There is a lot of misinformation regarding how long it takes to get discharged from bankruptcy. Some people will advise it was quite quick, about as long as a pregnancy. Others will say they heard it could drag on for years. Unfortunately, both could be correct making the matter of a Bankrupt’s Discharge quite confusing.
Then you have those who say, “I am sure I’ve heard it takes seven years.” Those individuals have confused how long a debt is reported on the credit bureau with the length of a bankruptcy. That is a discussion for another time.
The 9 Month Senario
For the large majority of the people who go bankrupt, the amount of time it takes to obtain a Bankrupt’s Discharge is very straight forward. For example, a low-income earner, who has never been bankrupt before, struggling, with the burden of credit card debt obtained before they learned how to use credit responsibly, the discharge is usually a mere 9 months away.
While that example may represent a majority of people who go bankrupt, there are always multiple variations to that scenario that the Bankruptcy and Insolvency Act of Canada must cover.
What is a Bankrupt’s Discharge?
Let’s start by defining what is meant by the term Bankrupt’s Discharge. Even people who have filed bankruptcy can be confused by the term.
When someone files an Assignment into Bankruptcy under the Bankruptcy & Insolvency Act, they put themselves into bankruptcy. This assignment comes with responsibilities and rewards. The bankrupt is now required to fulfil certain duties. Some of these duties include; reporting monthly income and expense information, attending financial counselling and making payments based on income and household size. Your Trustee will give you a complete list of duties.
The reward for fulfilling the duties is that you will be eligible for a Bankrupt’s Discharge. The discharge has the effect of erasing any further liability for the debts that qualified for discharge under the Bankruptcy and Insolvency Act. Needless to say, the most effective way to ensure that you get a discharge at the earliest possible date, is to fulfill the duties required of you in the bankruptcy process.
The goal of filing an Assignment in Bankruptcy is to obtain a Bankrupt’s Discharge, ridding yourself of the burden of your debt.
Why is a Bankrupt’s Discharge Important?
When you file an Assignment in Bankruptcy, you enjoy a temporary Stay of Proceedings such that creditors cannot continue to attempt collection from you. The Stay of Proceedings gives you immediate release from the pressure your creditors could inflict, but it does not erase the debt.
The creditor protection enjoyed by a Stay of Proceedings is in place until you receive a Bankrupt’s Discharge, or until your Trustee is discharged, whichever comes first.
If you do not receive a Bankrupt’s Discharge and your Trustee proceeds to close the file and receive their discharge, the Stay of Proceedings is lifted and the creditors are free to pursue you.
A Bankrupt’s Discharge is the process of eliminating your liability for your debt. If you do not receive a discharge you continue to be legally liable for that debt. As such, it is critical to receive your discharge.
Time Frames for Bankrupt’s Discharge
The time frame involved in receiving a Bankrupt’s Discharge is dependent on a number of factors. In addition, there are different types of discharges, each with their own time frame requirements. This is where it seems to get complicated.
Automatic Bankrupt’s Discharge
The most common form of discharge is an Automatic Bankrupt’s Discharge. An automatic discharge means that the bankrupt can obtain a Bankrupt’s Discharge without attending court.
The Bankruptcy and Insolvency Act sets out time frames for determining eligibility for an Automatic Bankrupt’s Discharge. While the time frames should be straight forward, intervening factors can change the actual bankrupt’s discharge date.
Generally speaking, the time frames are as follows:
- First time bankrupt with no surplus income obligation 9 months
- First time bankrupt with surplus income obligation 21 months
- Second time bankrupt with no surplus income obligation 24 months
- Second time bankrupt with surplus income obligation 36 months
(An automatic discharge can also be extended through a mediation agreement.)
The vast majority of people who go bankrupt qualify for the Automatic Bankrupt’s Discharge.
Court Ordered Discharge
Not all bankrupts qualify for an automatic discharge. There are many factors that can affect their eligibility.
The Act outlines individuals who may not qualify for an Automatic Bankrupt’s Discharge. Some of these include the following:
- A bankrupt who has been bankrupt more than twice previously.
- A bankrupt who has Canada Revenue Agency debt over $200,000.00, with that debt representing 75% or more of their unsecured proven debt.
- A bankrupt who has not attended the required financial counselling sessions.
- A bankrupt whose discharge has been opposed by a Trustee, the Office of the Superintendent of Bankruptcy or a creditor.
In these situations, the discharge is brought before the courts which will then issue an order outlining the process for obtaining a Bankrupt’s Discharge. The process will affect how long it will take to receive a discharge.
Common Discharge Orders
There are a variety of orders the court can grant in determining the discharge of a bankrupt. Each one has their own time requirements depending on the particulars of the situation. Some of the more common orders are:
- Absolute Order of Discharge
- Suspended Order of Discharge
- Conditional Order of Discharge
- Conditionally Suspended Order of Discharge
- Refused Discharge
Any court order that is not an Absolute Order of Discharge is going to delay the Bankrupt’s Discharge date further.
Unless and until the bankrupt fulfills the requirements of the court, they will remain bankrupt. If the requirements are never met, they may never receive a discharge.
If all of this sounds a little confusing, it is. While it is intended to be a straight forward process, you can get lost in the weeds. The Bankruptcy & Insolvency Act, while applying the rules fairly, also allows flexibility for the uniqueness of each situation.
The Bankrupt’s Discharge is the end goal in filing bankruptcy. Without it, the debtor remains liable for the debt.
A Licensed Insolvency Trustee is responsible for tracking, monitoring and guiding a bankrupt through the process.
Simply stated, the quickest way to determine how long your Bankrupt’s Discharge will take, is to talk to your Trustee. The Trustee will work through the weeds and give you clear answers on how and when you can obtain a discharge.