Undischarged Bankrupt: Your Status and Responsibilities

I received a terrific question recently from someone who was bankrupt but had not successfully completed his duties under the Bankruptcy and Insolvency Act (the BIA). He had been dealing with another Licensed Insolvency Trustee firm and didn’t know how to finalize his process. He informed me that he had filed for bankruptcy protection in 2004, but had stumbled at some point and was still not discharged from his bankruptcy duties.  Specifically, he had failed to attend his two credit counselling sessions, because they had conflicted with his work schedule.  

What is an undischarged bankrupt?  A bankrupt who has not met (i.e. successfully completed) their duties under the bankruptcy process.  When someone in a bankruptcy is unable to complete the duties required of them, the Insolvency Trustee loses the power to discharge that person from their debts. Effectively they end up in a state of financial limbo.

This debtor told me he had attempted to open a bank account at one of his former creditor’s branch locations, and all kinds of bells and whistles began to go off. Even though the bank’s computer screen indicated the original debt had been “written off.”  That information led the debtor to believe (incorrectly) that there was some form of closure to his former debts. But he was misinformed.  

What does it mean when a creditor “writes off” a debt?   Surprisingly, it has no relationship to that same debt on someone’s bankruptcy filing. Writing off a debt only means the lender has essentially “eaten” the debt and realizes they will not be able to recoup the money. Essentially it serves as a tax loss for that lender.   But on the bankrupt’s credit report, and in the eyes of the lender, the debt never truly went away.

So what is the best way to resolve these types of issues?  If this bankrupt didn’t fulfill all of his duties during his bankruptcy, and if he failed to attend any subsequent court proceedings, he would need to pick up the telephone and speak with his Insolvency Trustee to determine what outstanding duties he might still have and how to go about getting them completed right away.  

Some of the duties a bankrupt might be required to complete include:

• finalizing the payment of all outstanding fees
• attend his two counseling sessions
• submit his tax information for the year of bankruptcy
• collate and provide monthly income reports (with backup proof of income) 
• provide the Trustee with any outstanding asset information that had been requested.  

Once the bankrupt has successfully completed any of the above duties that may still be outstanding, his Insolvency Trustee (or the Bankruptcy Court, if the Trustee has lost the opportunity to discharge the bankrupt)  will issue a discharge order. 

So what is an undischarged bankrupt?  The simple answer is there has been no closure to this debtor’s former debts, and he is still on the hook to complete his duties to the Bankruptcy Court and his Insolvency Trustee. I strongly recommend that anyone reading this who is in that situation reach out immediately to his Licensed Insolvency Trustee to make arrangements to clean up the situation 

By resolving any outstanding duties, the “in limbo” bankrupt will be able to finally put his debts behind him and obtain the fresh financial start he is entitled to.