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What Debts Are Not Covered By Bankruptcy

Revocation Of Debt Discharge

You can’t discharge these debts in bankruptcy

The court may also revoke a Chapter 7 discharge during the bankruptcy if:

  • The bankruptcy trustee, creditor, or U.S. trustee requests a revocation
  • You acquire property that is property of the estate
  • You knowingly and fraudulently failed to report the acquisition of such property
  • You fail to surrender the property to the trustee
  • You make a material misstatement or fail to provide documents or other information in connection with an audit of your case

When Does The Discharge Occur

The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse . Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court. In individual chapter 11 cases, and in cases under chapter 12 and 13 , the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing. The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.” The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.

What Debts Are Not Erased In Bankruptcy

If you decide that bankruptcy is your best option, your trustee will file the forms with the Office of the Superintendent of Bankruptcy and the administration of your file begins. As soon as you file you are protected from your unsecured creditors. However, it is when you are discharged from bankruptcy that you are legally released from any obligation to repay most of the debts you had at the time of filing for bankruptcy. Discharge from bankruptcy erases your unsecured debts, though there are some exceptions.

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Your Interview With The Official Receiver

If your bankruptcy is approved, youll have an interview with the official receiver. If youve presented your own bankruptcy petition, this may happen directly after the bankruptcy order is made. Alternatively, your letter from the official receiver may invite you to an interview either in person or by telephone. If offered a telephone interview you can ask to be interviewed in person if you prefer.

If you have been made bankrupt by one of your creditors the official receiver may also contact you by telephone to find out if there is anything that needs to be sorted out urgently.

You must attend the interview and cooperate with the official receiver. If you dont, your bankruptcy could be extended beyond the normal 12 months and you could face an examination in court. The more organised you are, the more straightforward the process will be.

Before the interview, telephone the official receiver to confirm or rearrange the appointment let them know if:

  • you require special facilities
  • there is anything that needs to be sorted out urgently
  • you need more time to gather the paperwork for the meeting

If you have been sent a questionnaire, fill it in, noting anything you dont understand .

Collect together all the paperwork you have been asked to take to the interview or have with you during the telephone call.

Face-to-face interviews may take 2 to 3 hours.

After you arrive:

Telephone interviews take at least 30 minutes.

The examiner will:

Whats The Difference Between Chapter 7 And Chapter 13 Bankruptcy

What Debt Does Bankruptcy Cover?

The major difference is time Chapter 7 takes 4-6 months Chapter 13 takes 3-5 years and money. You can have most, or all your unsecured debt discharged in Chapter 7 bankruptcy. In Chapter 13, some of your debt is forgiven, but only if you meet the conditions approved by the trustee and bankruptcy judge.

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When Your Bankruptcy Will End

You will be freed from bankruptcy after 12 months. This ends the bankruptcy restrictions and releases you from most of the debts you had when the bankruptcy order was made.

Youll normally be discharged automatically, even if:

  • no payments have been made to your creditors
  • youre still paying an IPA or IPO
  • some assets havent been sold yet

Assets you had during bankruptcy can still be used to pay your debts once your bankruptcy has ended.

Your bankruptcy can be extended for longer than 12 months if you dont co-operate with your trustee. Check your discharge date using the Individual Insolvency Register on our website. If your discharge status is suspended indefinitely you need to contact the official receiver for an update.

What Can The Debtor Do If A Creditor Attempts To Collect A Discharged Debt After The Case Is Concluded

If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.

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Paying Off Debts Not Discharged In Bankruptcy

If you have debts that cannot be part of a bankruptcy, there may be ways to alleviate the financial obligation to improve your cash flow. For example, if you are continuing to pay off a mortgage, you may have an option to renew at a lower interest rate or increase your amortization to lower your monthly payments.

If you have a considerable car loan and cannot afford your payments, you may need to sell and downgrade to a more affordable vehicle. It can be a tough choice, but cars are so sturdy these days that even older, higher-mileage models can provide worry-free transportation for several years.

Items like child support, alimony, or income tax arrears can be more challenging to deal with. For income taxes, contact the CRA to see what arrangements they may be willing to make to help you catch up. And while Im no family law expert, you may be able to renegotiate the terms of your child support or alimony. If two parties agree, anything is possible, and it never hurts to ask.

Debts Not Covered By Chapter 7 Bankruptcy: An Overview

What debts are not removed with bankruptcy?

Whereas Chapter 7 bankruptcy is seen as a way of ridding oneself of excessive debt, there are several debts not covered by Chapter 7 bankruptcy.

The U.S. Bankruptcy Code lists 19 types of non-dischargeable debts based upon the nature and procurement of the debt. In most cases, these debts are outright non-dischargeable. Consequently, at the conclusion of the bankruptcy case, creditors may continue with collection efforts. Additionally, in some cases, creditors may challenge the discharge of their particular debt.

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How Much Debt Do I Need To File Bankruptcy

The minimum amount of debt required by law to file bankruptcy in Canada is $1,000 however, the true test is whether or not you are insolvent.

If you are unable to pay your debts as they come due, then bankruptcy is an option for you. Whether you should file involves weighing the pros and cons of bankruptcy, including eliminating your debts, with the cost of bankruptcy.

How Does Bankruptcy Work

Bankruptcy is a legal process under the Bankruptcy and Insolvency Act, and must be filed with a Licensed Insolvency Trustee. Provided a debtor is insolvent , they can be declared bankrupt. Once this happens, any of their non-exempt assets become assigned to a Licensed Insolvency Trustee to be used to pay off the debts. Exempt assets include household items including a computer and a car, which may be required for a job. Before filing bankruptcy, it is a good idea to discuss your personal financial circumstances with a Licensed Insolvency Trustee to consider alternatives to bankruptcy.

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Debts That Are Difficult To Discharge In Bankruptcy

Student loans are notoriously difficult to discharge through bankruptcy it is only possible if you can demonstrate undue hardship to yourself or your dependents, such as being unable to maintain a minimal standard of living. In some cases, a court may discharge part, but not all, of your student loan debt. If student loan debt is a major reason for your considering bankruptcy, contact your loan servicer first and see if itâs possible to negotiate a repayment plan that would work for you. In the case of federal student loans, for example, several repayment plans are available.

You cannot have income tax debts discharged without a special exemption, which can only be obtained by petitioning the bankruptcy court and explaining why you deserve relief. So if you have income tax debts that you cannot repay, then you may be better off consulting with a tax attorney to discuss your options before filing for bankruptcy.

In the case of federal taxes, for example, the Internal Revenue Service can offer several alternatives to people who are unable to pay what they owe. One is an offer in compromise, in which the IRS agrees to accept a lesser amount. The IRS may also arrange for a payment plan, or an installment agreement, that will allow you to pay your taxes over an extended period of time.

What Happens To Your Pension

What Debt Does Bankruptcy Cover?

Most pension schemes arent included in your bankruptcy and they cant be claimed by the trustee.

The pension scheme must be a UK state pension scheme or a scheme approved or registered by HM Revenue & Customs. Approved or registered pension schemes are usually:

  • occupational pension schemes approved for tax purposes
  • personal pensions approved for tax purposes
  • stakeholder pensions
  • retirement annuity contracts

If your pension scheme is not an approved or registered scheme you may be able to exclude it from your bankruptcy by:

  • applying to the court for an exclusion order, or
  • making a qualifying agreement

If your pension is part of the bankruptcy, it can be used to make payments to your creditors.

Pension Payments

Payments made to you from your pension scheme, including any lump sums, before the end of your bankruptcy can be used as part of an Income Payments Agreement or Income Payments Order . This will involve you paying some of your debt with your income.

If you are able to take money from your pension following changes to the law in April 2015, but have chosen not to do so, the trustee may look at the value of your available pension fund. If this would give you access to enough money to make a different arrangement to pay your creditors, the trustee can ask the court to cancel the bankruptcy.

Death benefits

Bankruptcies before May 2000

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How Does The Debtor Get A Discharge

Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustee’s attorney, if any. The debtor and the debtor’s attorney also receive copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.

Preparing For Chapter 7 Bankruptcy

Theres some protocol to follow in the months before filing for bankruptcy. Failing to follow these instructions could undermine your efforts.

Dont Pay Creditors It seems counterintuitive and you should definitely make routine payments. But any large or unusual payments could be viewed as preferential transfers. That means one creditor has benefited unfairly over others.

No New Debt A new creditor could claim you took out a loan or ran up the balance on a credit card without intending to pay it back. Legally, thats fraud and it will not be forgiven.

No Unusual Transactions Dont stray from the routine. Dont transfer titles of cars or homes. Dont buy luxury goods. Dont transfer your business or remove your name from it. They can all be classified as fraud.

Be Truthful You are required, while filing for bankruptcy, to provide full and complete information. You must disclose any debt, assets, accounts or other financial information. Failure to comply could lead to fraud and potential criminal charges.

Dont Touch Retirement Funds You are generally allowed to keep retirement plans and accounts, so keep them safe while considering bankruptcy and dont use those funds to pay down debt.

Never think you can get away with something sneaky or dishonest. Your bankruptcy lawyer is always a good resource for what you should and shouldnt do.

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Does Bankruptcy Clear Debts

Filing bankruptcy is the beginning of the process of having any unsecured debts discharged. Once your debts have been discharged, this means that legally, any unsecured debts you have at the time of filing bankruptcy are permanently cleared. It also means that creditors are no longer able to contact you. For debtors, no longer owing these debts provides a huge amount of relief and a fresh financial start. Discover more about who can file for bankruptcy in Canada.

What Debts Cant Be Erased By Filing Bankruptcy

Which Debts Remain After Your Chapter 13 Discharge?

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In a Nutshell

Even though bankruptcy provides the most comprehensive debt relief for most folks who are struggling to make ends meet, it’s not a way to get out of any and all debts. This means you need to carefully review your debts to make sure that filing bankruptcy will actually help you improve your situation. After all, if most or all of your debts canât be eliminated as part of your bankruptcy filing, the downsides of filing bankruptcy may outweigh the debt relief benefits your bankruptcy discharge provides.

Even though bankruptcy provides the most complete debt relief for most folks who are struggling to make ends meet, itâs not a way to get out of all debts. This means you need to carefully review your debts to make sure that filing bankruptcy will actually help you improve your situation. After all, if most or all of your debts canât be eliminated as part of your bankruptcy filing, the downsides of filing bankruptcy may outweigh the debt relief benefits your bankruptcy discharge provides.

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Consumer Proposals Vs Bankruptcy And Cra Debt

A consumer proposal is a popular alternative to bankruptcy because it provides debt relief from unsecured creditors, including debt forgiveness from CRA. When you file a consumer proposal with a licensed insolvency trustee you are not required to sell any of your assets to repay your debts or pay any surplus income.

To start the consumer proposal process, you will first need to schedule a consultation with a licensed insolvency trustee where you will review your finances. After reviewing your income, expenses, and total debts, the two of you will find a fair amount that you can pay each month to all of your creditors. These payments can last up to five years after which, you will be discharged from all debts covered by the proposal, including CRA debts.

Tax debt in Canada can be included in a consumer proposal and the CRA will often accept less than your full amount owing, though how much they will settle for will depend on the situation. In order to get the CRA to accept your proposal, you will have to file any and all outstanding tax returns. If you want CRA debt relief and 50% or more of your total unsecured debts are owed to the agency, you will have to get them to accept the proposal.

If a consumer proposal is not a viable option for you, then filing for bankruptcy may be your next solution. With this, your trustee would be required to file a pre-bankruptcy tax return and a post-bankruptcy tax return.

What Happens To The Debts

When you file bankruptcy, you receive a stay of protection from creditors. Declaring bankruptcy means debt collectors can no longer pursue you to collect. Creditors can no longer garnish your wages or sue you in court. However, your debts are still there until your bankruptcy is completed.

Once you successfully finish your bankruptcy, this is when your debts are released. Your creditors receive their share of any assets assigned in your bankruptcy and monies from your monthly bankruptcy payments, in exchange for which they agree to forgive the remainder of your debts. Your bankruptcy discharge is the final stage of this arrangement.

However, you should know that not all debts are erased in bankruptcy.

How does bankruptcy work when you have student loans? Or a mortgage? Or a mountain of credit card debt? Keep reading to learn more about how the bankruptcy process treats each type of debt.

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