Major steps in bankruptcy
Contact a Trustee
The first step in the bankruptcy process is to contact a Trustee in your local BDO office. A Trustee is an individual or corporation who is licensed by the Government to administer bankruptcies. The bankrupt is not a client of the Trustee. The Trustee is an intermediary who has responsibility to both the bankrupt and the creditors.
The Trustee will inform you of the effects of bankruptcy and will prepare the necessary documents to file the assignment in bankruptcy with the Office of the Superintendent of Bankruptcy. The act of filing an assignment in bankruptcy does not release you from your debts, but it does "freeze" them. The release from the debts is achieved by getting a "discharge" from bankruptcy.
Meeting
The Trustee will notify the creditors of your bankruptcy. A meeting with your creditors will be arranged if it is requested by a required number of creditors, within 30 days after the date of the bankruptcy. The purpose of this meeting, which you must attend, is to allow creditors to obtain information about the bankruptcy. The meeting is chaired by the Trustee or its representative.
Counselling
The Trustee will arrange for two counselling sessions during your bankruptcy. The counselling will help you to discover and understand the cause(s) of your bankruptcy, which sometimes is non-budgetary. These sessions will also provide information to assist you in managing your financial affairs in the future. You must attend both of the counselling sessions in order to obtain your discharge from bankruptcy. Additional counselling may be available if you need more assistance.
Discharges
For a first-time bankrupt, generally an automatic discharge applies after 9 months. For those who have already been bankrupt before or who do not qualify for the automatic discharge, the Trustee will apply to the Court within one year of the date of filing your assignment in bankruptcy, for an appointment to hear the application for discharge.
For a first-time bankrupt, you will be automatically discharged from bankruptcy nine months from the date of the assignment, provided that neither the Superintendent of Bankruptcy, the Trustee, nor any creditor has opposed the discharge. As part of the filing process, the Trustee prepares a report for the Superintendent of Bankruptcy describing your actions during the time of the bankruptcy, outlining your current financial situation and recommending whether or not you should be discharged. (See Trustee's recommendations below).
If you do not qualify for an automatic discharge, the Trustee will apply to the Bankruptcy Court for an appointment to hear the application for discharge, within one year of the filing of the bankruptcy. The Trustee's report forms part of the information considered by the Court at the discharge hearing. The Court may issue one of the following Orders:
- Absolute: is effective immediately and means that you are no longer responsible for the debts you had at the date of filing your bankruptcy, except for those described below;
- Suspended: same as an Absolute Order but there is a delay before the discharge comes into effect;
- Conditional: certain conditions may be imposed by the Court that must be met before your discharge becomes absolute, i.e. you may have to pay a certain sum of money to the Trustee for distribution to your creditors;
- Adjourned: any objection to the granting of a discharge order will usually cause the hearing to be postponed to a later date;
- Refused: the Court has the right to refuse a discharge, however, it only exercises this power in exceptional cases.
Upon being discharged, the bankrupt is released from all debts EXCEPT for the following:
- fines or penalties imposed by a Court for an offence or for default on bond bail;
alimony or support of child or spouse;
- debts from fraud or theft while acting in a fiduciary capacity;
- property obtained by fraudulent misrepresentations, i.e. borrowing money without full and/or honest disclosure of existing debts or other relevant facts;
- dividends payable to creditors who the bankruptcy failed to disclose to the Trustee, (these creditors will be entitled to the dividend that would have been paid to them if they had filed a claim in the bankruptcy);
- damages awarded by a court in respect of bodily harm intentionally inflicted, or sexual assault, or wrongful death resulting therefrom;
- Student Loans - if you became bankrupt before or within ten years after finishing the studies as a full or part-time student.
Trustee's Recommendations
The Trustee prepares a report for the Superintendent of Bankruptcy describing your actions during the time of the bankruptcy, outlining your current financial situation and recommending whether or not you should be discharged.
The Trustee is required to recommend a Conditional discharge if either of the following circumstances exist:
- the bankrupt did not pay the surplus income as required; or
- the bankrupt filed for bankruptcy when he or she could have made a viable repayment plan (called a Proposal).
If the bankrupt or a creditor does not agree with the Trustee?s recommendations, mediation may be requested provided no other objections to the automatic discharge are filed.
What happens if there is an objection to my discharge?
If the Superintendent of Bankruptcy, the Trustee or any creditor has opposed the discharge the matter will be dealt with by the court. However, the parties may also ask that the matter be mediated. If the parties do not reach an agreement through mediation, on the conditions for the bankrupt?s discharge, the trustee must apply to court for a hearing.
What is Mediation?
Mediation is a way of resolving conflict between two or more people. The parties involved in the disagreement agree to work with an independent person called a ?mediator? who helps them settle their dispute. The mediator will help the parties explain their point of view and discuss ways to settle the disagreement. The mediator does not decide what the settlement will be. The parties decide that together.
