What happens if, after going through a bankruptcy, you find yourself in overwhelming debt difficulties again?
It’s an incredibly frustrating experience for anyone who goes through it. The idea of having to file for bankruptcy a second time often makes people feel like they’ve failed.
It’s not something anyone wants of course, but it does happen, and it’s a question our Licensed Insolvency Trustees have experience dealing with.
There’s a common misconception that those who file for bankruptcy a second time are just bad with money. It’s often not quite so straightforward. Sometimes people need to file for bankruptcy for events beyond their control.
Divorce, loss of a job, health issues that cause someone to lose income; these can all be reasons that lead someone to file for a second bankruptcy.
It’s also possible the first bankruptcy did not completely resolve the individual’s debts. They may need to seek bankruptcy protection again in order to address those outstanding financial obligations.
The idea that money management issues cause a second bankruptcy is false.
The quick and snappy answer is that there is no limit to the number of bankruptcies you can file. Once you are discharged from a bankruptcy, you can file for a second one.
Being discharged from a bankruptcy means you’ve completed the bankruptcy process and are now released from it.
The Bankruptcy and Insolvency Act (BIA) does not set a limit on the number of bankruptcies a person can file. The BIA is federal legislation all Licensed Insolvency Trustees in Canada are required to follow when someone files a bankruptcy (or a consumer proposal).
As we’ve discussed, the specific reasons behind every bankruptcy is different, as is the specific amount of money owed.
As a result, the discharge process is different the more times you file for bankruptcy.
For a first bankruptcy, if you have complied with all the requirements of the BIA, no one has opposed your discharge, and you do not have extremely high tax debt, you can expect to get an automatic discharge in either 9 or 21 months.
For a second bankruptcy, the periods are 24 or 36 months.
The difference in the timeframes is directly related to your income during the bankruptcy.
How this works is there is a set threshold of earnings, which if you earn $200 over you will be required to pay 50% of to your creditors as surplus payments.
This threshold of earnings can depend on the size of your family and a variety of other factors so it is hard exactly to say what it would be for each circumstance. It’s best to speak to a Licensed Insolvency Trustee to see how this would affect your situation.
Those who don’t have to make surplus payments will have a 24-month bankruptcy. Those who do will have a 36 month one.
Having to make surplus payments within a 36-month bankruptcy is not a bad thing. As we said, you will keep 50% of the earnings above the threshold amount, giving you more disposable income.
If you have not complied fully with the requirements of the BIA, your Trustee will oppose your discharge which means that it will no longer be automatic you exit the bankruptcy.
This may result in mediation if the only outstanding matter is surplus payments.
Otherwise, you will have to have a discharge application hearing in court.
You should also be aware that any of your creditors can oppose your discharge if they believe they have sufficient basis. This will result in a court hearing. It’s rare, but it does happen.
There is no automatic discharge period for those who file a third bankruptcy. For those in their third bankruptcy, a court hearing is held which you are required to attend.
This will result in an order requiring you to comply with certain conditions and/or a suspension period.
A suspension period is the period of time you must wait to be discharged from a bankruptcy. That period must expire before you can be discharged.
Some courts also add a clause requiring you to get the court’s permission if you wish to file any bankruptcies or consumer proposals after you complete the current one.
The court-imposed suspension period will be longer if you need to file for a further bankruptcy in the future.
The court can also decide to “refuse” to discharge you. This means that you remain in bankruptcy, though you can make annual applications to have the refusal reversed.
If you have already completed a bankruptcy and are now experiencing severe debt difficulties again, there is help available. We can guide you through all your potential options and help you decide what works best for you.
This article was written by Peter Thorn, a Senior Insolvency Analyst with BDO.