How Long Do Bankruptcy & Consumer Proposals Last

Upon filing for bankruptcy, there are a number of duties that you must complete which include paying fees, participation in two debt counseling sessions and submission of monthly income and expense statements. Your Trustee must also file your income tax return for the year in which you are filing for bankruptcy (plus any other previously unfiled statutory returns). If you are able to get your duties completed in a timely fashion and this is your first bankruptcy, you will be eligible for an automatic discharge at the expiration of 9 months from the date of filing. This means the bankruptcy is over where you are concerned and the unsecured debts that you had are discharged (i.e. extinguished or forgiven). Certain debts are not discharged including but not limited to child support, alimony, student loan debts (if out of school less than 7 years), fines and any debts arising from fraud.

If you have something called “surplus income”, you are not eligible for discharge until the expiration of 21 months. In each of the 21 months, you would make a monthly payment based on a percentage of the amount to which you have surplus income. How is surplus income determined? In short, there are surplus income guidelines established by the Office of the Superintendent of Bankruptcy (OSB) under which an individual is required to pay into a bankruptcy estate a percentage of their income that is above the guideline or threshold. For example, the standard guideline for a household of one is currently 2,062 and the guideline for a household of two is $2,567. These amounts are net of tax deductions. Surplus income may also be reduced by certain non-discretionary expenses such as child support, alimony, health-related expenses, fines or penalties and certain employment-related expenses (e.g. a truck driver’s meals on the road). Discretionary expenses such as groceries, rent / mortgage, utilities etc. are not applicable in calculating the amount of surplus income.

An individual who files for bankruptcy a second time is not eligible for an automatic discharge at the expiration of 9 months. In second time bankruptcy situations, you are eligible for discharge at the expiration of 24 months (no surplus) or 36 months (if you have surplus).

In situations where your discharge is opposed by the Trustee or a creditor, a court application is required to obtain your discharge. In addition, a court application is required for individuals who have $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of their proven unsecured debt.

The length of time it takes to complete a consumer proposal depends on a number of factors, particularly the amount of unsecured debt you have and your ability to make payments in such a process. However, a consumer proposal cannot extend beyond 5 years.

Most consumer proposals involve a monthly payment anywhere from one to five years (12 to 60 months). I would suggest that 36 to 60 months is the norm. Consumer proposals offer a great deal of flexibility with respect to payment terms. For example, a self-employed farmer may find it more compatible with his cash flow to file a proposal involving semi-annual or annual payments whereas a wage-earning individual would likely prefer monthly payments. A seasonal work could do a proposal making higher payments in their working months and lower payments when they are not.

A consumer proposal can include provision for early payment such that there is no penalty for completing a proposal earlier than expected.

If you are experiencing financial difficulties, one of our dedicated Licensed Trustees will be able to meet with you, discuss your options and help you choose a debt solution that best suits your needs.