Second Time Bankruptcy. What Rules Apply?


Category: Personal Bankruptcy (32) comments

Second Time BankruptcyIn Canada, about 15% of people that have filed for bankruptcy end up declaring bankruptcy a second time.  Since approximately 60,000 Canadians will be declaring bankruptcy this year that means 9,000 of them likely have done so before.

The number of people filing second bankruptcies is large enough that in 2009 the federal government brought into effect new bankruptcy rules to deal with repeat filers.

Second Time Bankrupt

Assuming a second time bankrupt performs all of their required duties during their bankruptcy, then they are entitled to an automatic discharge from bankruptcy in:

(a)          24 months if they are not required to make any payments based on the Surplus Income Rules; or

(b)          36 months if they are required to make surplus income payments.

A detailed description of the Surplus Income Rules can be found in Directive 11r2 from the Office of the Superintendent of bankruptcy.  This Directive is updated every year to reflect any adjustment for inflation so make sure you are looking at the most recent release when preparing your Surplus Income calculations.

Otherwise, the requirements and duties of a person that has filed a second bankruptcy are similar to those for a person declaring bankruptcy for the first time.

Third Time Bankrupt

Approximately 1% of all persons that declare bankruptcy do so three or more times – roughly 1,000 people each year.  These individuals must comply with the rules for persons that have filed a second bankruptcy, with the following additional requirements:

  • Instead of an automatic discharge, they must also appear in Court and formerly request their discharge.
  • The Court may impose a time penalty and/or financial conditions on the individual before discharge depending on the amount of time that has elapsed between each of their previous bankruptcy filings and the creditors that were included in each filing.

Alternatives To Repeat Bankruptcies

If you have been bankrupt previously you should give serious consideration to a consumer proposal as an alternative to declaring bankruptcy again.  If you determine a second bankruptcy is the best solution for your situation make sure you understand each of your required duties before you file. Talk to a bankruptcy trustee about your situation to see whether filing a second bankruptcy or a consumer proposal is best for you.

Whether you file bankruptcy a second time or file a consumer proposal, take full advantage of the mandatory credit counselling sessions that are part of your duties so you can avoid another bankruptcy down the road.

Leave A Comment

  1. jodi h.

    I’m wondering how long my second bankruptcy will stay on my credit report. I had my first bankruptcy in 2005 and was discharged from my second bankruptcy in 2015.
    Thankyou, Jodi H.

    Reply
  2. BConrad

    I am wondering about filing taxes and what the trustee can keep. I filed second bankruptcy in mar 2105, they took my t-4 and did my taxes for 2014 and what ever refund I was suppose to get back they kept. Now the are telling me I need to give them my t-4 for 2015 and are going to keep any refund from that as well. Why take my refund for 2014 when I didn’t go bankrupt until 2015. And I thought they only kept the one tax refund not both. Can you let me know for sure, thanks.

    Reply
    1. J. Douglas Hoyes

      When you file bankruptcy, CRA will automatically send any refunds to the trustee for any prior years, and for the year of bankruptcy. So, if when you filed bankruptcy in 2015 your 2014 taxes were not yet filed, the trustee would file your 2014 taxes (the prior year), and 2015 (the year of bankruptcy).

      Reply
  3. Wentworth

    I Filed bankruptcy a decade ago. Now I’m in a consumer proposal but have lost a large amount of contract work and owe large amount of taxes. Was considering second bankruptcy but worried about losing g my car and house.

    Reply
    1. J. Douglas Hoyes

      Hi Wentworth. You should discuss this with your licensed insolvency trustee, since the rules regarding cars and houses in bankruptcy are different in each province, and they can best give you guidance on your options.

      Reply
  4. Linda T.

    I have been in a second bankruptcy for two years. My husband also, we filed separately. I was told I would be discharged after two years, but now I am told I owe “surplus income”. We have been doing the monthly reports combining my pension and my husbands income. I am thinking of not doing the reports, is this a law breaker? I don’t see any end to this anyway as we are in our mid sixties and will not be applying for loans or mortgages so I don’t see the point.

    Reply
    1. J. Douglas Hoyes

      Hi Linda. This is a question you should ask your trustee. If you are a second time bankrupt with surplus income, you are automatically bankrupt for three years. If you don’t disclose your income to your trustee they are unable to determine your surplus income, and therefore would likely request either mediation or a court hearing, at which point the bankruptcy judge would presumably require you to disclose your income and pay your surplus income in order to receive your discharge.

      Reply
  5. Dave

    If you are in a consumer proposal but need to consider a bankruptcy what happens to the payments made to the proposal?

    Also, what are the upfront fees to file or are they included in your monthly payments?

    Reply
    1. J. Douglas Hoyes

      There are no up front fees to file a consumer proposal or bankruptcy.

      If you default on a consumer proposal and file bankruptcy, the money you have already paid in the consumer proposal has likely already been distributed to your creditors, so you may owe slightly less to them when you declare bankruptcy.

      Reply
  6. Lyn I.

    I am a senior living on my CPP& OAP
    I did not fulfil my payments on surplus income (collapsing all my RRSPs 2015/2016 to try to live & set up a counselling business )
    It will be impossible to pay the ThirtyEight Thousand Dollars that I owe in order to obtain an automatic discharge.
    What will happen to me if for the rest of my life I am not able to obtain any kind of discharge?

    Reply
    1. J. Douglas Hoyes

      If you are not discharged from bankruptcy, your creditors could pursue you, and it will be difficult to obtain credit. This is a matter you should discuss with your trustee to determine your options.

      Reply
  7. Ken

    I am in current bankruptcy for second time and was just given a credit card that I applied for just to see…. is it a good idea to use it to start reestablishing credit before my discharge or will that get me in trouble?

    Reply
    1. J. Douglas Hoyes

      Unless you have a need for credit now, it’s safest to wait until you are discharged. You don’t want to be in a situation where you get behind on a credit card payment while bankrupt, as that could negatively impact your ability to get a discharge. Assuming the credit card is showing up on your credit report, that will have almost as positive impact as if you were using it regularly, so it’s safest to wait until you are discharged to start using it (and paying it full each month).

      Reply
    1. J. Douglas Hoyes

      The short answer is no, Equifax’s algorithm keeps a second bankruptcy for 14 years. However, it is possible to begin rebuilding your credit a lot sooner than that, so if that is the issue, you should focus on rebuilding your credit (perhaps by starting with a secured credit card or small credit card) which will ultimately have more impact on your credit score than a second bankruptcy, assuming you have sufficient income and no other issues.

      Reply
  8. George

    Went bankrupted in 2001 and I don’t think was released from it and iam thinking of going bankrupt again from running my own small business how do I and can I ????

    Reply
  9. Meaghan

    I am currently in a common law relationship. I applied for my first bankruptcy back in 2011 and have already been completely discharged. Due to a string of bad luck for myself and my common law partner we are up to our eyes with debt and maxed out credit cards and now are seeking possible bankruptcy again. He has never done one and I have so how would that work? Like can he apply for bankruptcy as a single individual or will it effect me as well?

    Reply
    1. Ted Michalos

      Finances are the one thing that is completely separate in a marriage. He may file, you may file, you can file together, or one can file and the other not. It is all permissible. The most obvious impact one spouse filing has on the other is that the non-filing spouse immediately becomes responsible for 100% of any joint debts. You aren’t responsible for debts that are in just his name, but any debt that has both names associated with it will become 100% yours (if you don’t file).

      I hope this helps.

      Reply
  10. Cassandra

    Hi.
    I’m in the middle of a divorce. We had filed for bankruptcy in 2016 when the marriage had broken down and were discharged. We are still in court dealing with the home and assets and have very little debt, just the home. My soon to be ex told the court yesterday that he is on the verge of bankruptcy which is not true at all, he makes 60,000 + a year and like I said very little debt to my knowledge unless he ran it up the 1.5 years we have been separated. I’m trying to get sole possession of the family home for me and the kids and my name is also on the home. Can he get the home taken from me by filing a bankruptcy so soon after already doing that? I’m not willing to do the bankruptcy thing as I see no need too, I have very little debt. I believe he’s doing this to stop me from getting the house to be vindictive. Can he file again? And if so what happens to me and my home?

    Reply
    1. J. Douglas Hoyes

      Hi Cassandra; this is a complicated question, and the answer will depend on the value of the house, and many other factors. I suggest that you talk to a Licensed Insolvency Trustee and a family law lawyer to review this in detail; it’s very important that you review this with professionals so that you can make an informed decision.

      Reply
  11. Gervais

    I filed for bankruptcy in 2004 in Ontario. Now I reside in a different province. If I ever filed for a second time, would that be considered a second or a first time?

    Reply
  12. Barry

    Im too far behind and need to do something NOW

    Ive done Bankruptcy TWICE….last discharge was 2006

    I can afford monthly Payments

    Am I still eligible for a Consumer Proposal

    Thanks

    Reply
    1. Ted Michalos

      You should be eligible for a consumer proposal – the question is “does it make sense”. There’s no way to answer that here so use the links to find a trustee close to you and give them a call. A consumer proposal likely makes more sense than a third bankruptcy, but the trustee will look at both options and help you decide what makes the most sense for you. Good luck.

      Reply
  13. colleen

    Hi ,
    my husband was discharged from a second bankrupsy in 2013, we’ve just recently started getting calls from a debt collector, how can we get them to stop, thank you

    Reply
    1. J. Douglas Hoyes

      Hi Colleen. Contact the trustee who did the bankruptcy for your husband, and ask them to contact the collection agency directly. Your husband can also tell the collection agency that he is discharged from bankruptcy, and give them his estate number, and that should put an end to it.

      Reply
  14. Cathy H

    I filed two bankruptcies. 14 years from the discharge date is coming up, and this will drop off my credit report this month July 19. I was told my credit report and score will update. Will my credit score increase right away, and how much of a difference will this actually make on my score? Thanks

    Reply
    1. Ted Michalos

      Sorry Cathy, but the credit bureaus don’t tell us how much of a bump you will get when your bankruptcy drops off – all you can do is check before and after to see what happens.

      Reply

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