For most people filing for bankruptcy, this is a one-time deal. However, there are times when filing a second bankruptcy (or more) is necessary. Unforeseen events can happen, such as a lost job, unexpected injury, or another emergency that requires taking on massive debt. And going through bankruptcy again is one way to eliminate that debt.
There is no legal limit on how many times a person can file for bankruptcy in Canada. You can file as many times as you wish, provided you’ve been discharged from your last bankruptcy and satisfy the eligibility requirements. However, the process and rules change with each subsequent filing.
This article explores the consequences of declaring bankruptcy more than once. By the end, you’ll have a better idea if venturing into bankruptcy again is worth it or if another debt relief option is a safer bet.
One bankruptcy vs multiple bankruptcies: What to expect each time you file
A first-time bankruptcy is pretty straightforward and doesn’t take much time to complete. However, filing for a second time (or more) comes with greater challenges, costs, and time commitments. You’ll face more obstacles and delays when applying for a discharge. Your credit will suffer for a longer time, which can impact your plan to obtain a mortgage, car loan, or other type of financing.
Let’s explore how the bankruptcy process works each time that you file.
Filing bankruptcy for the first time
When you claim bankruptcy for the first time, you can expect a clearly defined process and time frame for completion. There won’t be any surprises, and you won’t face any roadblocks, assuming you carry out your duties as per the Bankruptcy and Insolvency Act (BIA).
A first time bankruptcy in Canada typically lasts nine months, provided there is no surplus income. During this time, you are required to make monthly payments to cover the administrative costs of the bankruptcy, which are commonly around $200 per month, though the exact amount can vary.
If surplus income applies, additional payments may be required and the bankruptcy period generally extends to 21 months.
Once you complete your bankruptcy, you’ll receive an automatic discharge. This legal process releases you from all obligations to pay the debts included in your bankruptcy.To be eligible for an automatic discharge, you must satisfy all the legal requirements outlined in the BIA. These include attending two credit counselling sessions and handing over non-exempt assets to your trustee. In addition, your discharge must go unopposed by your creditors, trustee, and the Office of the Superintendent of Bankruptcy.
If you qualify, your trustee will send you a copy of your discharge certificate, officially ending the bankruptcy. You don’t need to attend a court hearing or complete any other paperwork. From our experience, most people who claim bankruptcy the first time have no issues getting an automatic discharge.
A first bankruptcy will remain on your credit report for six to seven years after you receive your discharge, depending on which province you live in.
Filing bankruptcy for the second time
If you declare bankruptcy a second time, you can expect a more demanding and complex process. The most notable difference is that it lasts considerably longer. Completing a second bankruptcy will take 24 months if you have no surplus income. If you have surplus income, the period can extend to 36 months. The minimum monthly contribution fees still apply.
Unlike a first-time bankruptcy, you won’t be eligible for an automatic discharge. Instead, you’ll need to attend a court hearing where the judge will decide what conditions to impose on your discharge. These may include making additional payments and extending the bankruptcy period further.
In a second bankruptcy, there’s an elevated risk of the court or your creditors opposing your discharge. However, this is still rare, especially if you filed for bankruptcy again due to factors beyond your control, such as a job loss or illness.
A second bankruptcy (plus all subsequent bankruptcies) stays on your credit report for 14 years, double the length of a first-time bankruptcy. This negative credit rating can significantly hinder your ability to qualify for various loans and may even affect employment opportunities.
Filing bankruptcy for the third time (or more)
Filing a bankruptcy for a third time can be done. However, the process becomes even more drawn out, taxing, and convoluted.
There’s no official timeline for a third bankruptcy. Instead, the court will determine the length of your payment period, outline your duties and impose specific conditions if necessary. The entire process can take four years or more, depending on your situation.
Under a third bankruptcy, you’re not eligible for an automatic discharge. You must first secure the court’s permission to determine when or if you can be relieved of your debts.
One possible outcome is a conditional discharge, where you must meet certain conditions (e.g. making additional payments) before receiving a full bankruptcy discharge. Another possibility is a suspended discharge, which delays your discharge to a future date. In rare cases, the bankruptcy court can also impose a refused discharge. This scenario usually occurs if you engage in serious financial mismanagement or fraud or fail to complete your duties under the BIA.
While it is possible to go bankrupt three times, this is generally something you would want to avoid, given the challenges, obstacles, and stress you’ll face. It’s wise to seek alternative options instead of relying on bankruptcy whenever you run into debt trouble.
Can you file for bankruptcy again if you haven’t received your discharge?
No, you can’t file a new bankruptcy if you haven’t been discharged from your current one. However, it’s possible to convert your bankruptcy to a consumer proposal if you’ve yet to receive your discharge.
This option could be a good move if finances have improved significantly since your filing date, such as getting a raise at your job or receiving a windfall through an inheritance. As your income rises, your bankruptcy costs increase due to the surplus income rules, which could make a consumer proposal a more attractive solution. Just keep in mind that you’ll need approval from your creditors to do this.
The bottom line on filing multiple bankruptcies in Canada
There’s no limit on how many times you can declare personal bankruptcy in Canada. However, with each filing, the legal process becomes more involved, demanding, and prolonged. Going through multiple bankruptcies will also harm your credit for many years, limiting your borrowing options.
So, while filing a second or third bankruptcy is legally allowed, it’s a decision that you should weigh carefully. If you’ve been through bankruptcy in the past and experiencing financial distress again, it’s worth exploring other options. One potential solution is a consumer proposal, which allows you to write off a portion of your unsecured debts, leaving you with lower monthly payments.
Not sure what road to take? At David Sklar & Associates, our team of knowledgeable and supportive Licensed Insolvency Trustees can help you review your options and create an effective plan for dealing with your debts. They are the only debt professionals in Canada legally allowed to carry out all forms of debt relief, including bankruptcies and consumer proposals. Book a free consultation today and start your journey toward financial freedom.
