How does the bankruptcy process start?
Personal bankruptcy in Canada begins with a free consultation with a Licensed Insolvency Trustee. The trustee reviews your income, debts, and assets, then explains all available options, including alternatives like a consumer proposal or debt consolidation.
Nobody else can file bankruptcy paperwork for you. Only a Licensed Insolvency Trustee has the federal authority to do it.
If bankruptcy is the right fit, the trustee prepares an assignment in bankruptcy and files it with the Office of the Superintendent of Bankruptcy (OSB). You sign the paperwork, and the OSB notifies your creditors. The process can be completed within a day or two.
The initial consultation costs nothing, and the trustee’s fees are regulated by the federal government, not set by the trustee.
What is a stay of proceedings?
A stay of proceedings is the legal protection that starts as soon as your bankruptcy is filed. It stops unsecured creditors from suing you, garnishing your wages, freezing your bank account, or calling you about the debt.
Secured creditors, such as your mortgage lender or car loan company, can still take action if you fall behind on payments. However, they cannot pursue you for any shortfall covered by the bankruptcy.
Source: Bankruptcy and Insolvency Act, Sections 69 to 69.31
What assets can you keep?
Personal bankruptcy does not mean you lose everything. Each province sets its own exemptions that protect essential assets from seizure. The rules differ depending on where you live.
Examples of provincial exemptions
In Ontario, you keep up to $10,783 in home equity, one vehicle worth up to $7,117, household furnishings up to $14,180, and tools of the trade up to $14,405.
Alberta protects up to $40,000 in home equity. British Columbia protects $12,000 in home equity in Metro Vancouver and Victoria, and $9,000 elsewhere, with one vehicle up to $5,000.
Source: Ontario Execution Act, R.S.O. 1990, c. E.24, O. Reg. 657/05
What about RRSPs and other protected assets?
Across all provinces, RRSPs and RRIFs are protected except for contributions made in the 12 months before filing. Clothing has no dollar limit. Medical aids are fully exempt.
What if your assets exceed the exemptions?
If you have assets above the exempt amounts, you can either surrender the asset or pay the non-exempt value to your trustee and keep it.
If your home equity or other assets are high, a consumer proposal is often a smarter way to deal with the debt while keeping everything.
What are surplus income payments?
Surplus income is the part of your earnings that exceeds the government’s threshold for a reasonable standard of living. The Office of the Superintendent of Bankruptcy sets these thresholds each year.
| Family size | Monthly 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+ persons | $7,054 |
If your household income exceeds the threshold by more than $200 per month, you pay 50% of the surplus to your trustee. That payment goes to your creditors. If the surplus is less than $200 per month, you pay nothing extra.
Surplus income also extends the length of your bankruptcy
This is what catches people off guard. Surplus income does not just cost you more money. It doubles the length of your bankruptcy.
A first bankruptcy with no surplus income lasts 9 months. With surplus income, it lasts 21 months.
How long does bankruptcy last?
The length of bankruptcy in Canada depends on whether it is your first or second bankruptcy and whether you have surplus income.
| Situation | Duration |
|---|---|
| First bankruptcy, no surplus income | 9 months |
| First bankruptcy, with surplus income | 21 months |
| Second bankruptcy, no surplus income | 24 months |
| Second bankruptcy, with surplus income | 36 months |
Source: Bankruptcy and Insolvency Act, Section 168.1
You are released from bankruptcy without a court hearing as long as you complete all your duties and no one opposes the discharge.
If the trustee, a creditor, or the OSB opposes your discharge, you go before a registrar in bankruptcy who decides the terms.
What are your duties during bankruptcy?
Personal bankruptcy comes with a clear set of obligations. Missing any of them can delay or block your discharge.
You must attend two mandatory financial counselling sessions with a qualified counsellor, arranged through your trustee. The first session happens within 60 days of filing. The second happens between your sixth and seventh month in a first bankruptcy.
You must report your monthly income and expenses to the trustee and surrender non-exempt assets and any owed tax refunds.
If you sold or transferred property in the 12 months before filing, you must disclose those transactions. You also make any required surplus income payments on time.
Source: Office of the Superintendent of Bankruptcy Canada – Considering Bankruptcy
What debts survive bankruptcy?
Not every debt disappears when you are discharged. Section 178 of the Bankruptcy and Insolvency Act lists specific debts that survive bankruptcy.
The debts that are not eliminated by discharge include child support and spousal support, court-imposed fines and restitution orders, and debts arising from fraud or misrepresentation.
Damages for intentional bodily harm or sexual assault also survive, as do government student loans where you stopped being a student less than seven years before filing.
Source: Bankruptcy and Insolvency Act, Section 178
The student loan rule
There is a seven-year rule on student loans, but there is a hardship provision.
If you stopped being a student at least five years ago and can prove ongoing financial hardship, you can apply to the court to have the student loan included in the discharge.
The court has discretion here, and you need to show that continuing to carry the debt would cause you serious difficulty.
How does bankruptcy affect your credit?
Bankruptcy hits your credit hard. You receive the lowest possible score on the Canadian credit reporting scale. That rating stays on your report for years, making it difficult to get approved for new credit in the short term.
How long does bankruptcy stay on your credit report?
A first bankruptcy stays on your Equifax credit report for six years after discharge.
TransUnion keeps it for six years in most provinces, but extends it to seven years in Ontario, Quebec, New Brunswick, Newfoundland and Labrador, and Prince Edward Island.
A second bankruptcy stays on your report for 14 years with both bureaus.
Source: Financial Consumer Agency of Canada – How Long Information Stays on Your Credit Report
Rebuilding credit after discharge
If you are considering bankruptcy, your credit is probably already damaged. Missed payments, collections and high utilization all drag your score down long before you file.
Bankruptcy draws a line under the damage and gives you a clean start.
You can start rebuilding immediately after discharge with a secured credit card. Most people see meaningful improvement within two years of consistent on-time payments.
What is the difference between bankruptcy and a consumer proposal?
Bankruptcy and a consumer proposal are both filed through a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act, but they work differently and suit different situations.
| Personal bankruptcy | Consumer proposal | |
|---|---|---|
| Assets | Non-exempt assets surrendered | You keep all assets |
| Surplus income | Required if above threshold | No surplus income payments |
| Payments | Based on income, can change | Fixed, agreed upfront |
| Duration | 9 to 21 months (first time) | Up to 60 months |
| Credit report | R9 for 6 to 7 years after discharge | R7, removed 3 years after completion or 6 years after filing (whichever is sooner) |
| Creditor approval | No vote required | Creditors vote to accept or reject |
Which one is right for you?
A consumer proposal is ideal if you want to protect your assets, have income that triggers surplus payments, or prefer fixed monthly payments.
Bankruptcy is the more direct route if you have few assets, a lower income, and need the fastest possible discharge.
Read more: Consumer Proposal vs Bankruptcy
What happens after bankruptcy discharge?
Discharge is the legal end of your bankruptcy. It releases you from all the debts included in the bankruptcy. Your trustee files the discharge certificate with the Office of the Superintendent of Bankruptcy (OSB), and you are no longer bankrupt.
After discharge, you have no restrictions on holding a corporate directorship, applying for credit, or running a business.
How much does it cost to file for bankruptcy?
The cost of bankruptcy in Canada is regulated by the federal government, not set by individual trustees. There is no upfront fee to consult with a Licensed Insolvency Trustee.
The base contribution for a first-time bankruptcy is typically $1,800 and is paid in monthly instalments over 9 months. This covers the trustee’s administration costs, government filing fees, and two mandatory counselling sessions.
If you have surplus income, you pay 50% of the surplus each month for 21 months, which increases the total cost. If you have non-exempt assets, the value of those assets is added to the bankruptcy estate.
What if you cannot afford the fees?
If you cannot afford the base fees, the Office of the Superintendent of Bankruptcy runs a Bankruptcy Assistance Program. The OSB assigns a trustee to your case at a reduced cost so that the inability to pay does not prevent you from filing.
Source: Office of the Superintendent of Bankruptcy Canada
Frequently asked questions
Can I keep my house if I declare bankruptcy in Canada?
It depends on your province and the amount of equity in your home. In Ontario, the home equity exemption is $10,783. In Alberta, it is $40,000. If your equity exceeds the limit, you can pay the non-exempt portion to keep the home, or consider a consumer proposal instead.
Will bankruptcy stop wage garnishments and collection calls?
Yes. The stay of proceedings takes effect immediately upon filing for bankruptcy. It stops garnishments, collection calls and lawsuits. Secured creditors can still enforce their security if you default on payments.
Can I file for bankruptcy if I have student loans?
You can file for bankruptcy with student loan debt. However, if you stopped being a student less than seven years before filing, the student loan survives the discharge, and you still owe it.
After seven years, the loan is treated like any other unsecured debt. A hardship provision allows you to apply to the court after five years.
Do I lose my car if I go bankrupt?
Not necessarily. Each province has a vehicle exemption, such as $7,117 in Ontario and $5,000 in Alberta.
If your vehicle is worth more than the exemption, you can pay the difference to keep it. Leased or financed vehicles are treated differently, and you can usually keep them by continuing payments.
How long does a bankruptcy stay on my credit report in Canada?
A first bankruptcy stays on your Equifax report for six years after discharge and on your TransUnion report for six to seven years, depending on your province. A second bankruptcy stays on your credit report for 14 years with both credit bureaus.
Can my spouse’s income affect my bankruptcy payments?
Yes. Surplus income is calculated based on your household income, not just your own, so your spouse’s earnings are included. However, only your proportional share of the household surplus determines what you pay. Your spouse is not responsible for your debts unless they co-signed or guaranteed them.
What happens to my RRSP if I declare bankruptcy?
RRSPs and RRIFs are protected in bankruptcy across Canada, except for contributions made in the 12 months before filing. Those recent contributions are recovered by the trustee for the benefit of your creditors. Contributions older than 12 months are fully exempt.
Can I file for bankruptcy more than once?
Yes. There is no limit on the number of times you can file for bankruptcy in Canada. However, a second bankruptcy lasts 24 to 36 months instead of 9 to 21 months, and it stays on your credit report for 14 years. The cost and consequences keep increasing.
Is a consumer proposal better than filing for bankruptcy?
It depends on your situation. A consumer proposal lets you keep all your assets and locks in fixed payments with no surplus income obligations. Bankruptcy is faster if you have a low income and few assets.
Read more about the difference between a consumer proposal and bankruptcy.