FAQs about Second-Time Bankruptcies & the Alternative Options Available
For those who have filed for bankruptcy once but find themselves back where they started years later, it can be tempting to pull the trigger and file for bankruptcy a second time.
But filing for bankruptcy is a big decision, and there are consequences to filing for bankruptcy more than once.
So, if you’re considering filing for bankruptcy again, there are a lot of aspects of second-time bankruptcies to be taken into consideration, along with the alternative solutions available.
What Is Bankruptcy?
Bankruptcy is a legal process designed to help those who are overwhelmed and overburdened by debts they cannot afford to repay. Bankruptcy helps eliminate unsecured debts, such as credit cards, personal loans, payday loans, lines of credit, tax debt, and personally-guaranteed business debts.
And while bankruptcy is helpful to give people a fresh start and learn about financial literacy, it should only be considered as a last resort when no other debt solution is an option. Bankruptcy does come with costs, and it is not an easy way out.
Can You File For Bankruptcy More Than Once?
Yes, legally speaking, you can file for bankruptcy multiple times in Canada, though it is not recommended and should only be a last-resort option.
How Many Times Can You File For Bankruptcy?
There are no specific laws that limit the number of times a person can file for bankruptcy. However, after your second filing, your chances of succeeding in being discharged in a third bankruptcy or more decreases with each filing.
In fact, you must attend court to apply for a discharge with a third bankruptcy. The court may be more inclined to impose conditions or refuse your discharge with a third bankruptcy or more. The bankruptcy process is to provide relief to an honest, but unfortunate debtor. With multiple bankruptcies, it may appear that the process it being abused by the debtor and the court must consider the integrity of the process.
When Are You Able To File A Second Bankruptcy?
You can file for a second bankruptcy after you have been discharged from your first bankruptcy.
Are The Rules Different When Filing A Second Bankruptcy?
When filing a second bankruptcy, most of the rules are similar to a first bankruptcy, except that the length of time it takes to receive an automatic discharge from a second bankruptcy is longer.
A bankrupt person is only eligible for a discharge after performing all of their required bankruptcy duties, either after 24 months for those without surplus income or 36 months for those with surplus income.
And if you file for a third bankruptcy, you’ll need to attend a discharge hearing in bankruptcy court to apply for a discharge and explain to the judge why you filed for bankruptcy three times.
The court will decide if and when you will be discharged, and they may also impose other conditions for your discharge, such as:
- A suspension – extending the time you remain in bankruptcy;
- Requiring you to make additional payments; or,
- Refusal of discharge.
Consequences Of Filing For Bankruptcy More Than Once
There are several costs and drawbacks to filing for multiple bankruptcies. Here are a few examples.
It Is More Expensive
With a second-time bankruptcy, you will end up paying more money than with your first bankruptcy. Filing for bankruptcy becomes more expensive the second time, especially if you have surplus income—extra money that can go toward your bankruptcy debts.
Your surplus income is any income in excess of the standard cost of living amount for your family unit – which is set by the Office of the Superintendent of Bankruptcy. The Standard cost of living amounts are based on the low income cut-offs released by Statistics Canada. In a second bankruptcy, the surplus income must be paid for 36 months, compared to 21 months, in a first bankruptcy.
If you don’t have surplus income or assets the Trustee will realize, the Trustee will charge a fee to administer the bankruptcy. This fee will increase with a second bankruptcy, due to additional amount of work to be done, reviewing the bankrupt’s income for 24 months, compared to 9 months in a first bankruptcy. This fee amount will be determined by the Trustee.
It Lasts Longer
As seen with the number of months spent paying for your second bankruptcy, a second-time bankruptcy lasts much longer than the first time. The minimum timeframe is 9 months for first-time bankruptcies and the minimum timeframe is 24 months for second-time bankruptcies.
Second bankruptcies also stay on your credit report for a longer period of time. First bankruptcies will remain on your credit report for 6 years (Equifax) or 7 years (TransUnion) from the date of your discharge, but a second bankruptcy will stay on your credit report for 14 years from the date of your discharge. This means it will continue to hurt your credit score for 8 years longer than your first bankruptcy.
Alternative Options to Bankruptcy
To avoid the extra costs and lasting consequences of filing for a second bankruptcy, consider these other debt relief solutions.
Debt counselling is offered by debt or credit counsellors to help you both manage and settle your debt through education, budgeting, and debt management plans to pay off your creditors. If you are considering a second bankruptcy, get help from a Licensed Insolvency Trustee first so they can help you decide what your best option is for eliminating your debt.
With a consumer proposal, a Licensed Insolvency Trustee will negotiate a settlement with your creditors that you can afford, allowing you to reduce your debt and eliminate interest. Your monthly payment will remain the same for the agreed-upon timeframe, so you won’t have to worry about your payments increasing when you earn more income, as they would with a bankruptcy.
Also, a consumer proposal won’t hurt your credit as much as a second bankruptcy would. It only stays on your credit report for the length of your consumer proposal—the amount of time it takes to make payments and satisfy the proposal—plus 3 years.
Debt consolidation involves taking out a loan to cover several outstanding loans, and essentially, combining your debts into a single loan. So, instead of making multiple payments to various high-interest debts each month, you will only have to make one payment to this new loan, which will likely have a much lower interest rate than your other debts.
Filing for bankruptcy should be your last option, especially for the second time around. Not only will it cost more and take longer, but it will also hurt your credit rating for a much longer period.
So, if you’re considering filing for bankruptcy for the second, or even the first time, speak with a Licensed Insolvency Trustee for help deciding whether it is the best option, or if you are better off choosing one of the alternative options to bankruptcy.
Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee and Consumer Proposal Administrator. Its professionals have assisted thousands of individuals successfully resolve their debt crises and overcome financial turmoil since 2002. Its passion – its mission – is your health and well-being!