By: Kay Wu
What is a discharge?
A discharge is the release of a bankrupt from the legal obligation to pay back what is owed as of the date of the filing of the bankruptcy, subject to exceptions.
What is an automatic discharge?
An automatic discharge occurs when a bankrupt is not required to go to court to finalize the discharge proceedings.
There are certain types of debt that cannot be discharged. Support payments to a former spouse or to children, fines or monetary penalties imposed by the Court, and debts arising from fraud cannot be discharged. Student loans cannot be discharged if fewer than seven years have passed since the bankrupt stopped being a student.
What if this is my first bankruptcy?
You can be automatically discharged 9 months after your bankruptcy has been filed if you are not required to pay a portion of your income into the bankruptcy estate as per the Office of Superintended of Bankruptcy (OSB), have attended two financial counselling sessions, and the discharge is not opposed by a creditor, the Licensed Insolvency Trustee (LIT), or the OSB.
If you are required to pay a portion of your income into the bankruptcy estate, you will be eligible for an automatic discharge after you have contributed to the estate for 21 months.
What if this is my second bankruptcy?
You will be eligible for an automatic discharge 24 months after the date of the bankruptcy if you are not required to pay a portion of your income into the bankruptcy estate, have attended two financial counselling sessions, and the discharge is not opposed by a creditor, the LIT, or the OSB.
If you are required to pay a portion of your income into the bankruptcy estate, you will be eligible for automatic discharge after contributing to the estate for 36 months.
Can a discharge be challenged?
Yes. A bankrupt’s discharge may be opposed by creditors, the LIT, or the OSB. A challenge may occur if the bankrupt fails to meet his/her obligations, or if he/she has committed an act of misconduct under section 173(1) of the Bankruptcy and Insolvency Act (BIA).
When a discharge is challenged, the Court will review the challenge and grant an order for one of the following:
- Absolute Discharge
- An absolute discharge releases you from your legal obligation to pay back what is owed as of the date of the filing of the bankruptcy, subject to exceptions.
- Conditional Discharge
- A conditional discharge requires you to meet certain conditions before gaining an absolute discharge.
- Suspended Discharge
- A suspended discharge is an absolute discharge that will take effect at a later date.
- Refused Discharge
- The Court has the power to refuse a discharge.
Consequences of not being discharged
It is imperative that a bankrupt seeks a discharge. A person who is not discharged will remain a bankrupt. He/she may not borrow more than $1,000 without informing the lender that he/she is a bankrupt. Failure to inform the lender is an offence under the BIA that is liable to a fine, imprisonment, or both.