February 29, 2024

How long does bankruptcy last

Bankruptcy is a scary thought for many, but it does end. We look at how long bankruptcy lasts and how it ends here.

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How long does bankruptcy last

A woman wondering how long a bankruptcy will last holds papers

While the idea of declaring bankruptcy is a scary thought for most, it’s important to remember that bankruptcy does not last forever, and it is meant to help you get a clean slate and remove your debts. ‘Bankruptcy discharge’ is the technical term used to describe being released from bankruptcy and beginning a debt-free life.

Anyone considering or going through the bankruptcy process likely has many questions: how long will it take until the period of bankruptcy is complete? Will it happen automatically? What must I do to end a bankruptcy period? Read on to find the answer to these questions and more about bankruptcies in Canada.

Why do you need to be discharged from bankruptcy?

As mentioned, a bankruptcy discharge means completing the period of bankruptcy and finally being free from your debts.

Being discharged from bankruptcy eliminates your obligation to repay the debts that were included. If you do not obtain a discharge, you do not eliminate your debt.

A bankruptcy discharge means that you have successfully completed the process and are now free from the bankruptcy.

How long does it take to be discharged from bankruptcy?

Here are a few common timelines to give you an idea of how long it might take.

Automatic Discharge:

For automatic discharges, a discharge certificate is issued that confirms your completion of the bankruptcy process and the date it was completed.

First bankruptcy

If all duties and payments are completed on time and your discharge is not opposed by the Licensed Insolvency Trustee, one of your creditors or the Office of the Superintendent of Bankruptcy (OSB):

  • 9 months after the date of filing if you do not have surplus income
  • 21 months after the date of filing if you do have surplus income

Second bankruptcy

If all duties and payments are completed on time and your discharge is not opposed by the Trustee, one of your creditors or the OSB:

  • 24 months after the date of filing if you do not have surplus income
  • 36 months after the date of filing if you do have surplus income

Third Bankruptcy (or more)

It is not possible for a third (or more) time bankrupt to get an automatic discharge.

In this case, your bankruptcy will last at least 36 months, and you will have to attend court at least once. The court will decide the overall length of your bankruptcy and the duties you need to complete.

What is surplus income?

The Superintendent of Bankruptcy in Canada sets an income limit for those going through the bankruptcy process. Those who earn over this limit are considered to have surplus income and must make additional payments and have their bankruptcy last longer.

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The role of the Office of the Superintendent of Bankruptcy (OSB) 

The OSB is responsible for the administration of the Bankruptcy and Insolvency Act in Canada, which protects all parties in a bankruptcy (or consumer proposal).

Licensed Insolvency Trustees are the only people who can file for bankruptcy on your behalf and are regulated by the OSB.

What if my discharge is not automatic?

Outstanding Payments

If, at the time of your anticipated automatic discharge, you only owe surplus income payments, there is the possibility of going through a mediation process.

This involves setting up a formal payment agreement with the Trustee to pay the outstanding balance over a certain amount of time. If an agreement cannot be reached or you default on payments and the mediation fails, your file will have to go through the court system for a discharge application. You can find more information on the OSB’s website here.

Incomplete Duties

As your anticipated automatic discharge date approaches, the Trustee will create a report explaining details of your bankruptcy estate and advising whether you have completed your duties.

If there are still duties to complete, this is your last chance before your anticipated discharge date.

If there are duties, besides surplus payments, that you have not completed by that date, you will be required to attend a court hearing that will decide what happens next.

What duties do I have to complete to get my discharge?

When you file for bankruptcy, you must:

  • Tell the Trustee about all property (assets) in your possession
    1. If you have non-exempt assets, these must be handed over, or an agreement entered with the Trustee for payment of any equity so that you can keep these assets
  • Hand over all credit cards to the Trustee
  • Provide any documentation that your Trustee asks for, including your ID, tax returns, insurance policies, etc.

During your bankruptcy process, you must:

  • complete two financial counseling sessions
  • submit monthly income and expense budget sheets, with proof of income, for the duration of your bankruptcy
  • Pay the required amount into your bankruptcy estate in a timely manner
  • Provide the necessary information for the Trustee to file your tax returns for the year of filing (and the year prior, if necessary)
  • Attend any required meeting/s of creditors or examinations by the Official Receiver

What is the court discharge process?

My discharge was opposed, or my mediation failed, and I must go to court. What happens now?

A notice will be sent to you detailing the date, time, and location (some courts are in-person, some are virtual) of your hearing.

Your Trustee will make their recommendation on what should happen to the court as well. This is determined by the status of your file, and the court will either decide based on that or you may be asked some questions.

There are some potential outcomes from that point based on the level of duties you have completed.

If you complete all outstanding duties

If all your duties are completed before the discharge hearing, the Trustee may recommend your discharge from bankruptcy.

If the court does not find any concerns with your file, you will be discharged and released from bankruptcy.

If you still have a few duties outstanding

In this case, you might get an order that explains the exact steps required to be able to obtain your discharge.

There will usually be a timeline for you to complete the tasks; otherwise, your file might be closed, and you could be left as an undischarged bankrupt. We will explain what an undischarged bankrupt is in another section.

Once you have completed the tasks, the Trustee advises the court that your duties are complete and, provided the court has no concerns, you will be discharged and released from bankruptcy.

If most of your duties are outstanding 

If there are many duties that have not been completed, you will be ordered to complete your tasks within a certain timeframe. After that, you may reapply to be discharged from bankruptcy.

Failure to complete your duties on time might result in the closure of your file and leave you as an undischarged bankrupt.

If you are declaring bankruptcy for a third time or more

Your file will automatically go to court if you are declaring bankruptcy for the third or more time, usually around one year into the process.

This hearing often results in your discharge hearing being postponed without a future date. The court, or your Trustee, will specify exactly what needs to be completed and when before you can bring your file back to court to apply for your discharge.

What does it mean if my file is closed and/or I remain an undischarged bankrupt?

If you do not complete your duties, the court may allow the Trustee to release themselves from your file. In this case, you remain an undischarged bankrupt, and your creditors regain their right to pursue your debts.

Filing a bankruptcy and then not engaging with the process does not relieve you of your responsibilities, no matter how much time passes!

It is absolutely in your interest to ensure you understand the process and its ramifications before signing a bankruptcy. Ask any questions you have and remain engaged throughout the entirety of the process to ensure you obtain your discharge.

What options does an undischarged bankrupt have?

There are options if you find yourself in this situation. If your estate has no Trustee, you are now able to approach any Licensed Insolvency Trustee to ask them to help you.

You can even ask the same Trustee you had before. This has an advantage, as they will likely have information regarding the reasons you were not discharged.

Once you have a Trustee, you can complete your duties and apply for your discharge.

Another option is a consumer proposal, which, if successfully filed and completed, would annul the bankruptcy. Consumer proposals are a less severe option than bankruptcy, which lowers your overall payments and allows you to keep all your assets.

An alternative to a Trustee is to hire a lawyer to make a court application on behalf of yourself and your bankruptcy estate.

Whether you are considering bankruptcy, currently going through the process, or are an undischarged bankrupt, if you have any questions, contact us to speak with a qualified expert who can offer guidance.
This article was written by Caitlin Siegers, an Insolvency Analyst at BDO.

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February 29, 2024

How long does bankruptcy last

Bankruptcy is a scary thought for many, but it does end. We look at how long bankruptcy lasts and how it ends here.

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