Moving Forward and Thriving After Being Discharged from Bankruptcy
Going through personal bankruptcy is a long and stressful experience. However, anyone who has been through it knows that receiving news of a discharge feels like a light at the end of the tunnel, signifying the beginning of a new journey towards financial health.
Before making any significant decisions, it’s important to understand that there is more than one type of discharge along with the differences between each one. To help with this, we will explain what a bankruptcy discharge is along with the different types of discharge, while also painting a picture of what life is like post-discharge.
Bankruptcy is a complex legal process that can be difficult to navigate without proper guidance from your Licensed Insolvency Trustee. It can ease your financial burden and give you a fresh start when you’re financially overwhelmed. By filing for bankruptcy, most (if not all) unsecured debt, including collections and lawsuits, and even business debts in some circumstances, will be eliminated.
In exchange, you will have to perform certain duties and surrender any assets that are not statutorily exempt from the process to the Licensed Insolvency Trustee (LIT) to pay back your creditors. You must disclose the particulars of all property in your possession and sources of income to the LIT, give all credit cards to the LIT for cancellation, provide the LIT with all requested income tax returns, tax information slips, investment statements, and insurance policies, and file monthly income and expense reports. Finally, you’ll have to attend two mandatory credit counselling sessions as well as any other meetings you are directed to attend.
What Is A Bankruptcy Discharge And When Does It Happen?
The discharge is the final step in the bankruptcy process, which takes place after all bankruptcy obligations have been fulfilled – a minimum of nine months after filing for a first-time bankrupt and a minimum of 24 months for a second-time bankrupt. This means you will be officially released from your obligation to repay your debts and can officially begin with your fresh start.
It’s important to note that some debts will survive a discharge – as described in section 178 of the Bankruptcy and Insolvency Act (“BIA”) – and these debts must still be paid. The LIT will discuss this with you. If you have filed an assignment in bankruptcy more than once, you will have to wait longer for a discharge.
4 Types of Bankruptcy Discharges
1. Absolute Discharge
If you are given an absolute discharge, you will be released immediately from the legal obligation to repay debts that existed on the day the bankruptcy was filed, excluding those described in section 178 of the BIA. You will have to resume payments on these debts.
2. Conditional Discharge
A conditional order of discharge is imposed by the Court. It means that you will have to meet certain conditions in order to eventually obtain an absolute discharge. Usually, this simply means that you will be mandated to pay a certain amount of money over a specific period of time – these terms can be discussed with your LIT. There may be other conditions as well, but once they have been met, you will be granted an absolute discharge.
3. Suspended Discharge
A suspended discharge is similar to an absolute discharge, but it will not be effective until a later date. This delay usually occurs due to a prior bankruptcy, following a breach of your duties or committing an offence, as specified in the BIA. If you completed your duties and did not commit an offence and you have not filed for bankruptcy previously, you will likely not be given a suspended discharge.
4. Refused Discharge
Your discharge can in fact be refused by the Court. This is pretty rare, but if your discharge is refused, you must continue to abide by the conditions of your bankruptcy until you later reapply to Court and it grants a discharge. A refusal is more common in cases where three or more bankruptcies have been filed and/or a an offence has been committed. For third and subsequent bankruptcies, you will need to appear in court in order to be discharged.
Life After Bankruptcy Discharge
After your discharge, you will have to do some critical work to repair your credit and ensure you’ll be able to move forward in optimal financial health.
Your bankruptcy – including your date of filing and the name of your LIT and the debts declared – will remain on your credit report for six years (Equifax) or seven years (TransUnion) after your discharge from a first bankruptcy, and for 14 years after your discharge from subsequent filings. This will leave you with a negative R9 rating. However, contrary to popular belief, this does not necessarily mean you’re in for a long road of financial recovery.
There are ways you can work on improving your credit score post-bankruptcy in order to obtain new credit, including disputing credit report errors, obtaining a secured credit card, making payments on time, refraining from obtaining a large amount of new debt, and not using all of your available credit. You can also ask for modest credit increases but not use too much of the newly available credit, in order to work towards building a history of positive credit use. Before you know it, you’ll be ready to move forward and maybe even purchase a new home!
Bankruptcy can be a confusing process. However, as long as you abide by the terms set out by your LIT, complete your duties, and keep the lines of communication open between yourself and your trustee, your discharge will come sooner than you think. Understanding what type of discharge you’ve been given will also give you the tools you need to move forward with a clean slate.