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 bankruptcy?

A bankruptcy is a legal process to discharge your debts. It is a declaration that your debts are too high for you to repay – and far better than the old concept of a ‘debtor’s prison’! It allows for a fresh start, while giving your creditors some return on what’s owed only if you have a level of income that allows for payments to be made to them, or unprotected assets that can be liquidated (however, most common assets are protected during this process – see below for more information on protected personal assets).

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 | Campbell Saunders Insolvency Truste

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 oppositions to discharge, and the difference when your bankruptcy is ‘tax-driven’.

Discharge Types

While filing a bankruptcy gives you relief from being contacted by creditors or having them start or continue legal action against you, it is the discharge (release) that means that you are released from your debts also.

Automatic:

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. This 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:

An Order Adjourning Bankrupt’s Discharge means that you have not completed your duties and haven’t been released from bankruptcy, or your debts. The LIT always tries to contact anyone with outstanding duties before getting this type of order, but once the legal deadline is reached a Court date must be set. If you receive this type of order you must contact the LIT immediately and work to resolve the outstanding issues. If you don’t, the LIT will close your file and you’ll remain an undischarged bankrupt but without the LIT’s protection from the 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:

An Order Suspending Bankrupt’s Discharge is a discharge from bankruptcy, but the date it comes into effect has been delayed. These orders are usually given when your duties were completed but they were completed late (after the LIT had already set a Court date), or there were certain facts that contributed to the bankruptcy, like gambling or substance abuse. Once the Court order is issued, there is no more action that needs to be taken – just a wait until it comes into effect. Suspension periods can be as short as one day, or as long as the Court decides is appropriate.

Conditional:

A conditional discharge means that you must meet some conditions before you can be discharged. They are usually monetary conditions. A conditional order is generally used when a mediation agreement isn’t completed, or there was previously an adjourned order and all of the outstanding duties have been completed except for the payments. The conditional order will set out a payment plan for the amount left owing.

Conditional and Suspended:

This order sets out conditions like a conditional order, but also has a waiting period – if the conditions are completed before the period is up, then you must still wait before the order has been fully complied with.

Absolute:

an Absolute Order of Discharge means that you’re discharged as of the date on the order. If there has been a previous Court order like an Adjourned or Conditional Order and now the duties and conditions are all complete, the Court must agree that this is the case and grant the Absolute order. Once you have any type of discharge order, you can’t be discharged without the Court’s agreement.

Refusal:

This is rare, but the Court may decide that someone is so far from the definition of an ‘honest but unfortunate’ debtor that they refuse their discharge. These orders may set a time period in which the debtor may not reapply for their discharge.

Oppositions to Discharge

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

The most likely creditors to file an opposition are CRA, if your tax debts are high, or a personal creditor like a former business partner or spouse.

The LIT must then note in the final report on your bankruptcy (known as a ‘170 report’ due to section 170 of the Bankruptcy and Insolvency Act being the relevant section for how and when to do the report) that a creditor has opposed, and will set a Court date to adjourn your discharge. The LIT can sometimes resolve the opposition, but you always have the option to retain your own lawyer. Remember that the LIT’s position is not to represent you or your creditors, but to administer the bankruptcy fairly and in accordance with the law.

With CRA oppositions, usually they are looking for you to agree to pay back a percentage of your principal income tax debt. If you (with the LIT facilitating communication) or your lawyer can reach an agreement with CRA for a monthly payment over a reasonable number of years, the payment plan will be formalized as a Conditional Order of Discharge (see above). If no agreement can be reached, your lawyer can set a hearing date for a contested hearing, the Court will hear your lawyer and CRA (or other creditor)’s lawyer, and it will be the Court that decides the conditions of 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.

Tax Driven Bankruptcies

Section 172.1 in the Bankruptcy and Insolvency Act talks about bankruptcies that fall under this category: personal income tax debt of over $200,000.00, which also represents 75% or more of the total unsecured proven claims filed in the bankruptcy.

If you think you owe CRA this much then we can safely assume that your bankruptcy will fall under this category, although it won’t be confirmed until after the bankruptcy is filed and the creditors send their claims to the LIT.

As a ‘tax debtor’ (or ‘high tax debtor’ or ‘s.172.1 debtor’), you are not eligible for an automatic discharge – there must be a Court application made and the Court must agree that you should receive your discharge.

It is also more likely that CRA will oppose your discharge, though this is not always the case.

One other difference with tax driven bankruptcies is that it’s easier for the bankruptcy length to be extended. In a non-tax driven bankruptcy, surplus income is calculated by averaging the whole bankruptcy period – if a first time bankruptcy with no surplus income (a nine month bankruptcy) has one or two months where they earn over the surplus amount, but the average is still below the surplus amount, they can still be discharged at 9 months (and if the average was over, the bankruptcy would be extended to 21 months). In a tax-driven bankruptcy, any month with income higher than the surplus amount means that the bankruptcy is extended whether or not the average is over.