If you’re looking for a way to deal with unmanageable debts, filing for bankruptcy is an option that might have crossed your mind. However, you may have questions about the process, including how long it will take to eliminate your debts.
In Canada, a first-time bankruptcy typically lasts nine months but may extend to 21 months if you have surplus income. It will take longer if you’re filing for bankruptcy a second time (or more). But regardless of the time frame, it’s important to remember that there’s an end in sight.
In this guide, we’ll break down how long you can expect your bankruptcy to last and what you need to do to get through it as smoothly as possible.
Contact David SklarBankruptcy timeline in Canada: How long it takes to get out of debt
Your bankruptcy begins when you file the required documents through a Licensed Insolvency Trustee. In general, the amount of time it takes to get through bankruptcy hinges on two factors:
- Whether you’ve filed for bankruptcy in the past. The length and complexity of a personal bankruptcy increase with each filing. First-time bankrupt individuals enjoy the fastest timeline to completion. Conversely, individuals filing for a third time face the most drawn-out schedule plus more stringent obligations.
- Whether you’re required to make surplus income payments. Under Canadian bankruptcy law, surplus income refers to the earnings a bankrupt individual receives that exceed the guidelines set by the Office of the Superintendent of Bankruptcy (OSB). Suppose your household earnings are higher than this limit. In that case, you must contribute extra payments to your creditors during bankruptcy. We encourage you to learn about surplus income, as it will impact the cost and length of your bankruptcy.
Regardless of the timeline, fulfilling all your bankruptcy duties is crucial for getting legally discharged from your debts. Failing to do so can stretch the bankruptcy process and potentially result in your debts being reinstated rather than forgiven.
First bankruptcy
If this is your first time filing for bankruptcy, it will take you nine months to complete the process, assuming you have no surplus income. If you have surplus income, the timeline extends to 21 months.
Second bankruptcy
If you declare bankruptcy a second time, it will take 24 months to get through the process, provided you’re not required to make surplus income payments. Should you have to make extra payments, it will be 36 months before you’re eligible for a discharge.
Third bankruptcy (or more)
A third bankruptcy in Canada is more complex and protracted than first and second bankruptcies. It’s also more severe regarding legal obligations on the part of the bankrupt individual.
Should you file bankruptcy for a third time (or more), you can expect the legal proceeding to last at least 36 months. It’s not uncommon for a third bankruptcy to take four years or more before a discharge is issued. The court will determine the length of your bankruptcy and your duties.
Under a third bankruptcy, you may not be eligible for an automatic discharge upon completion. Instead, the court will decide the terms of your discharge, which may require you to make additional payments over a specific time frame.
What does it mean to be discharged from bankruptcy?
Receiving a bankruptcy discharge is the final step in the bankruptcy process in Canada. Once you receive your discharge, you’re no longer legally required to repay the debts included in your bankruptcy. You can now start with a clean financial slate and work on rebuilding your credit.
Whether your bankruptcy lasts nine months or several years, achieving this milestone requires completing several duties. To receive an automatic discharge, you must:
- Report your monthly income and expenses to your trustee.
- Pay surplus income payments to your trustee, if required.
- Hand over your non-exempt assets to your trustee
- Surrender your credit cards to your trustee.
- Attend two mandatory credit counselling sessions to discuss strategies and tactics for restoring your credit standing and preventing future financial issues (the first takes place three months into your bankruptcy and the second one near the end of the process).
- Provide your trustee with all the necessary financial information to complete your tax returns in the year of your bankruptcy filing.
- Pay your trustee the required bankruptcy administration costs and, if applicable, payments to repurchase an asset that’s not exempt.
- Attend any court hearings as required.
Complications that can prevent you from completing your bankruptcy on time
Obtaining an automatic discharge is the goal of any personal bankruptcy. However, a discharge may be delayed or denied in certain situations. Here are some examples:
- You owe surplus income payments at the time of your anticipated discharge date. In this case, you must arrange with your trustee to repay the balance over a predetermined period. If you fail to pay on time, you must apply to the court to receive your discharge.
- You failed to complete your obligations. You won’t automatically qualify for a discharge if you haven’t met all your bankruptcy obligations (aside from surplus income payments). Instead, you must attend a court hearing to resolve the matter. If you have many commitments left, the court will order you to complete them over a specified time frame.
- One or more creditors object to your discharge. Your creditors can oppose your bankruptcy discharge for various reasons. For example, they may claim that you failed to provide accurate details about your financial situation or didn’t pay enough into your bankruptcy estate. In such cases, you may need to attend court to resolve the issue before securing your discharge.
- You owe a large amount of tax debt. If you owe the CRA tax debt totaling $200,00 or more and it constitutes at least 75% of your unsecured debt, the court must decide on your discharge date.
- You’ve filed multiple bankruptcies in the past. The bankruptcy process can become very tedious and complicated if this is your third time filing (or more). The extensive court hearings and other legal obstacles mean your discharge date can be pushed back several years.
Remember: regardless of your bankruptcy timeline, carrying out your legal responsibilities is vital if you wish to have your debts forgiven. If you fail to do so, the court may grant your trustee the right to close your file. In that case, you won’t obtain your discharge, and your creditors will be free to pursue you for your unpaid debts.
When can you start rebuilding your credit?
You can start rebuilding your credit as soon as you receive your Certificate of Discharge from bankruptcy. However, repairing the damage your credit score has suffered due to bankruptcy will take some time. As a result, you won’t initially qualify for conventional loans at affordable interest rates.
While a first-time bankruptcy takes as little as nine months to finish, it’ll remain on your credit report for six to seven years. In comparison, a second bankruptcy sticks around for 14 years before being removed by the credit bureaus.
The bottom line on the bankruptcy timeline
If it’s your first time filing for bankruptcy, you could eliminate your unsecured debts in as little as nine months or 21 months if you have surplus income. The process will take longer with each subsequent bankruptcy. Regardless, completing all your duties as required under bankruptcy law is crucial to getting discharged from your debts.
Filing for bankruptcy will hurt your credit score for several years. But if your debt problems are severe enough, it may be the best way to take control of your financial future. Visit our Bankruptcy in Ontario page to learn more about how bankruptcy works, including the assets you can keep and how to qualify.
