Have you been curious as to how bankruptcy works in Canada? More specifically, how many times you can file bankruptcy? In theory, you can declare bankruptcy as many times as you like in Canada. Practically speaking, however, every time you file the consequences and the difficulty in receiving a discharge from your bankruptcy increases.
The length of your bankruptcy and severity of your discharge from bankruptcy is primarily dependent on two items:
- How many times you have been bankrupt in the past; and
- Surplus Income, if you have a requirement. (Read more about surplus income requirements)
These two factors determine the length of your bankruptcy as well as the cost of your bankruptcy.
Declaring bankruptcy in Canada is a serious matter and should not be taken lightly. Filing for bankruptcy requires researching how the process works, how to do it, how much it costs and how long it takes. It must also be done with the help of a qualified professional known as a licensed bankruptcy trustee (known as a Licensed Insolvency Trustee) who will give valuable advice on how best to proceed within the constraints of Canadian law.
Any Canadian citizen considering filing personal bankruptcy needs to become informed about these regulations before making any decisions. This article aims to explain exactly how many times one can declare bankruptcy in Canada and the factors that must be considered.
Bankruptcy Process Timeline and How It Is Affected By Having A Surplus Income Requirement
Let’s discuss what happens if you declare bankruptcy a single time. The first time you declare bankruptcy, if you do not have a surplus income requirement, you are eligible to receive an automatic discharge from your bankruptcy after 9 months. If you have a surplus income requirement, you are eligible to receive an automatic discharge from your bankruptcy after 21 months and you will be required to make payments for 21 months. Provided you fulfill all of your bankruptcy duties, your trustee will issue you a Certificate of Discharge from your bankruptcy at the expiry of the 9 or 21 months.
When you declare bankruptcy you should know how your credit will be affected. Your credit will be impacted for a period of 6 years from the date of filing.
If you have ever wondered ‘Can you go bankrupt twice’, the answer is yes. But if you declare bankruptcy a second time, the process is more complicated.
If you do not have a surplus income requirement, you are eligible to receive an automatic discharge from your bankruptcy after after 24 months. If you have a surplus income requirement, you are eligible to receive an automatic discharge from your bankruptcy after 36 months and you will be required to make payments for 36 months. Provided you fulfill all of your bankruptcy duties, your trustee will issue you a Certificate of Discharge from your bankruptcy at the expiry of the 24 or 36 months.
Second bankruptcies in Canada are far more damaging than first-time bankruptcies as it relates to credit. Your credit will be impacted for a period of 14 years from the date of filing.
If you declare bankruptcy a third time or more, the process is even more complicated. You will be required to make payments for a longer period of time, as determined by the Court. You will not be eligible for an automatic discharge.
As you can see, the process and the consequences of declaring bankruptcy in Canada become more severe each time it is done. It is important to note that regardless of whether it is your 1st bankruptcy, or your 2nd if you do not follow the rules and requirements of your bankruptcy, you may not be eligible for an automatic discharge which can have unpredictable consequences as you will be required to attend Court in front of the Bankruptcy Registrar who may impose additional duties. And before you ask, no – there is no worse impact to your house based upon how many times you have filed bankruptcy.
Wisdom From a Licensed Insolvency Trustee: Don’t File Bankruptcy More Than Twice If You Can Help It. There are other options.
While you are allowed to declare bankruptcy as many times as you like in Canada, that doesn’t mean it’s a good idea to do so. In fact, as a Licensed Insolvency Trustee, we generally do not recommend people file bankruptcy more than two times unless the circumstances require it.
As indicated above, if you file more than twice you are not eligible for an automatic discharge from your bankruptcy. This means you have to appear in Bankruptcy Court for an application to obtain your discharge. You will likely be required to answer questions and the Registrar will make a decision as it relates to your discharge. Even if you have fulfilled all of your obligations as outlined by the Bankruptcy and Insolvency Act prior to the Court discharge hearing, it does not mean you will necessarily get a favourable outcome. The Bankruptcy Registrar has significant leeway regarding the outcome of a bankruptcy discharge.
How to avoid a third bankruptcy?
There are several bankruptcy alternatives. A consumer proposal is often a good alternative to claiming bankruptcy in Canada if you have already been bankrupt twice in the past. A consumer proposal is a debt settlement agreement between you and your creditors that allows you to repay a portion of your debts, over a period of time, and avoid declaring bankruptcy.
We have an in-depth article discussing consumer proposals which include the pros and cons, how they work, and how they can be an incredibly effective alternative to bankruptcy depending on your circumstances. Another option, if your credit is good may be a debt consolidation loan, however, readers are cautioned that this can be a double-edged sword and a professional should be consulted.
If you want expert guidance, we invite you to contact us for a free consultation. We can help determine if it is the right time to declare personal bankruptcy and help you file (or avoid, if possible!) bankruptcy in Nova Scotia, Prince Edward Island, and New Brunswick. We will review your unique situation, and explain all of your debt-relief options available to you.
This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.