Declaring bankruptcy can be an extremely stressful experience and, even after you have been discharged, it can take a number of years for your financial situation to improve.
But whilst bankruptcy is e a once-in-a-lifetime event for most people, you may find yourself in a position where you have no option but to file for bankruptcy a second time.
In this guide, we’ll explain everything you need to know about second bankruptcies in Canada so you can put your mind at ease and take the first step towards fixing your finances for good.
Can I file for a second bankruptcy in Canada?In Canada, you can declare bankruptcy as many times as required as long as you have received a bankruptcy discharge from the previous filing.
However, it is not recommended to file for bankruptcy more than twice due to how costly and difficult it can become to receive a bankruptcy discharge to release you from your debts.
Before you file for a second bankruptcy, you must be aware of how the process will differ from your first bankruptcy and consider all available options to ensure you are making the right decision for your current financial situation.
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What is the process of filing for bankruptcy a second time?The process of filing personal bankruptcy a second time is almost identical to filing bankruptcy the first time but there are some minor changes you should be aware of.
For example, the length of your bankruptcy and the ease of being discharged will depend on how many times you have filed for bankruptcy in the past and how much surplus income you have.
With a second bankruptcy, you also won’t qualify for an automatic bankruptcy discharge to release you from your debts within nine months which is the norm during your first bankruptcy.
The process usually lasts around 24 months but this can be extended to a total of 36 months if you are required to make surplus income payments.
When you file for bankruptcy a second time, a Licensed Insolvency Trustee (LIT) must also apply to the court for a discharge.
The court will then review the information given and outline the terms of your discharge including how long you must continue making payments.
If a creditor opposes your bankruptcy discharge for whatever reason, you won’t be released from your debts and will be required to keep making payments until you receive a discharge from the court. This can become increasingly costly and time-consuming.
What are the effects of filing for bankruptcy a second time?As well as taking longer to receive a bankruptcy discharge, filing for bankruptcy a second time will also have a significantly larger impact on your credit score.
For example, whilst your first bankruptcy will appear on your credit report for a minimum of six years from the date of discharge, Equifax (the largest credit bureau in Canada) will include your second bankruptcy on your credit report for 14 years. During this time, you may find it difficult to qualify for a mortgage, loan or further credit.
How much does it cost to file for bankruptcy a second time?If you file for a second bankruptcy, it will be more expensive than your first bankruptcy.
In most cases, a first bankruptcy will require a base contribution of $1,800 paid to the court in nine monthly instalments of $200.
However, because a second bankruptcy lasts a minimum of 24 months, a base contribution of at least $4,800 will be required.
Furthermore, if the government believes you earn more than you need to maintain a certain standard of living, you may be required to make surplus income payments on top of your monthly contributions. This could equal $7,200 over the course of 36 months.
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What are the alternatives to filing for bankruptcy a second time?Whilst 10% of all bankruptcies in Canada are for people filing more than once, filing a second bankruptcy can have a serious impact on your financial situation for years to come and prevent you from moving on with your life.
Because of this, you must consider all available options and rule out alternative debt solutions before deciding to proceed with a second bankruptcy.
If you’re worried about the long-term impact of a second bankruptcy, a Consumer Proposal is a popular alternative that can help you consolidate your debts for less than what you owe.
With a Consumer Proposal, a Licensed Insolvency Trustee will communicate with your creditors on your behalf to negotiate a monthly payment plan that you can comfortably afford.
Most creditors will also accept less than they are owed as long as they are receiving regular payments and a significant portion of the debt has been repaid when the agreement comes to an end.
A Consumer Proposal will also put an immediate stop to any contact or harassment from creditors or debt collection agencies and because secured debts are typically unaffected, you can keep your assets.
Can I file for a third bankruptcy in Canada?It is possible to file for a third bankruptcy in Canada but this should be avoided at all costs.
Just as a second bankruptcy is more complicated than the first, a third bankruptcy can be an extremely stressful experience and have a devastating impact on your finances for years to come.
For example, you will be required to make payments for anything from four to six years and won’t qualify for an automatic discharge to release you from your debts.
You must also attend a discharge hearing at a bankruptcy court to explain why you have chosen to file bankruptcy a third. The court will then make a decision as to whether to grant a discharge.
The court may also refuse or suspend your discharge for a considerable period of time and place strict rules on your discharge depending on your ability to fulfil the duties of your agreement and make your payments in full and on time.