Thinking of Filing? Here’s What You Need to Know
Filing for bankruptcy can be a tricky process to navigate. There’s plenty of misinformation out there to sort through, and finding solid, reliable advice can sometimes feel impossible. Plenty of myths persist about the bankruptcy process, but the simple fact of the matter is that you remain bankrupt until you are discharged.
When you work with Baker Tilly Ottawa Ltd.’s Licensed Insolvency trustees, you are working with experienced, knowledgeable experts with the training and authority needed to help you navigate this legal process.
There is no exact length of time for a bankruptcy to last. However, there are a few general guidelines that can give you an idea of what to expect:
If you’re declaring bankruptcy for the first time, without surplus income, your bankruptcy will last a minimum of 9 months. That minimum increases to 21 months (with 21 months of monthly payments to your trustee) if you do have surplus income.
If you are a second-time bankrupt, without surplus income, you must be bankrupt at least 24 months. A second-time bankrupt with surplus income must be bankrupt at least 36 months and make required monthly payments to their trustee for those 36 months.
Third-Time Bankruptcies and More
Third or fourth-time bankrupts are not eligible for discharge after 9, 21, 24 or 36 months. The bankruptcy court will determine the length of time you will be bankrupt and the sum you will have to pay to your Licensed Insolvency Trustee.
The exact duration of your bankruptcy depends on:
- How many times you have filed for bankruptcy
- Your income during the bankruptcy
- Completion of required payments to your bankruptcy trustee
- Completion of your bankruptcy duties (such as attending required budgeting sessions, providing your trustees with income tax documents, and so on)
When discharged from bankruptcy, your bankruptcy is over. Your trustee will provide you with a very important legal document confirming your discharge. With a few possible exceptions, your bankruptcy debts will have been extinguished, and your duties and responsibilities as a bankrupt will have ended.
What is Surplus Income?
In the context of bankruptcy, surplus income is the excess of your monthly net household income over a cost-of-living standard prescribed by the federal government. This standard varies depending on the size of your family.
Under Canada’s Bankruptcy and Insolvency Act, you are required to make a monthly surplus income payment based on your income. Simply put, a bankrupt individual has a limit on what they are allowed to earn monthly. Surplus income is any income earned beyond this set limit, and is paid to their bankruptcy estate.
For example, if the limit on income after taxes is set at $2,152 for an individual, and that individual earns $2,352, they are $200 over the set limit. Half of this sum must be paid to their trustee as part of their bankruptcy estate.
If this is your first time declaring bankruptcy, you must make surplus income payments (in addition to other payments) for a minimum of 21 months. That number increases to 36 months if it’s your second bankruptcy.
Are You Eligible for Discharge?
In many cases, most people who declare bankruptcy in Canada are eligible for discharge after the minimum 9-month period is up.
During that time, you must complete statutory duties, including:
- Payment of surplus income (if applicable)
- Payment to your trustees in equity of assets you’ve chosen to retain
- Providing proof of monthly household income to your trustees
- Documenting your income tax and HST for your trustee
- Attending at least two mandatory budgeting and credit counselling sessions
Get Your Free Consultation
The only way to fully understand the question, “How long does bankruptcy last?” is to have a no-charge consultation with a member of our team. Once we have reviewed your circumstances we will be able to fully explain to you what your duties will be, how much the bankruptcy will cost, what your likely monthly payment will be, and how long your bankruptcy should last.
For a free initial consultation with one of our firm’s experienced professionals, and to explore the option best suited for you, please contact us today!