I’m An Undischarged Bankrupt in Canada – What Are My Options?
Filing bankruptcy doesn’t make your debts go away
There is a common misconception that the act of filing bankruptcy makes your debts go away. It does not. Filing bankruptcy merely initiates a stay of proceedings against your creditors so they cannot initiate or continue any legal action against you to recover their debts.
Your debts are only extinguished when you obtain your discharge from bankruptcy.
If you’re a first time bankrupt, you’re eligible for an automatic discharge from bankruptcy 9 months after you file (21 months if you have surplus income). That is – once you’ve fulfilled your obligations in your bankruptcy proceedings, your Trustee issues you a Certificate of Discharge from his office indicating that you are discharged from your debts.
An electronic copy of this Certificate is e-filed by the Trustee with the Office of the Superintendent of Bankruptcy. Your credit files at Equifax and Trans Union will be updated accordingly.
Possible reasons why you’re an undischarged bankrupt
If for whatever reason you were unable to complete your obligations under your bankruptcy proceedings, your discharge from bankruptcy will have been opposed by your Trustee. The standard obligations in a typical bankruptcy proceeding are:
- Making surplus income payments to your Trustee for the benefit of your creditors.
- If you have no surplus income, the Trustee will charge you a basic fee, which you’ll have to pay before she issues you your Certificate of Discharge.
- Attend two mandatory budget counselling sessions at the Trustee’s office.
- Provide your Trustee with your personal income tax information so she can complete your income tax return for the same year that you filed your bankruptcy (e.g., if you filed bankruptcy in 2019, your Trustee must prepare and file your 2019 T1 return).
- Provide your Trustee with monthly income & expense statements along with documentation such as paystubs or bank statements to verify your income.
- If requested to do so, attend upon the Office of the Superintendent of Bankruptcy for an examination under oath about the circumstances that led to your financial difficulties.
- Attend a meeting of your creditors at the Trustee’s office if you are called upon to do so by the Trustee, your creditors or the Office of the Superintendent of Bankruptcy. This meeting provides an opportunity for those three parties to ask questions about your financial affairs.
- Attend bankruptcy court when required to do so. You’ll be required to attend if your Trustee, your creditors, or the Office of the Superintendent of Bankruptcy have opposed your automatic discharge.
- Perform any other obligation the Trustee, Office of the Superintendent of Bankruptcy or the bankruptcy court requires you to perform as a condition of you obtaining your discharge.
Therefore, if you are an undischarged bankrupt, it’s because you failed to attend to one or more of the obligations listed above.
Problems with being an undischarged bankrupt
Being an undischarged bankrupt poses many potential problems:
- If you’ve accumulated new debt after your filed your bankruptcy, you are responsible for paying those debts. And if you’re unable to do so, filing bankruptcy a second time isn’t an option. You cannot file bankruptcy a second time until you’ve been discharged from your first bankruptcy.
- If you apply for credit, a credit search by a lender may indicate that you’re an undischarged bankrupt. This will make it difficult for you to obtain financing for major purchases such as a vehicle or real estate.
- If you are applying for employment which requires a background check and security clearance, the fact that you’re an undischarged bankrupt may render you inapplicable for that position.
What follows are some options to deal with your undischarged status.
Option 1: Contact your Trustee
You can contact your Trustee and inquire what you’re required to do in order to obtain your discharge from bankruptcy.
In many cases, your Trustee will have closed your bankruptcy file and may ignore your efforts to communicate with her. And she’ll have no obligation to help you whatsoever since she’ll have obtained her own discharge as Trustee.
In that event, you should offer to pay her for the time she’ll need to spend to re-open your file. For example, it’s not unusual for a Trustee to charge a former client $2,500 just to re-open an old bankruptcy file and review the outstanding duties that her client was required to compete as a condition of him obtaining his discharge.
Once you know what you’re required to do, work with your former Trustee to complete your obligations in your bankruptcy proceedings. Once you’ve completed your duties, your Trustee can then apply to bankruptcy court for an Order of Absolute Discharge which will relieve you of your debts.
Option 2: Contact a bankruptcy lawyer
If you’ve attempted to contact your former Trustee and she’s ignoring your e-mails and phone messages, you’ll need to retain the services of a lawyer that specializes in bankruptcy law. You’ll need to provide your lawyer with a retainer – about $2,500 and up.
Your lawyer will obtain copies of your bankruptcy file from the Office of the Superintendent of Bankruptcy and the bankruptcy court and review with you your outstanding obligations in your bankruptcy proceedings.
Once you and your lawyer know what you’re required to perform in order for you to complete your bankruptcy proceedings, he’ll have to find a new Trustee who is willing to act as Trustee to enable you to complete your obligations.
After finding a new Trustee, your lawyer will have to make an application to bankruptcy court to have that Trustee appointed by the court to act as the new bankruptcy Trustee. You’ll then work with the new Trustee to complete your bankruptcy obligations.
Once your obligations have been completed, your lawyer will go back to court and apply for an Order of Absolute Discharge to relieve you of your debts.
Option 3: File a consumer proposal
A third option to deal with your undischarged status is to find a Trustee who would be willing to work with you to file a consumer proposal. The proposal would be made to the creditors in your bankruptcy and if they accept it, your bankruptcy will be annulled.
You need to complete the payment terms of your proposal in order for you to be discharged from the debts in your bankruptcy. If you fail to complete the payment terms, your proposal will be annulled. When that happens, your bankruptcy “re-boots” itself so that you’re deemed to have re-filed your bankruptcy on the date your proposal was annulled.
Here’s an example:
- You filed bankruptcy on August 1st 2005. You were unable to complete the obligations in your bankruptcy and remain undischarged.
- To address your undischarged status, you file a consumer proposal on March 1st 2020. The terms are 24 payments of $400 per month ($9,600). On April 14th 2020, the proposal is deemed accepted by the creditors in your August 2005 bankruptcy proceedings. Therefore, your August 2005 bankruptcy is legally annulled on April 14th 2020.
- If you complete your proposal payments on March 1st 2022, the debts in your August 2005 bankruptcy will be discharged.
- On the other hand, if you fail to make your proposal payments and your proposal is annulled on (for example) December 1st 2020, your August 2005 bankruptcy will restart itself on December 1st 2020.