What happens immediately after filing bankruptcy?
Your Licensed Insolvency Trustee (LIT) takes control of your bankruptcy estate the moment you file. The trustee manages your non-exempt assets and reports to the Office of the Superintendent of Bankruptcy on your behalf.
You surrender all credit cards to your trustee. You cannot use existing cards or apply for new ones during bankruptcy.
You must report your monthly income and expenses to the trustee every month, and the trustee uses those reports to calculate whether you owe surplus income payments.
What assets do you keep in bankruptcy?
Protected assets in Ontario
Most people keep more than they expect. Provincial law determines what you can keep, and the limits apply to the asset’s resale value, not its replacement cost.
For example, in Ontario, the Execution Act protects the following assets from seizure in bankruptcy:
| Asset | Ontario exemption limit |
|---|---|
| Clothing (you and dependants) | No dollar limit |
| Household furnishings and appliances | Up to $14,180 |
| One motor vehicle | Up to $7,117 |
| Tools of the trade | Up to $14,405 |
| Home equity (principal residence) | Up to $10,783 |
| Farming tools and livestock | Up to $31,379 |
| RRSPs, RRIFs, and DPSPs | Protected (except contributions in the 12 months before filing) |
Source: Ontario Execution Act, R.S.O. 1990, c. E.24
These amounts are indexed annually. Other provinces have different limits.
Alberta protects $40,000 in home equity. British Columbia protects $12,000 in Greater Vancouver and Victoria, and $9,000 elsewhere.
What assets are sold
Any asset above the exemption limit becomes part of your bankruptcy estate. Your trustee liquidates non-exempt assets and distributes the proceeds to your creditors.
Common non-exempt assets include investments (other than protected RRSPs), secondary properties, and vehicle equity above the provincial limit.
If your car is worth more than $7,117 in Ontario, you have a choice. You can pay the difference to your trustee and keep the car, or you can surrender the vehicle. The same applies to home equity above $10,783.
What credit restrictions apply during bankruptcy?
You cannot obtain credit of more than $1,000 without telling the lender that you are an undischarged bankrupt. This is not optional. It is an offence under Section 199 of the Bankruptcy and Insolvency Act, and it applies to personal loans, credit cards, lines of credit, and any other form of borrowing.
Source: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, Section 199
Your bankruptcy appears on your credit report as soon as you file. How long it stays depends on the credit bureau and your province.
With Equifax, a first bankruptcy is removed six years after your discharge date in all provinces. With TransUnion, the timeline is six years in most provinces but seven years in Ontario, Quebec, New Brunswick, Newfoundland and Labrador, and Prince Edward Island.
Source: Financial Consumer Agency of Canada – How Long Information Stays on Your Credit Report
You can still open a basic bank account during bankruptcy. You lose overdraft protection, but you are not barred from banking.
How does surplus income work?
Surplus income is the most misunderstood part of bankruptcy in Canada. If your household’s net monthly income exceeds the government threshold by $200 or more, you pay 50% of the excess to your trustee. The Office of the Superintendent of Bankruptcy sets the threshold each year based on family size.
As of January 2025, the monthly thresholds are:
| Family size | Monthly net income threshold |
|---|---|
| 1 person | $2,666 |
| 2 persons | $3,318 |
| 3 persons | $4,080 |
| 4 persons | $4,953 |
| 5 persons | $5,618 |
| 6 persons | $6,336 |
| 7 or more | $7,054 |
Source: Office of the Superintendent of Bankruptcy Canada – Directive No. 11R2-2025, Surplus Income
For example, a single person earning $3,266 per month after deductions has $600 of surplus income ($3,266 minus $2,666). That person pays $300 per month (50% of $600) to the trustee.
If your surplus income averages $200 or more per month, your bankruptcy is extended from 9 months to 21 months for a first-time bankruptcy.
Stop and think about that for a second. A raise, overtime or a bonus during bankruptcy can extend it by a full year.
What are the mandatory counselling requirements?
You must attend two credit counselling sessions before you can be discharged from bankruptcy. The first session covers budgeting and money management. The second covers responsible credit use and how to recognize financial warning signs.
Source: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, Section 157.1
Your Licensed Insolvency Trustee administers both sessions. The first session must happen within 60 days of filing, and the second must happen within 210 days. If you do not complete both sessions, the trustee opposes your bankruptcy discharge.
What happens to legal proceedings when you file?
An automatic stay of proceedings takes effect the moment you file for bankruptcy. Creditors cannot initiate or continue lawsuits against you. Wage garnishments and collection calls stop immediately.
Creditors cannot start or continue lawsuits against you. Wage garnishments stop.
Alos, collection calls end. This is one of the most immediate benefits of filing.
Source: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, Section 69
The stay applies to most unsecured creditors, but there are exceptions. Secured creditors with a valid lien (your mortgage lender or car loan provider) can still enforce their security if you fall behind on payments.
Family support obligations, such as child support and spousal support, are not affected by the stay.
What business and employment restrictions apply?
You cannot carry on business in a name other than your own without disclosing your bankruptcy to every person you do business with. If you owned a business when you filed, the trustee takes control of the business assets.
You can work for someone else without restriction. Bankruptcy does not prevent employment, and most employers have no way of knowing you filed.
Employers in Canada cannot access your credit report without your written consent. The exception is certain regulated roles in finance and law enforcement, where employer credit checks are part of the licensing requirements.
Can you make major purchases during bankruptcy?
You should not make large purchases during bankruptcy without discussing them with your trustee. Buying a car, taking on a new lease, or acquiring property affects your bankruptcy estate and your surplus income calculation.
The trustee is not trying to control your spending. They just need to make sure that any large purchase does not benefit you at the expense of your creditors.
If you need a replacement vehicle because yours broke down, that is a reasonable conversation to have with your LIT.
Can you travel during bankruptcy?
There is no law in the Bankruptcy and Insolvency Act that prevents you from travelling during bankruptcy. Your passport is not seized, and you are not barred from leaving Canada.
The practical reality is that you must remain available to fulfill your bankruptcy duties. You need to attend two credit counselling sessions in person, report your income monthly, and attend a meeting of creditors or a discharge hearing if required.
If you plan extended travel, let your trustee know so that you can schedule around these obligations. Short vacations and work travel do not require trustee approval.
What debts survive bankruptcy?
Not all debts are wiped out when you are discharged. The Bankruptcy and Insolvency Act lists specific debts that survive bankruptcy under Section 178.
Government student loans are not discharged if you filed bankruptcy within seven years of the date you ceased to be a full-time or part-time student. The seven-year clock runs from your last day as a student, not from the date you took out the loan or the date you filed bankruptcy.
The Supreme Court of Canada confirmed this interpretation in April 2025 in Piekut v. Canada (2025 SCC 13), ruling that the single-date approach applies.
Source: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, Section 178 (1g)
If you have been out of school for more than seven years, your government student loans are dischargeable. Private student loans from banks or credit unions are treated like any other unsecured debt and are dischargeable regardless of when you were a student.
Other debts that survive bankruptcy include child support and spousal support, court-imposed fines and restitution orders, and debts arising from fraud or misrepresentation.
Secured debts, such as your mortgage and car loan, are not discharged unless you surrender the asset.
How do you rebuild credit after discharge?
You can start rebuilding credit the day you are discharged. A secured credit card is the most common first step. You put down a deposit with the lender, and that deposit becomes your credit limit.
Use the card for small purchases and pay the balance in full every month.
Most people qualify for unsecured credit products within two to three years of discharge.
After six to seven years (depending on your province and credit bureau), the bankruptcy falls off your credit report entirely. At that point, if you have rebuilt responsibly, you have access to standard mortgage products and credit at competitive rates.
Nobody tells you this, but the people who rebuild fastest are the ones who start the day they are discharged, not the ones who wait for the bankruptcy to fall off their report.
Talk to a Licensed Insolvency Trustee
If you are considering bankruptcy or want to understand how it would affect your specific situation, talk to a Licensed Insolvency Trustee. The initial consultation is free.
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Frequently asked questions
Can I keep my house if I file for bankruptcy?
You can keep your house if your equity falls within the provincial exemption. In Ontario, the home equity exemption is $10,783. If your equity exceeds that amount, you either pay the difference to your trustee or the trustee requires you to refinance or sell.
Will I lose my car in bankruptcy?
In Ontario, you can keep one vehicle worth up to $7,117 based on resale value. If the car is worth more, you pay the difference to your trustee and keep the car, or you surrender it. If you are still making loan payments on the vehicle, you can keep the car as long as the payments stay current.
Can I get a credit card during bankruptcy?
You cannot get a traditional credit card during bankruptcy. You can use a prepaid card, which is not a form of credit. After discharge, you can apply for a secured credit card to start rebuilding your credit history.
How long does bankruptcy stay on my credit report?
A first bankruptcy stays on your Equifax credit report for six years after your discharge date in all provinces. With TransUnion, the timeline is six years in most provinces and seven years in Ontario, Quebec, New Brunswick, Newfoundland and Labrador, and Prince Edward Island. A second bankruptcy stays on your credit report for 14 years.
What is surplus income and how is it calculated?
Surplus income is the amount your household earns above the government threshold set by the Office of the Superintendent of Bankruptcy.
As of 2025, the threshold for a single person is $2,666 per month. If your net income exceeds the threshold by $200 or more, you pay 50% of the excess to your trustee each month.
Can I travel during bankruptcy?
There is no legal restriction on travel during bankruptcy. The BIA does not prevent you from leaving Canada, and your passport is not affected.
You do need to remain available for bankruptcy duties like income reporting and counselling sessions, so let your trustee know if you plan to travel.
Will my employer find out I filed bankruptcy?
Your employer does not find out unless you tell them. Employers cannot access your credit report without your written consent. The exception is certain regulated roles in finance or positions requiring security clearance, where credit checks are part of the hiring or licensing process.
Can I open a bank account after filing bankruptcy?
You can open a basic bank account during and after bankruptcy. You lose overdraft protection and access to credit products at your bank, but you are not barred from banking.
It’s a good idea to open a new account at a bank where you do not owe money before filing, so your existing bank does not apply your deposits against any debts you owe them.
What happens to my tax refund during bankruptcy?
Tax refunds for the year you file bankruptcy go to your trustee. If you file in June, the trustee is entitled to the refund for January to December of that year. Any tax refunds owed from prior years also go to the trustee.
Tax refunds for years after you are discharged are yours to keep. You also keep your GST/HST credits and Canada Child Benefit payments during bankruptcy.
How long will it take to get a mortgage after bankruptcy?
Most major lenders require at least two years of clean credit history after discharge before considering a mortgage application. Some alternative lenders will consider applications sooner, but at higher interest rates.
After the bankruptcy falls off your credit report (six to seven years after discharge), you have access to standard mortgage products at competitive rates, provided you have rebuilt your credit responsibly.