Discharge from Bankruptcy

Personal bankruptcy in Canada ends when the individual receives a "discharge".   A discharge from bankruptcy means the bankrupt has fulfilled all duties and obligations, and all debts are extinguished (except certain debts that cannot be discharged in bankruptcy).

A bankruptcy discharge can happen in different ways and at different times, depending on the circumstances.

Automatic Discharge from Bankruptcy

A first- or second-time bankrupt may be automatically discharged from bankruptcy (i.e., no court hearing required) provided they have fulfilled all duties and obligations and the discharge is not opposed by a creditor.  An exception is made for bankrupts defined as "Personal Income Tax Debtors", or individuals who have high tax debts (see next section, below).

Individuals who have lower income levels (as established by federal government guidelines) are discharged earlier than individuals who have higher income levels.

The eligible automatic discharge dates are:
First-time bankrupt, income below government standards - 9 months
First-time bankrupt, income above government standards- 21 months
Second-time bankrupt, income below government standards - 24 months
Second-time bankrupt, income above government standards - 36 months

Bankruptcy Discharge - When a Court Hearing is Required

A court hearing is required for a bankruptcy discharge in any of the following situations:
  • this is a third bankruptcy (or more);
  • the bankrupt is a "personal income tax debtor" (see section below);
  • a creditor opposes the discharge;
  • the trustee opposes the discharge; or
  • the Official Receiver (bankruptcy regulator) opposes the discharge.

Personal Income Tax Debtors

A personal income tax debtor is defined in section 172.1 of the Bankruptcy & Insolvency Act as an individual who owes $200,000 or more in personal income tax debt and whose personal income tax debt makes up 75% of the unsecured bankruptcy claims.

A personal income tax debtor is not eligible for an automatic discharge.  A court hearing is required.

See my blog, "Bankruptcy in Canada - High Tax Debts" for more information on this.

Bankruptcy Discharge Orders

If a Court hearing is required, the Court may grant one of several types of discharge orders:
  • Absolute - the bankrupt is release as of the date of the Order with no further obligations
  • Suspended - the discharge will be effective on a future date specified in the Order
  • Conditional - the bankrupt will be required to fulfill conditions specified in Order 
  • Refused - the discharge is refused outright and leave may be granted to reapply at a future date