Many Canadians assume a second bankruptcy is exactly the same as declaring bankruptcy the first time, however, that isn’t the case. There are some very different rules and costs associated with first and second bankruptcies.
This article will cover the costs, as well as other important information associated with filing for bankruptcy a second time in Canada.
The Cost Of Filing For Bankruptcy A Second Time In Canada
The first thing to know about filing for bankruptcy for the second time in Canada is that it will be more expensive for you than the first time.
Base Contribution Cost
The first time you file for bankruptcy, you’ll pay a base contribution of $1,800 toward the court (paid in $200 increments for up to 9 months). If you file a second time, you’ll need to pay $200 a month for up to 24 months, leading to a total base contribution of $4,800. This is the minimum cost you can expect to pay after declaring bankruptcy for a second time.
Second Bankruptcy Surplus Income
In Canada, the government decides how much income an individual or family needs to maintain a certain standard of living. So, if you earn more income than you technically need to survive, they’ll see it as extra cash that can be applied to your bankruptcy debt.
That’s why The Office of the Superintendent of Bankruptcy imposes a yearly surplus income threshold. If your net income surpasses the yearly surplus income threshold, you’ll be required to make surplus payments.
Moreover, this will also extend your bankruptcy term from 24 months to 36 months.
How Are Surplus Income Payments Calculated?
Your surplus income payments are dependant on a number of factors including:
- Your family income
- Size of your household (number of dependants)
- Deductible expenses
Here’s how surplus income payments are calculated following a second bankruptcy for a single individual:
|Subtract Superintendent’s Income Threshold For 1 Person||$2,355|
|Total Surplus Income||$545|
|Payment Required (multiple by 50%)||$272.5|
The total cost of bankruptcy also depends on the value of your assets, like your home, car or investment accounts. If you have enough debt, any assets that aren’t exempt from the process will be liquidated by a Licensed Insolvency Trustee (LIT) and sold to repay your creditors. This is one of the main drawbacks of filing for bankruptcy in Canada.
How Long Does A Second Bankruptcy Last In Canada?
Not only will your second time filing for bankruptcy be more expensive than the first, the second bankruptcy actually lasts longer. As you could likely decipher from the breakdown in the last section, a first bankruptcy lasts a minimum of 9 months and a second will last a minimum of 24 months.
However, if you do indeed have surplus income, your second bankruptcy can extend by an extra 12 months, totalling 36 months or 3 years.
Are The Rules Different When Filing for Bankruptcy a Second Time?
Back in 2009, the federal government brought into effect some new bankruptcy rules for those who have filed more than once. Those rules state that if a person who has filed for bankruptcy twice performs all of their required duties during the period of bankruptcy, they are entitled to an automatic discharge from bankruptcy in either 24 or 36 months, depending on if they need to make surplus payments or not. Other than that, the rules aren’t that different.
Can You File Bankruptcy For A Third Time?
Yes, you can file for bankruptcy a third time, as long as you completed both of your prior bankruptcies as agreed. To file a third time, you must comply with the same rules as your second bankruptcy, along with the following conditions:
- No Automatic Discharge – Rather than being discharged automatically after your bankruptcy payments are finished, you’ll need to appear before the court to request it formally. Doing this could take extra time, effort, and legal fees.
- Other Penalties – The court may also assign you a time penalty and/or financial conditions. Any additional charges will depend on how long it’s been since your previous bankruptcies, as well as the creditors that were included in each filing.
How Many Times Can You Apply For Bankruptcy?
Technically, there is no law against filing or applying for bankruptcy as many times as you want. However, any more bankruptcy filings after your third are unlikely to be accepted/discharged. Remember, your third bankruptcy involves asking a court to discharge you, so if you go back for a fourth, there is a good chance they will refuse to give you a discharge. Because of this, it is best not to file more than twice, if you can help it.
Other Costs To Consider
Although filing for bankruptcy can help you become totally debt-free, it involves some serious consequences, not just in the financial sense but in the personal sense too:
- Time Cost – Getting discharged isn’t easy or quick, especially if you file a second time, which takes 2 to 3 years rather than 9 months. Not only is the legal process long and complicated, but you must also regularly set aside time to check in and submit various paperwork with your LIT throughout the process.
- Credit Cost – A second bankruptcy can cause your credit scores to fall. When you declare bankruptcy, you’ll get an R9 credit rating for any accounts involved and it will show up on your credit report for 14 years after you’re discharged. All of this can stop you from qualifying for new credit and good interest rates (until your credit improves).
Alternatives To Second Bankruptcies
A second bankruptcy can lead to larger costs, plus the loss of any high-value assets you own. So, it’s important to exhaust all your other debt-relief options beforehand, like:
A Consumer Proposal
A consumer proposal is a similar legally-binding procedure that you can file for through a LIT when you have $5,000 to $250,000 debt. While you must repay a portion of your debts in monthly installments over a maximum of 5 years, the consequences are far more lenient than those of a second bankruptcy:
- Your assets will be protected from seizure
- You can make extra payments and pay your proposal off early (penalty-free)
- Your credit rating will be at R7 (the third lowest rank) during the process
- A negative mark will appear on your credit report for 3 years following discharge
- You must pay a $1,500 filing fee, plus 20% of all future payments
Instead of racking up the bankruptcy filings and suffering the consequences, it can be a good idea to consider other options. Consumer proposals are a common alternative, but before you make your decision, be sure to talk to an expert about the best steps to take.
Second Bankruptcies FAQs
How long does a second bankruptcy stay on your credit report?
- Your first bankruptcy will show on your credit report for at least 6 years from the date of discharge. However, if you have a second bankruptcy, it will, unfortunately, be a lot longer. According to Equifax, the largest credit bureau in the country, a second bankruptcy is kept on your credit report for 14 years.
What are the drawbacks of a second bankruptcy?
What’s the minimum cost of a second bankruptcy?
In conclusion, we hope this article has shed some light on what happens and how much it will cost when you file for a second bankruptcy. It can be stressful to deal with the prospect of bankruptcy, but by familiarizing yourself with the rules and costs, you can better prepare yourself.
That’s why you should be absolutely certain that a second bankruptcy really is your best choice, as it leaves a lasting impression on your report. If you are concerned about the potential of filing for a second bankruptcy, be sure to reach out to a licensed insolvency trustee to see what other options you might have at your disposal.