How Long does Personal Bankruptcy take in Canada?

June 28, 2019 11:18 am Published by Leave your thoughts

A Big Question for anyone considering bankruptcy in Canada- “how long will my personal bankruptcy last”??

“How long will my bankruptcy last”? is always one of the main question we hear in our initial consultation with personal debtors.  And the quick answer is somewhat vague in,  “well, it depends”.  The three key considerations for how long a personal bankruptcy will last, are

  • whether or not someone has been bankrupt before , and
  • how much money they make, and
  • if the bankrupt individual owes more than $200 000 for  personal income taxes to the CRA (Canada Revenue Agency)

Bankruptcy and Insolvency Act

The federal legislation the covers personal bankruptcy is called the Bankruptcy and Insolvency Ac.  This Act governs the bankruptcy process for individuals in Canada, and allows debtors to to through a bankruptcy and then emerge after a period of time, debt free.  During bankruptcy, debtors have several duties and obligations to the trustee that must be completed before they can be discharged from bankruptcy.

Duties of a Bankrupt

In order for a personal debtor to be discharged from bankruptcy, a debtor must perform various duties:  These duties include:

  • reporting their income to the trustee on a monthly basis and
  • paying excess (or surplus) income if there is any, and
  • making payments for any non exempt assets,
  • helping the trustee prepare any outstanding tax returns, and
  • attending two counselling sessions in the office, or any meetings requested by the trustee.

Previous Bankruptcy?

If a debtor has never been bankrupt before, they can be discharged from bankruptcy after as little as 9 months.  However, this discharge date is extended by 12 months to a total bankruptcy period of 21 months if the individual bankrupt makes income beyond a “Income Guideline” amount.  The guideline amount is set by federal government by the Superintendent of Bankruptcy and is referred to as the Superintendent’s Standards. Income earned by a debtor beyond the Superintendent’s standard is consider to be surplus income and 50% of the surplus income amount is payable to the trustee, and the bankrupt individual can keep the remaining 50%.  (See the Calculation of Surplus Income in a personal bankruptcy)

If someone has been bankrupt once before, they are not eligible to be discharged after 9 months, but rather the initial discharged time is pushed to 24 months.  So for a second time bankrupt, the earliest discharge date is after 24 months.  However, if a 2nd time bankrupt has Surplus Income, their discharge is also extended an additional 12 months or until the end of 36 months.

CRA Tax – High Income Tax Debtor

There are also certain tax rules for debtors who owe more than $200,000 to Canada Revenue Agency.  If the CRA debt represents more than 25% of all proven claims, then the Trustee must proceed to court to have the bankrupts discharge considered. Most times, the CRA will send their own lawyer to ask that the bankrupt be required to pay back some of the tax debt before they can be discharged from bankruptcy. However, these issues can be complicated and it should be discussed with a trustee for more clarity.

Debts that are NOT discharged from bankruptcy

Once a debtor comes to the end of the bankruptcy process, they can be discharged from bankruptcy and released from all debts, anywhere in the world.  However, there are some special debts and are considered so important that they are not discharged.  Some of non-dis chargeable debts include:

  •  Child support and alimony debts,
  • Debts that arose from fraud or embezzlement or breach of fiduciary duty
  • fines of the court,
  • student loan debts that are less than 7 years old.

This is a simplified overview of the Canadian personal bankruptcy system, so your individual experience may vary. For more information regarding your personal situation, please call us for a free consultation.

Tags: , ,

Leave a Reply

Your email address will not be published. Required fields are marked *