Second Time Bankruptcy and Bankruptcy Discharge

Bankruptcy is a legal process. A difference between a first bankruptcy and a second bankruptcy is that in a case of second-time bankruptcy you are not eligible for an automatic bankruptcy discharge in as little as nine months – as is the case when personal bankruptcy is filed for the first time.

Second bankruptcies in Canada are not uncommon, and a second-time bankruptcy still represents a new start – but the rules are more stringent.

Length of Bankruptcy – Rules Changed in 2009

Changes to Canada’s Bankruptcy and Insolvency Act (BIA), which came into force in September 2009, made second-time bankruptcy a lengthier process than first-time. Now, rather than an automatic discharge after nine months (if the debtor has no surplus income), a debtor filing a second-time bankruptcy may remain in bankruptcy for twenty-four months. This period lengthens to at least thirty-six months if he or she is required to make surplus income payments into the bankruptcy.

What Is Surplus Income?

In a bankruptcy or consumer proposal, surplus income is defined as the amount of money you earn in excess of the current government threshold in a one-month time period. If your income is $200 per month or more over this threshold, you will pay a portion of it into your bankruptcy.

The principle at play here is that it is only fair to pay your creditors some of your income for a period of time, if you are able, since otherwise they will recoup very little of what you owed them.

It is not wrong or a bad idea to make surplus income, as you will keep a portion of this money. Only 50% of your income above the threshold amount is paid into your bankruptcy.

However, when you have surplus income, whether this is a first or second bankruptcy, you will remain in bankruptcy longer than if you did not have surplus income.

Does Bankruptcy Ever Last Longer than 36 Months?

If a creditor or your Trustee opposes your bankruptcy discharge, your first or second bankruptcy could last longer than the minimums set out above.

Challenges to bankruptcy discharge are not common, but if a creditor or your Trustee believes you did not deal honestly with them, or did not complete your duties in bankruptcy, they may apply to the Court to set up a hearing. Waiting for the Court date, and completing any further duties required of you, will delay the discharge of your bankruptcy.

What Are My Options?

In some cases, a consumer proposal may be a better option than a second bankruptcy. One feature of most consumer proposals is that your monthly payment will remain the same, and will not be affected by any changes in your income during the length of the proposal.

Before deciding to file for a second bankruptcy in Canada, you should fully understand all of its implications, including prolonged bankruptcy discharge. We recommend that you contact a Licensed Insolvency Trustee today and arrange for a no-charge initial consultation.