Everything You Need to Know About Filing a Second Bankruptcy
By Marc Nantel-Legault
Recent crises, from the pandemic to environmental disasters, have upended many lives. It’s not surprising that many people have hit hard times financially.
Bankruptcy is a type of legal insolvency that relieves honest Canadians of their debts. It also gives debtors financial counseling resources, and it prevents wage garnishment through a stay of proceedings.
Unfortunately, some people have bad financial luck more than once. If you find yourself in over your head, and you face wage garnishment and harassment from creditors, you might consider declaring a second bankruptcy.
Read on to get answers to all your second bankruptcy questions, and discover if it’s the right choice for you.
Second Bankruptcy Overview: What Is Bankruptcy?
Second bankruptcy is a type of legal insolvency. It differs from the other type of legal insolvency, a consumer proposal.
In bankruptcy, the insolvent individual surrenders their assets to eliminate their debt and repayment obligations. In contrast, a consumer proposal is a formal debt repayment agreement.
How Does a Second Bankruptcy Differ From the First Bankruptcy?
Like a first bankruptcy, a second bankruptcy is a new financial start. It clears all debts.
Unlike a first bankruptcy, though, a second bankruptcy has stricter terms.
A debtor in a second bankruptcy will be in bankruptcy for 24-36 months before discharge. During this time, the bankrupt must make monthly payments equal or greater to 50% of his surplus income. If the person does not have surplus income, he will pay the amount pre agreed to with the LIT.
The Surplus income is the excess of a person’s net monthly revenue in excess to a threshold set by the government.
The Office of the Superintendent of Bankruptcy (OSB) is the government’s branch setting out the surplus income threshold by number of people in a family unit. For example, the OSB sets the monthly deduction for a family of two at $2,931 per month.
The shortest time period for a second bankruptcy—24 months—is only available to those who make less than $200 of surplus income per month in average.
Can I File Bankruptcy a Second Time?
Yes. There is no legal limit to the number of times you can file for bankruptcy in Canada. But, each subsequent filing gets increasingly complicated.
If you’ve already been discharged from your first bankruptcy, the process can be relatively straightforward. Typically, a person is automatically discharged from their first bankruptcy after nine months.
If you haven’t been discharged from your first bankruptcy, you’ll have to determine how to get discharged. The following can be barriers to discharge:
- Not attending all financial counseling sessions
- Not surrendering all assets
- Not paying surplus income into the bankruptcy estate
- Opposition to discharge from a creditor, OSB, or LIT
What Happens When I File for Bankruptcy a Second Time?
Filing for bankruptcy a second time is similar to filing for bankruptcy the first time. But, you will have to make monthly surplus income payments for a much longer period of time. The bankruptcy process will last 15 months longer than in a first bankruptcy.
Moreover, the record of your second bankruptcy lasts longer on your credit report than your first bankruptcy.
Stay of Proceedings
As in the first bankruptcy, declaring a second bankruptcy triggers a stay of proceedings. This halts all wage garnishments. Government agencies and creditors must cease action taken against you.
Surplus Income Payments
You will begin to pay surplus income payments each month. This lasts for 24-36 months.
Fulfill Additional Obligations
After filing for your second bankruptcy, you must meet standard financial obligations. These obligations typically include:
- Surrendering assets
- Surrendering credit cards
- Attending credit counseling sessions
- Providing a monthly income statement
You may not have to surrender all assets during your second bankruptcy. Registered Retirement Savings Plans (RRSPs), pension plans, and life insurance policies are often protected.
A Licensed Insolvency Trustee can advise you on what assets you may be able to keep during a second bankruptcy.
How Does a Second Bankruptcy Impact My Credit Rating?
Bankruptcy drops your credit score to the lowest possible rating. This can make it harder to get a loan or credit extension from a bank. It can also make renting more expensive.
A second bankruptcy will show up on your credit report for 14 years. Also, filing a second bankruptcy makes your initial bankruptcy visible on your credit report again.
Without a second bankruptcy, the first bankruptcy will generally only remain on your credit report for up to seven years after the discharge date.
How to File for Bankruptcy a Second Time
There are five steps to filing for bankruptcy for a second time. If you’ve filed for bankruptcy before, you probably remember most of these steps.
1. Select Licensed Insolvency Trustee
A Licensed Insolvency Trustee provides professional advice and services to debtors. LITs are regulated by OSB.
You need the services of a LIT to be able to file for bankruptcy. Marc Nantel-Legault is a LIT, accordingly, you may contact us at 1-855-5-SYNDIC.
2. Schedule Free Initial Consultation
Second bankruptcy might be the right choice for you. But, there may be a better solution available.
Contact us for a free and confidential consultation. Marc Nantel-Legault, in addition to being a LIT, is a Chartered Professional Accountant. In addition to provide you with valuable advice, we will not judge you. Instead, we’ll listen to you, and we’ll help you figure out the best path forward.
3. File Bankruptcy Paperwork
To file for bankruptcy, you’ll need to get some paperwork together. We will help you complete and send the official forms. Typically, this includes:
- Your “Assignment”
- Your “Statement of Affairs”
- Your “Statement of Income and Expenses”
We will tell you what papers you need.
4. Meet Bankruptcy Obligations
Your bankruptcy obligations includes providing financial documents for your tax returns to be filed and surrendering assets. Some of the other usual bankruptcy obligations are: surrendering credit cards; attending credit counseling sessions; and providing a monthly income statement
For most 2nd bankruptcy, the discharge is automatic. Alternatively, you will need to attend a bankruptcy discharge hearing.
Personal Debt Solutions From Expert Professionals
Now you know the ins and outs of a second bankruptcy. But, it’s understandable to feel hesitant. Is a second bankruptcy truly the right solution for your debt?
You don’t have to sort through these decisions alone. At Groupe Nantel, we are ready to help you forge a debt-free future. Ask for a free consultation today, and get a financial fresh start.