What does personal bankruptcy eliminate?
Personal bankruptcy wipes out most unsecured debts. Credit cards, personal loans, payday loans, tax debts and unsecured lines of credit are all dischargeable.
If a collection agency is contacting you about any debts or if you have a wage garnishment, personal bankruptcy will put a stop to that as well.
The moment you file, an automatic stay of proceedings takes effect under the Bankruptcy and Insolvency Act. Collection agencies must stop contacting you, and creditors cannot garnish your wages or pursue lawsuits. The stay remains in place for the duration of the bankruptcy.
Not all debts are eliminated. Personal bankruptcy does not discharge child or spousal support, student loans less than seven years old, court fines, or debts arising from fraud.
Source: Government of Canada – Bankruptcy and Insolvency Act, s. 69 and s. 178(1)
What are the advantages of personal bankruptcy?
Filing for personal bankruptcy offers instant legal protection by stopping all collection activities. This means no more calls, garnishments, or lawsuits, providing immediate relief.
The timeline is short if your income is low. A first-time filer without surplus income is eligible for automatic discharge after nine months.
Your basic assets are protected. Every province sets exemption limits for items such as vehicles, household goods, and tools of the trade. RRSPs are protected, except for contributions made in the 12 months before you filed.
What are the disadvantages of personal bankruptcy?
Personal bankruptcy has serious implications. Your credit takes a hit, your income determines what you pay, and you lose non-exempt assets.
How does personal bankruptcy affect your credit?
Personal bankruptcy carries the lowest credit rating on the Canadian credit scale (R9).
Equifax removes a first bankruptcy from your credit report six years after discharge.
TransUnion removes it after six years in most provinces, but keeps it for seven years in Ontario, New Brunswick, Newfoundland and Labrador, Prince Edward Island, and Quebec.
Source: Financial Consumer Agency of Canada – How long information stays on your credit report
A second bankruptcy stays on your credit report for 14 years with both Equifax and TransUnion. One bankruptcy is six to seven years. Two is fourteen.
That’s worth considering before you take on new debt after completing a bankruptcy.
Surplus income and the length of your bankruptcy
If your net household income exceeds the government’s threshold by more than $200 per month, you pay 50% of the surplus into your bankruptcy estate. Your bankruptcy also extends from 9 months to 21 months.
The Office of the Superintendent of Bankruptcy updates these thresholds each year. Here are the 2025 figures.
| Family unit size | Monthly threshold |
|---|---|
| 1 person | $2,666 |
| 2 persons | $3,314 |
| 3 persons | $4,080 |
| 4 persons | $4,955 |
| 5 persons | $5,624 |
Source: Office of the Superintendent of Bankruptcy Canada – Directive No. 11R2-2025, Surplus Income
Assets and professional restrictions
Non-exempt assets go to your Licensed Insolvency Trustee. As of April 2026, Ontario protects up to $12,997 in home equity and $8,578 in vehicle equity. In Alberta, the vehicle exemption is $5,000.
Source: Ontario – Execution Act and Alberta – Civil Enforcement Act
If your assets exceed these limits, you pay the difference or lose them.
You cannot serve as a director of a corporation while you’re an undischarged bankrupt. Real estate agents, lawyers and financial advisors are among the professions that require you to disclose a bankruptcy to your regulator, and restrictions vary by province.
Source: Canada Business Corporations Act, s. 105(1)
Personal bankruptcy vs consumer proposal
A consumer proposal is an attractive alternative to bankruptcy. You repay a portion of your unsecured debt for up to five years, and your creditors forgive the rest.
Here’s how the two compare.
| Personal bankruptcy | Consumer proposal | |
|---|---|---|
| Credit rating | R9 | R7 |
| Timeline | 9 months (first, no surplus income) to 21 months (with surplus income) | Up to 5 years |
| Payments | Vary with income (surplus income rules) | Fixed from start to finish |
| Assets | Non-exempt assets surrendered | Keep all assets |
| Income changes | Higher income means higher payments and takes longer | Payments don’t change if income goes up |
| Credit report | 6 to 7 years after discharge (first); 14 years (second) | 3 years after completion or 6 years after filing, whichever is sooner |
Your payments in a consumer proposal are fixed from the start, so if your income goes up, your payments don’t change. In bankruptcy, a raise means higher surplus income payments and a longer timeline.
You also keep all your assets with no risk of losing your home or vehicle.
In the 12 months ending January 31, 2026, consumer proposals accounted for 78.4% of all consumer insolvency filings in Canada. Personal bankruptcies accounted for the rest.
Source: Office of the Superintendent of Bankruptcy Canada – Insolvency Statistics, January 2026
When does personal bankruptcy make sense?
Bankruptcy is typically the right fit when your income is below the surplus income threshold, you have few assets, and you owe more than you can realistically repay.
It’s usually not the best choice if you have a steady income above the threshold, equity in a home, or work in a profession that restricts undischarged bankrupts. If any of this applies to you, a consumer proposal protects more of what you have.
A Licensed Insolvency Trustee can assess your full financial picture and tell you which option makes more sense.
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Frequently asked questions
How long does personal bankruptcy last in Canada?
A first bankruptcy lasts nine months if you have no surplus income. If your net household income exceeds the government threshold by more than $200 per month, it takes 21 months.
A second bankruptcy lasts 24 to 36 months, depending on whether surplus income applies.
Does personal bankruptcy stop collection calls?
Yes. When you file for personal bankruptcy, an automatic stay of proceedings takes effect immediately.
Debt collection agencies must stop contacting you, and creditors cannot pursue wage garnishments or lawsuits. This remains in place for the duration of the bankruptcy.
What debts does personal bankruptcy not eliminate?
Personal bankruptcy does not discharge secured debts such as mortgages or car loans, court-ordered child and spousal support, student loans less than 7 years old, court fines, and debts arising from fraud or misrepresentation.
How much does personal bankruptcy cost?
Filing for bankruptcy costs about $1,800 over nine months for first-time filers with no surplus income.
If your income exceeds government limits, you may need to make surplus payments, which can extend the process to 21 months and increase the total cost.
Can I file for personal bankruptcy more than once?
Yes, but a second personal bankruptcy takes longer and costs more. A second bankruptcy lasts 24 to 36 months, and the record stays on your credit report for 14 years after discharge with both Equifax and TransUnion.
Get advice on whether bankruptcy is right for you
A Licensed Insolvency Trustee can review your financial situation and tell you whether personal bankruptcy, a consumer proposal, or another debt relief option is the best fit. The initial consultation is free.