The bankruptcy process is just that—a process. As such, your bankruptcy discharge, which occurs when your debts are officially eliminated and you are no longer responsible for them, is something that takes a little bit of time.
The amount of time it will take for your bankruptcy to be discharged will certainly affect your decision to file bankruptcy or not. Here are three things you need to know about your bankruptcy discharge:
1) Surplus income affects your bankruptcy discharge.
The amount of time it takes for your bankruptcy to be discharged depends in part on whether or not you have surplus income. Surplus income is any excess income you have that falls above predefined federal guidelines. If your income is greater than the amount defined for a family of your size, you will be required to pay half of the excess to the Trustee and the benefit of your creditors. For example, if you earn $500 more each month than the guidelines, you would be expected to pay $250 of that to the Trustee as surplus income.
If you have surplus income, you’ll make the monthly payments to your Trustee. These payments will be held in trust by the Trustee, and your creditors may receive a portion of what you owe them at the end of the bankruptcy..
If you have surplus income, your bankruptcy discharge may take longer than someone who does not have surplus income.
2) Everyone’s bankruptcy is different.
It used to be that most first time bankruptcies were discharged after nine months, unless there were extenuating circumstances. Now, however, that’s no longer the case.
If this is your first bankruptcy and you have surplus income, your bankruptcy may be automatically discharged after 21 months. If you don’t have surplus income, your bankruptcy may be discharged after only 9 months.
3) If you’ve previously filed bankruptcy, the bankruptcy process will be longer.
People who are filing their second and even third bankruptcies can expect a progressively longer amount of time for the bankruptcy to be discharged.
If you are filing bankruptcy for the second time and you don’t have to make surplus income, your bankruptcy may be automatically discharged after 24 months. If you do have extra income, it will be an extra year, or 36 months, before you may be eligible for an automatic discharge.
If you’re considering filing bankruptcy for a third time, be aware that there is no automatic discharge. Instead, after a minimum of 24 months (36 if you have surplus income), your Trustee must apply to the bankruptcy court, who will then hear your request for discharge. You may need to meet certain conditions set by the court, in order for your debts to be eliminated.
After the Bankruptcy Discharge
Once your bankruptcy is discharged, you are no longer legally liable for your debts, (with a few exceptions) and you are no longer required to make payments. You are now officially free of your unsecured debts and can begin to rebuild your credit. You are also free of any of the duties of a bankrupt. You will not need to continue to report income and expenses to your Trustee — although, you may want to continue to keep track so that you can manage your personal budget effectively.
Note that you are not eligible for a discharge from bankruptcy unless you fulfill all the duties of a bankrupt — complete the counselling, report income and expenses, etc. Your discharge will be delayed if you have failed to complete those duties. That not only means that your debts are still active, but also, if you should happen to come into a windfall while you are still bankrupt (for example: an inheritance, winning the lottery) the proceeds from that windfall would have to go to the Trustee for distribution to your creditors. In plain terms, if you win the lottery the day before your discharge, your creditors have a right to be paid from the winnings. If you win the lottery the day after your discharge, all of the winnings are yours to keep.
Once you have your discharge, you will be given a Certificate of Discharge. It is a good idea to hang onto that certificate, in case you even need to prove to a credit bureau or an old creditor that you are discharged of the debt.
When you are considering whether to file an Assignment in Bankruptcy, make sure you discuss your bankruptcy discharge with your Licensed Insolvency Trustee. Knowing how long you will be bankrupt can make a difference in whether or not bankruptcy is the right choice for you and your family.
Jillian Taylor-Mancusi, LIT
