There are a number of factors which must be taken into account when determining how long a person will be in “bankruptcy”. In bankruptcy really refers to the time from when a person makes an assignment in bankruptcy or when a court issues an order in bankruptcy. In the latter situation, a creditor may have applied to the court and after a trial, the court made a determination that a Licensed Insolvency Trustee (“LIT”) is appointed for the administration of a person’s bankruptcy.
Here is the legal part, this blog is not designed, nor in the space available, can we set out all conditions, exceptions or possibilities. Once you read this blog, you should contact one of our offices near you or contact a local trustee near you for greater analysis and review of your particular circumstances. For ease of reading, we will try to create a series of short blogs written for ease of reading and avoiding lots of legal jargon.
Filing for bankruptcy depends on a number of factors including type and amount of debt, nature, type and stability of employment your income. In another blog we go into alternatives to bankruptcy and more specifically proposals. One thing we have noticed is that a number of firms promote proposals. While we agree that proposals are a better course of action than a bankruptcy, some firms will have a debtor file a proposal, in some cases knowing that the proposal will fail and the debtor will have to file bankruptcy to get rid of their debts. In these situations the trustee will get two fees out of the filing of the proposal and the bankruptcy. We don’t promote this course of action and work hard to ensure we determine the right course of action.
An example of the above situation is where a person has limited and intermittent income to offer the creditors a proposal. The proposal is filed for 60 month payment plan, halfway through the proposal, the debtor loses their job. In order to eliminate the debt, the debtor then needs to file bankruptcy. In this situation there are two fees for the trustee generated. For the creditors, even if successful, the payment on account of the debt would have been small and a long way from when the proposal was filed. It may have been better to make an assignment in bankruptcy given the limited income and the possibility of loss of employment.
As mentioned previously, if it is determined that a viable proposal cannot be filed, another option is an assignment in bankruptcy. Once the necessary paperwork is prepared and filed with the Official Receiver (“OR”), part of the Office of the Superintendent of Bankruptcy (“OSB”) , you will be bankrupt. Upon bankruptcy, there is a “stay of proceedings” which essentially means that none of your creditors can pursue the collection of a debt or an enforcement proceeding without leave of the court. This includes Canada Revenue Agency (“CRA”). The BIA is designed so that all creditors are treated fairly in accordance with the BIA.
One of the primary considerations is that a proposal under the BIA must provide a better outcome than the alternative, a bankruptcy. Hence this is the starting point for how long a bankruptcy should take. In the simplest of terms, there are two factors, a) how much is your net family income after tax; b) have you previously been bankrupt? The OSB prepares yearly a chart outlining a family’s after-tax income and the estimate living costs or “guidelines” required to support how many are in the family. The difference between the two factors is called the surplus income. If the portion of the bankrupts income compared to the total is greater than $200 per month then for a first time bankruptcy the period in bankruptcy will be 21 months. If the difference is less than $200, then the bankruptcy period will be 9 months. The OSB provides good information on the calculation of surplus income. The link is as follows: https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03572.html The general logic is that if a debtor has sufficient income over the guidelines, then they should be able to offer some portion of the amount to their creditors in a proposal. Hence if a debtor has say $500 per month of surplus income, and this is their first bankruptcy, the bankruptcy will be 21 months and the portion of the surplus to be paid to the bankruptcy estate is one half of the surplus or $250 per month. Alternatively, if a debtor wants to avoid a bankruptcy and file a proposal, the proposal has to be better than a bankruptcy so a proposal would have to be say, 24 months at $275 per month. This is the first factor in how long a debtor will be in bankruptcy.
Another factor will be a debtor’s performance of their duties. The BIA sets out certain duties that someone must perform while they are bankrupt. Failure to perform those duties can have an impact on completing or obtaining a discharge from bankruptcy. Generally, the duties are not onerous but include filing a monthly income and expense form so that surplus income can be determined and hence how long a person is in bankruptcy, in the case of a change in net income. Another duty includes attending counselling sessions to review causes, review income and generally gain information and advice on the reasons for the bankruptcy.
In general, if a bankrupt’s duties are performed a person can obtain a discharge, in the absence of extraordinary issues in the following time frames:
|Bankruptcy||No Surplus Income||Surplus Income|
|3rd or more||24(a)||36|
- A court has discretion on whether to grant a discharge on any discharge.