always try to contact you about any outstanding duties before applying for this type of order, but once the legal deadline is reached, a Court date must be set. If you receive an adjourned order, you should contact the LIT as soon as possible and work to resolve the outstanding issues.

If the issues are not resolved, the LIT may close your file and you could remain an undischarged bankrupt without the LIT’s protection from creditors.

If you currently have an adjourned order from any Trustee in BC and they are unable to help you resolve the bankruptcy and be discharged, please contact us. We can help.

Suspended Discharge

An Order Suspending Bankrupt’s Discharge means that you are being discharged from bankruptcy, but the date the discharge takes effect has been delayed.

This can happen when your bankruptcy duties were completed, but they were completed late, such as after the LIT had already set a Court date. It can also happen when certain circumstances contributed to the bankruptcy, such as gambling or substance abuse.

Once the Court order is issued, there is usually no further action required. You simply wait until the suspension period ends and the discharge comes into effect. The suspension can be as short as one day or as long as the Court considers appropriate.

Conditional Discharge

A conditional discharge means that you must meet certain conditions before you can be discharged. These are usually monetary conditions.

A conditional order is generally used when a mediation agreement has not been completed, or when there was previously an adjourned order and all outstanding duties have been completed except for the payments.

The conditional order will set out a payment plan for the amount still owing.

Conditional and Suspended Discharge

A conditional and suspended discharge sets out conditions that must be completed, like a conditional order, but also includes a waiting period. If you complete the conditions before the waiting period is over, you must still wait until that period ends before the order has been fully complied with.

Absolute Discharge

An Absolute Order of Discharge means that you are discharged as of the date on the order. If there was a previous Court order, such as an Adjourned or Conditional Order, and you have now completed all of your outstanding duties and conditions, the Court must agree that they have been completed and grant the Absolute Order.

Once you have any type of discharge order in place, you cannot be discharged without the Court’s agreement.

Refusal of Discharge

A refusal of discharge is rare, but the Court may decide that someone falls so far outside the definition of an “honest but unfortunate” debtor that their discharge should be refused. The Court may also set a period of time during which the person cannot reapply for their discharge.

Oppositions to Discharge

Unlike a proposal, creditors cannot vote against you filing for bankruptcy, but they can oppose your discharge. If a creditor wants to do this, they must file a formal Notice of Intended Opposition with the LIT before the date you would otherwise have been automatically discharged.

The creditors most likely to oppose a discharge are CRA, particularly when tax debts are high, or a personal creditor such as a former business partner or spouse.

If an opposition is filed, the LIT must note it in the final report on your bankruptcy. This is often called a 170 report, referring to section 170 of the Bankruptcy and Insolvency Act. The LIT will then set a Court date to adjourn your discharge.

In some cases, the LIT may be able to help resolve the opposition, but you also have the option to retain your own lawyer. The LIT does not represent you or your creditors. Their role is to administer the bankruptcy fairly and in accordance with the law.

With CRA oppositions, the issue is often whether you will agree to repay a percentage of your principal income tax debt. If an agreement can be reached, either with the LIT facilitating communication or through your lawyer, the monthly payment plan can be formalized as a Conditional Order of Discharge.

If no agreement can be reached, your lawyer can set a date for a contested hearing. The Court will hear from both sides and decide what conditions, if any, will apply to your discharge.

While in bankruptcy it’s important to start supporting better financial decisions. Understand your relationship with money and work on healing as you complete your bankruptcy.

How Is a Tax-Driven Bankruptcy Discharge Different?

A bankruptcy falls into the tax-driven category under section 172.1 of the Bankruptcy and Insolvency Act when your personal income tax debt is over $200,000 and represents 75% or more of the total unsecured proven claims filed in the bankruptcy.

If you believe you owe CRA this much, it is likely your bankruptcy will fall into this category. However, this cannot be confirmed until after the bankruptcy is filed and creditors have submitted their claims to the LIT.

If you are considered a tax debtor, sometimes called a high tax debtor or s.172.1 debtor, you are not eligible for an automatic discharge. A Court application must be made, and the Court must agree that you should receive your discharge. CRA is also more likely to oppose the discharge in these situations, although this does not happen in every case.

Another important difference is how surplus income can affect the length of the bankruptcy. In a non-tax-driven bankruptcy, surplus income is calculated by averaging your income over the bankruptcy period. This means you could earn above the surplus income amount for one or two months and still qualify for a 9-month discharge if your overall average remains below the threshold.

In a tax-driven bankruptcy, any month where your income is above the surplus income amount can extend the bankruptcy, even if your average income remains below the threshold.

Get Help With Your Bankruptcy Discharge

If you have questions about your bankruptcy discharge, outstanding duties, or what needs to happen before your bankruptcy can be completed, we’re here to help.

At Campbell Saunders Ltd., our Licensed Insolvency Trustees help people across BC understand the bankruptcy process and what their next steps may look like.

Book a free consultation to speak with a Licensed Insolvency Trustee.

Frequently Asked Questions About Bankruptcy Discharges

How long does it take to get discharged from bankruptcy in Canada?

For a first bankruptcy, you may be eligible for an automatic discharge after 9 months if you do not have surplus income, or 21 months if you do. For a second bankruptcy, the typical timelines are 24 months without surplus income and 36 months with surplus income. These timelines depend on completing your required duties and having no opposition to your discharge.

What can prevent you from being discharged from bankruptcy?

You may not receive an automatic discharge if you have outstanding bankruptcy duties, have not paid required surplus income, someone opposes your discharge, or your bankruptcy is considered tax-driven. Depending on the circumstances, mediation or a Court application may be required.

Do you have to go to Court to be discharged from bankruptcy?

Not always. If you qualify for an automatic discharge, you do not need to attend a Court hearing. A Court application may be required in other circumstances, including third bankruptcies, tax-driven bankruptcies or when an automatic discharge is opposed.

Can a creditor oppose your bankruptcy discharge?

Yes. A creditor can file a formal Notice of Intended Opposition with your Licensed Insolvency Trustee before the date you would otherwise have been automatically discharged. If the opposition cannot be resolved, the Court may ultimately determine the conditions of your discharge.

What happens if you don’t complete your bankruptcy duties?

If your duties remain incomplete, your discharge may be adjourned. You will remain an undischarged bankrupt until the outstanding issues are resolved and the appropriate discharge process is completed. It is possible to remain in bankruptcy for the rest of your life, if the outstanding issues are never addressed.

What is a Certificate of Discharge?

A Certificate of Discharge is the document confirming that you have been discharged from bankruptcy. It is important to keep it somewhere safe because you may need it in the future to prove that you are no longer bankrupt.

Does a bankruptcy discharge eliminate every debt?

No. Certain debts can remain after your bankruptcy discharge, including support payments, Court-imposed fines or monetary penalties, debts arising from fraud, and student loans when fewer than seven years have passed since you stopped being a full-time or part-time student.