Can I Pay an Ontario Bankruptcy Off Early?

Question: My friend declared bankruptcy in Ontario 5 months ago, with the timeline being 21 months. His payment has been $1,000/month on average for surplus income. After 6 months of payments, it is my understanding that the trustee will take those payments and average them out to a regular monthly payment for the remaining 15 month term. Could I pay the balance “owing” off for him now? I would like to lend him the money to end this quicker, but will it be to his advantage? Will it allow him to move up the discharge? Thank you!

Bankruptcy in Ontario can be paid off early, but there are some techniques that are necessary.

There is no simple answer to this question.  Under current rules, if a bankrupt has surplus income of more than $200 over the limit each month, the bankruptcy is automatically extended for a further 12 months.  Since your friend is paying $1,000 per month, they are obviously over the limit, which is why their trustee has advised that the bankruptcy will be extended from 9 months to 21 months.  There are two possible methods for ending the bankruptcy early.

The first option would be for you to do as you suggest, and make the required payments to the trustee.  The trustee, or your friend, could then apply to bankruptcy court for their discharge.  It would be up to the court to decide whether or not they grant an early discharge.  Section 169 [2] of the Bankruptcy & Insolvency Act provides that not earlier than three months and not later than one year after the start of the bankruptcy an application can be made for discharge.  So, legally, it is possible to get an early discharge.  However, it’s up to the court to decide whether or not to grant the discharge.  The court may reason that the bankrupt is required to not only pay the money, but also to be bankrupt for a further 12 months, so they may not grant the discharge.

The other option would be for the bankrupt to file a consumer proposal.  His proposal could be that he will immediately pay to the creditors the balance of the amount that would have otherwise been paid in the bankruptcy, with perhaps even a small amount more.  The creditors may agree to that proposal so that they get their money quicker (without having to wait for the bankruptcy to end at the end of 21 months).

Your best option would be to discuss these different options with a trustee, since they will be best able to advise on the likely success of each potential approach.