What is an Absolute Discharge in Bankruptcy?
An absolute discharge is the process of releasing a bankrupt individual from the debts they owed when they originally filed their bankruptcy.
Following the absolute discharge, an individual is no longer bankrupt – nor do they owe any outstanding debts, save for spousal and child support payments, court fines or penalties, debts resulting from fraud and any student loans accumulated in the previous seven years.
When Can You Get an Absolute Discharge?
In most cases, a person will automatically qualify for an absolute discharge nine months after they file their bankruptcy – provided they meet the following conditions:
- It is their first bankruptcy
- They have attended two mandatory financial counseling session
- No party (creditors, Licensed Insolvency Trustee, Office of the Superintendent of Bankruptcy (OSB)) opposes their discharge.
If the individual satisfies the above conditions, but the terms of the bankruptcy included income contributions to the bankruptcy estate, they would be eligible for an automatic discharge 21 months after they file their bankruptcy.
First and Second Bankruptcy
This timeline extends significantly for subsequent bankruptcies.
24 months – For bankruptcies not requiring income payments into the bankruptcy estate and where the bankrupt individual attends their two mandatory counselling sessions and no party opposes.
36 months – For bankruptcies requiring income payments into the bankruptcy estate and where each of the other conditions are satisfied.
Other Types of Bankruptcy Discharge
Creditors, a Licensed Insolvency Trustee or the OSB may challenge a discharge from bankruptcy if they believe the bankrupt individual has acted in bad faith, failed to satisfy conditions of their bankruptcy or breached the terms of the Bankruptcy and Insolvency Act. In these scenarios, the case will go before the Courts for a final decision.
In lieu of an absolute discharge, a bankrupt individual can expect one of the following three scenarios:
- Conditional Discharge – The bankrupt individual will need to meet additional criteria, such as additional payments over a given timeframe, before they are eligible for an absolute discharge.
- Suspended Discharge – The bankrupt individual will receive an absolute discharge, but it will take effect later.
- Refused Discharge – The bankrupt individual does not receive a discharge of any kind and may not borrow more than $1,000 without first informing a creditor they are bankrupt.
Bankruptcy is an effective way for unfortunate debtors to achieve a fresh start and escape the pressures of an unworkable financial burden. While there are additional benefits to filing a bankruptcy, such as gaining better financial literacy and eliminating the stress of collections activity – achieving an absolute discharge and resulting debt freedom as soon as possible is the primary goal for most people.
There are numerous factors which determine if and when a bankrupt individual is eligible for an absolute discharge. The best way to minimize that timeline is to understand and adhere to the criteria outlined by the Licensed Insolvency Trustee from the outset of bankruptcy proceedings. Communicating early and often about any obstacles of roadblocks in meeting these obligations is the best way to prevent opposition to a discharge, any potential conditions or an outright refusal by the Courts.
Also, remember an absolute discharge from bankruptcy will eliminate most, but not all debts. It’s important to be familiar with which debts may or may not be eligible for an absolute discharge and have a plan to address these throughout and after a bankruptcy proceeding.
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