Challenges of Living With an Undischarged Bankruptcy

When Gary’s hours were cut back at his warehouse job, he found it increasingly hard to pay his bills. Before he knew it, he had racked up an enormous amount of credit card debt. Collection agencies were calling daily. 

Eventually, Gary reached out to a Licenced Insolvency Trustee (LIT) to file for personal bankruptcy. He was confident it would allow him to get creditors off his back and put his debt behind him.

There was just one problem.

Gary had filed for bankruptcy sixteen years ago. But he never completed the requirements… and never received a discharge. Unfortunately, this prevented him from filing a second bankruptcy to address his current challenges.

The lesson? Just because you file for bankruptcy, it doesn’t mean that you’ll receive an automatic discharge. Here’s what you need to know.

One-in-Ten Bankruptcies are Never Discharged

Gary’s case is more common than you might think. In fact, approximately 10% of those who file for bankruptcy never complete the process.

There are several reasons why a bankruptcy may not be automatically discharged:

1. Required information wasn’t submitted (e.g., monthly income and expense statements, tax information, etc.).
2. Mandated credit counseling courses weren’t completed.
3. There are outstanding bankruptcy payments (monthly payments to cover the LIT’s administrative costs or Surplus Income payments based on the income earned during the initial bankruptcy period).
4. One or more creditors opposed the discharge.
5. A discharge was denied by the court.

Learn More About Personal Bankruptcy in Alberta

What can happen if you don’t receive a discharge?

Unless you complete all conditions and receive a discharge, you don’t get the full benefit bankruptcy offers: namely, the elimination of your debt, creditor protection, and a fresh start.

Typically, a first bankruptcy will remain on your credit report for six years after discharge for a first-time bankruptcy (and up to 14 years for each additional bankruptcy). But if you haven’t been discharged, it just stays and doesn’t go away.

And as Gary learned, you can’t file for another bankruptcy while a previous bankruptcy is still on your record. At BNA Debt Solutions however, we routinely assist clients in filing consumer proposals to help them transition out of prior bankruptcies.

Sometimes, when a bankruptcy is on file for a long time without a discharge, and the LIT doesn’t hear from you, they may decide to close your file. There may be a charge to have it opened again, and court costs involved to re-activate it.

How Can You Resolve a Previous Bankruptcy?

If you have an active bankruptcy and did not receive a discharge, you’ll need to speak to a Licensed Insolvency Trustee. In Canada, only LITs are legally authorized to manage bankruptcy proceedings. An LIT can help you get the process back on track and help you receive that discharge.

Many people try talking to a lawyer, only to be referred back to an LIT. However, in some cases, you have the option to independently visit the Bankruptcy Court. There, you can present your case before a registrar (bankruptcy judge) and make your arguments.

BUT you must follow all correct court proceedings, notify your former Licensed Insolvency Trustee and all your previous creditors. Plus, you’ll need to provide court notices, swear your affidavits and much more.

It’s Never Too Late

By explaining his situation and working with his new LIT, Gary soon received a discharge on his first bankruptcy. This opened the door for him to file again to deal with his current situation. This time, he’s committed to completing the process without leaving any loose ends.