If you are a first-time bankrupt, you will receive an automatic discharge nine months plus a day after your date of filing, assuming you owe no surplus income. During your bankruptcy you make payments to your trustee and may surrender some assets. The benefit to you is that your debts are eliminated once you complete the process.
To determine what debts are discharged you can look at three things:
- the date the debts were incurred;
- the date of your bankruptcy;
- the type of debt.
Debts discharged are those debts that existed as of the date of your bankruptcy. If your debt was incurred prior to the date your bankruptcy was filed, it will be eligible for discharge. This includes any penalties and interest incurred up to the date of your bankruptcy as well.
The next question is what debts are included.
Here’s the rub. While most debts are struck from your financial obligations when you file, there is a short list of debts that are not discharged by claiming bankruptcy in Ontario. Indeed, the Certificate of Discharge specifically states that “the bankrupt is discharged and released from all debts, except those matters referred to in subsection 178(1) of the Bankruptcy & Insolvency Act.”
Those exemptions are, namely:
- Co-signed debts; the person who so-signed your debts become responsible for the debt although you won’t be.
- Those payments owed to secured creditors; you must continue to pay secured creditors in order to keep assets covered by the security.
- Fines, penalties or restitution orders; any penalty or fine imposed by a court, or any debt arising out of the recognizance or bail, or any award of damages by a court in civil proceedings in respect of bodily harm, sexual assault or wrongful death.
- Fraud; debt arising out of fraud, embezzlement or misappropriation.
- Government overpayments; the government typically considers all overpayments to be non-dischargeable debts.
- CRA tax debts over $200,000 that represent at least 75 percent of total debts; a court hearing will be required to discharge the debts.
- Student loans; where the date of bankruptcy is within seven years after the date on which the bankrupt ceased to be a full time or part time student
- Child support/alimony debt/liability.
The trustee has an obligation to advise all bankrupts of those debts that will not be discharged through his bankruptcy. The individual is then required to acknowledge his understanding of this information by signing a form that itemizes them all. He should also be sent home with a copy of an Industry Canada booklet that details these important exclusions.
Should you still have lingering questions about whether your debts will be discharged if you claim bankruptcy, do not hesitate to contact one of our Ontario bankruptcy trustees.
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