In my email this week I received the following question:
“Just curious – how many times is someone allowed to go bankrupt? I know someone who has gone bankrupt twice and I was wondering if there was a limit.â€
The short answer to this question is no, there is no legal limit to the amount of times you can go bankrupt. According to the law, you can go bankrupt as many times as you need to.
The long answer, of course, reveals why this is not the whole story. Although there is no legal limit for the amount of times you can go bankrupt, the courts are more strict with people who file for more than one bankruptcy, and the process becomes more difficult the more times you file.
Essentially, a first bankruptcy will take 9 months, after which the person who files will be discharged, or released from their debts, unless there are specific reasons not to (i.e. like the person didn’t make their surplus income payments).
A second bankruptcy is more difficult to obtain as it is not automatically discharged after 9 months. Instead, the person has to appear in court for a judge to decide the terms of their discharge. The same rules apply for a third bankruptcy and so on.
In my experience, second bankruptcies are quite common and leave a more lasting mark on your credit report (Equifax, a credit information company, reports that a first bankruptcy will stay on your credit report 6 years from the date of discharge, whereas a second bankruptcy will stay on your credit report 14 years from the date of discharge).
I have seen a few cases where a third bankruptcy was filed for, but in each case the court has not looked favourably on the bankrupt and it was much more difficult to get the bankruptcy discharged. And in my 25 years of experience, I have not seen anyone file for a fourth bankruptcy.
As you can see, although there is no legal limit on the number of times that you can go bankrupt, each bankruptcy after the first is more difficult and complicated to complete, limiting the number of times people can go bankrupt.
When I am approached by someone facing a second or third bankruptcy, I try to look for an alternative that will keep them out of the courts; a consumer proposal may be the best alternative in these cases.
If you have any questions about bankruptcy or about your financial situation, contact me for a free consultation. You can also email me any questions you might have. Even if you’re in a tough financial situation, we can help.
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