Delaying Discharge: What Happens if a Creditor Objects in Canada?

Filing for bankruptcy in Canada offers individuals a chance to start fresh by eliminating unsecured debts. For most first-time bankrupts, the process leads to an automatic discharge after 9 or 21 months, provided all duties are completed. However, this seamless timeline can be disrupted if a formal objection is filed. Understanding why an opposition happens and what steps follow is crucial for managing your financial recovery.

An opposition to your discharge means that someone involved in your bankruptcy estate believes you should not be released from your debts just yet. This could be due to outstanding tax arrears with the Canada Revenue Agency (CRA), a failure to complete mandatory credit counselling, or allegations of financial misconduct. When this occurs, the automatic process halts, and the matter is escalated to the provincial court system.

Step-by-Step Process When a Discharge is Opposed in Canada

Whether you reside in Toronto, Calgary, Vancouver, or Halifax, the legal framework for bankruptcy is governed federally by the Bankruptcy and Insolvency Act (BIA). However, the actual hearings take place in provincial courts. In Ontario, this is the Superior Court of Justice; in Alberta and Manitoba, it is the Court of King’s Bench; and in British Columbia, it is the Supreme Court. Here is what you can generally expect during the opposition process.

Step 1: The Notice of Opposition is Filed

Before your scheduled automatic discharge date, an opposing party must file a formal Notice of Intended Opposition. This document outlines the specific reasons for the objection. The most common objector in Canada is the CRA, especially if the bankrupt individual has high personal income tax debt or a history of failing to file tax returns. Your Licensed Insolvency Trustee may also file an opposition if you have not paid your required surplus income or missed counselling sessions.

Step 2: The Trustee Prepares the Section 170 Report

Your LIT is legally required to prepare a report under Section 170 of the BIA. This report details your conduct before and during the bankruptcy, your current financial situation, and whether you have fulfilled all your duties. The report will clearly state whether the trustee supports your discharge or supports the creditor’s opposition. You will receive a copy of this report to review before any court dates are set.

Step 3: Scheduling the Court Hearing

Once an opposition is registered, your LIT will apply to your local provincial court to schedule a discharge hearing. The timeline for securing a court date varies widely depending on court backlogs in your specific municipality. For instance, courts in busy centres like Mississauga, Ottawa, or Montreal may take several months to assign a hearing date.

Step 4: Attending the Discharge Hearing

You must attend the discharge hearing, either in person at the local courthouse or virtually, depending on provincial court rules. During the hearing, a judge or the Registrar in Bankruptcy will review the Section 170 report, listen to the opposing creditor’s arguments, and hear your side of the story. It is highly recommended to seek guidance from a qualified lawyer to help present your defence effectively, though you are permitted to represent yourself.

Step 5: Fulfilling the Court Order

The court will issue a ruling based on the evidence presented. The judge generally has four options: an Absolute Discharge (you are cleared immediately), a Suspended Discharge (you are cleared after a specific time penalty), a Conditional Discharge (you must pay a certain amount of money or complete a specific task), or a Refusal (your discharge is denied, which is rare). Most commonly, the court issues a Conditional Discharge. 💰 Once you fulfill the conditions set by the judge, your trustee will apply for your absolute discharge.

How Much Does it Cost to Resolve an Opposition?

An opposed discharge can introduce unexpected expenses into your bankruptcy process. While your initial LIT fees cover standard administration, contested legal matters often require additional funding.

• Lawyer Fees: If you hire a bankruptcy lawyer to represent you in court, expect to pay between $2,500 and $5,000+ CAD, depending on the complexity of your case and the lawyer’s hourly rate.
• Court Costs: There may be minor filing fees associated with court documents, though your LIT typically handles these within the estate funds.
• Conditional Payments: The most significant cost is usually the condition imposed by the court. For example, the judge might order you to pay an additional $5,000 into your bankruptcy estate before granting the discharge.

How Long Does the Delay Last?

An opposition indefinitely pauses your automatic discharge. On average in Canada, scheduling a court hearing takes between 3 to 6 months. If the court issues a Conditional Discharge, the timeline extends further based on how long it takes you to meet the conditions. ⏱ For example, if you are ordered to pay $3,600 at a rate of $300 per month, your discharge will be delayed by at least an additional 12 months.

Frequently Asked Questions (FAQ)

Author: lawyerinfo.ca