In our last post, we looked at scenarios in which an individual bankrupt may be automatically discharged from bankruptcy. In other cases, however, the bankrupt is not entitled to an automatic discharge and an application for discharge must be brought in Court, before the Registrar in Bankruptcy.
When a discharge hearing is required
Automatic discharges are not available and a discharge hearing is required in a number of situations, including:
- Where a bankrupt has been bankrupt on two or more previous occasions;
- Where a bankrupt has substantial income tax debts; or,
- Where a creditor, the trustee in bankruptcy, or the Office of the Superintendent in Bankruptcy opposes the discharge of the bankrupt.
At the discharge hearing
In addition to ordering an absolute discharge, at a discharge hearing, the Registrar in Bankruptcy can grant a discharge on conditions, can suspend the discharge, or can refuse the discharge outright. However, the Registrar can only make one of these other discharge orders if an objecting party establishes one or more enumerated facts set out in the Bankruptcy and Insolvency Act. These facts pertain generally to the misconduct of the bankrupt prior to bankruptcy, the failure of the bankrupt to comply with the bankruptcy process in an orderly fashion, or with regard to nature and ratio of assets and liabilities.
An objection to discharge may be in the interests of creditors where there is reason to believe assets are being hidden from the bankrupt estate, where a prolonged bankruptcy may result in further payments into the estate by the bankrupt, or where the circumstances justify a court ordering the bankrupt to make further payments into the estate for the benefit of creditors (for example, where there is a valuable exempt asset, or the bankrupt has future prospects for earning substantial income).
As well, the Office of the Superintendent of Bankruptcy might object in cases where an automatic discharge would offend commercial morality or harm the integrity of the bankruptcy process.
There are many possible outcomes at a discharge hearing, and several options for dealing with any terms opposed at such a hearing. Consultation with an experienced insolvency lawyer in such cases is advised.