Automatic Bankruptcy Discharge
The automatic bankruptcy discharge is the final step in the bankruptcy process.
Being bankrupt means that you owe money to some creditors, you are unable to meet the monthly payments, and have undertaken a legal process with the aim of becoming debt free.
In Ontario, you can file for bankruptcy if you’re not able to meet your financial obligation.
The final step in a bankruptcy is obtaining a Certificate of Discharge.
When you are given a certificate of discharge it means that you are legally debt free, no longer considered as bankrupt.
Best Practices for an Automatic Discharge
When you’re bankrupt, the law allows, in the case of first bankruptcy, an automatic discharge after nine months or twenty-one months if you have surplus payments.
To benefit from an automatic discharge, you’ll have to complete all your responsibilities set under the bankruptcy terms.
These responsibilities include:
- Attending two counselling sessions that will help you understand why you went bankrupt and how to avoid the same situation in the future;
- Pay the amount due to your creditors according to the conditions set in the bankruptcy agreement.
By law, you are automatically discharged in nine months provided you met all your responsibilities or after 21 months if surplus payments need to be made.
However, this automatic discharge is conditional to not being opposed by either your trustee, your creditors or the Office of the Superintendent of Bankruptcy Canada.
Surplus payment may need to be made if you obtain surplus income – that is income that is higher than the limit set by the government.
Note that when it’s the second time you are filing for bankruptcy, your Automatic discharge will only be granted after 24 months, provided you have met all your responsibilities and that there are no third party opposing your discharge.
If for some reasons you’re bankrupt for more than two times, there is a high probability the court and your creditors will oppose your discharge.
Your Discharge is Being Challenged
The trustee, a creditor or the Office of Superintendent of Bankruptcy Canada can challenge your automatic discharge.
This can happen when you have failed to meet your obligations or have committed a misconduct.
To be discharged, a court will review your situation and pronounce one of the following rulings:
- Absolute discharge – You no longer have any obligations and are considered debt free.
- Conditional discharge – In this circumstance, certain conditions set by the court needs to be met before you are granted an absolute discharge. These conditions often involve additional payments, but at times some other measures taken by the court.
- Suspended discharge – Your discharge is suspended for a particular reason. When you obtain such a ruling, the next step often is to hire a bankruptcy lawyer to fight against the ruling.
- Refused discharge – There are several reasons you might be refused discharge. Opposition from third parties and not meeting your obligations is but an example
If you are not discharged from your bankruptcy, it can result in some serious consequences.
It means that you will not be released from your debts and your creditors can come after you for payment.
Not being discharged will also affect many other aspects of your life, especially when it comes to purchasing consumer goods that requires a credit check.
Like for instance obtaining the latest mobile phone gadgets on a payment plan.
You might not be able to obtain a mortgage or other similar loans.
After You Have Been Discharged From Bankruptcy
If everything is fine and the court decides to give you a discharge, you will obtain the Certificate of Discharge.
This certificate is your proof that you are no longer bankrupt.
You can use it to back up future loan applications to creditors as long as you meet their financial requirements.
Since the bankruptcy will stay on your credit report for another six years after you have been discharged, the Certificate of Discharge can help strengthen your application.
When you obtain the Certificate of Discharge, you are basically starting your financial situation from scratch having learned through counselling the reasons why you got into bankruptcy and seek to avoid repeating such circumstances.