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What Is Personal Bankruptcy in Canada?
Personal bankruptcy is a legal process governed by Canada's Bankruptcy and Insolvency Act (BIA). When you file for bankruptcy, you surrender most of your non-exempt assets to a Licensed Insolvency Trustee (LIT), who distributes them to your creditors. In return, your eligible unsecured debts are discharged — legally wiped out.
Bankruptcy is not a moral failure. It is a legal tool designed to give Canadians who are genuinely overwhelmed by debt a fresh start. Over 100,000 Canadians file for insolvency (bankruptcy or consumer proposal) each year.
Consider This First: Before filing bankruptcy, explore a
consumer proposal. It lets you keep your assets, pays back less than bankruptcy in many cases, and has a shorter credit impact. A Licensed Insolvency Trustee can compare both options for free.
Who Can File for Bankruptcy in Canada?
- You must be a Canadian resident or own property/do business in Canada
- You must be insolvent — unable to pay debts as they come due, or debts exceed the value of your assets
- Your unsecured debts must be at least $1,000
- You are an individual (corporations use a different process)
The Bankruptcy Process Step by Step
Step 1 — Free consultation with a Licensed Insolvency Trustee. The LIT reviews your debts, income, and assets to determine if bankruptcy is appropriate or if a consumer proposal is better.
Step 2 — Sign the bankruptcy assignment. You formally assign your non-exempt assets to the LIT.
Step 3 — Automatic stay of proceedings. Immediately upon filing, all collection activity, wage garnishments, and lawsuits stop.
Step 4 — LIT notifies creditors. Creditors are informed within 5 days. They may file a claim with the LIT.
Step 5 — Monthly duties during bankruptcy. You must submit monthly income/expense reports, attend two credit counselling sessions, and make surplus income payments if required.
Step 6 — Discharge. First-time bankrupts are eligible for discharge after 9 months (21 months if surplus income applies). Discharge releases you from most debts.
Costs of Filing Bankruptcy in Canada
The minimum cost is set by federal regulation. For a standard first-time bankruptcy:
- Base cost: Approximately $1,800–$2,000 total, paid in installments to the LIT
- Surplus income payments: If your monthly income exceeds the government threshold (based on family size), you pay 50% of the excess to the LIT each month
- Non-exempt assets: Any assets above provincial exemptions are sold, and proceeds go to creditors
There is no upfront lump sum required. Fees are spread over the bankruptcy period.
What Assets Do You Keep? (Provincial Exemptions)
Each province has exemption rules protecting certain assets from creditors. Common exemptions include:
| Asset | Ontario | BC | Alberta |
|---|
| Home equity | $100 | $12,000–$9,000 rural | $40,000 |
| Vehicle | $6,600 | $5,000 | $5,000 |
| RRSPs | Fully exempt (except last 12 months' contributions) | Fully exempt | Fully exempt |
| Clothing | $5,650 | No limit (reasonable) | No limit |
| Household goods | $13,150 | $4,000 | $4,000 |
RRSPs are largely protected in all provinces, making bankruptcy less devastating for retirement savings than many assume.
Impact on Your Credit Score
Bankruptcy is reported as an R9 — the worst credit rating — and stays on your credit report for:
- First bankruptcy: 6 years from discharge date (Equifax) / 6–7 years (TransUnion)
- Second bankruptcy: 14 years from discharge date
You can begin rebuilding immediately after discharge using secured credit cards or prepaid cards. Many Canadians reach a 650+ credit score within 2–3 years of discharge by practicing good habits consistently.
Debts That Survive Bankruptcy
Not all debts are discharged. The following survive bankruptcy:
- Alimony, child support, and spousal support
- Fines, penalties, and court-ordered restitution
- Student loans (if you left school less than 7 years ago)
- Debts obtained by fraud or misrepresentation
- Secured debts (mortgage, car loan) — you must keep paying or surrender the asset
Frequently Asked Questions
Will I lose my home if I declare bankruptcy in Canada?
Not necessarily. If your home equity is within provincial exemption limits and you continue making mortgage payments, you can keep your home. However, if you have significant equity above the exemption, the trustee may require you to sell or refinance to pay out that equity to creditors.
What is surplus income in bankruptcy?
The federal government sets monthly income thresholds based on family size. If your net monthly income exceeds that threshold, you must pay 50% of the excess to the trustee each month. Surplus income payments extend the bankruptcy period from 9 to 21 months. The 2025 threshold for a single person is approximately $2,355/month net.
Can I declare bankruptcy more than once in Canada?
Yes, but each subsequent bankruptcy has longer timelines and greater restrictions. A second bankruptcy takes a minimum of 24 months (36 with surplus income). The credit bureau notation lasts 14 years for a second bankruptcy. It is strongly advisable to explore all alternatives before filing a second time.
Does bankruptcy affect my spouse?
Only your debts are included in your bankruptcy — your spouse is not automatically responsible for your unsecured debts unless they co-signed or guaranteed the debt. However, joint assets may be affected. Your bankruptcy will not appear on your spouse's credit report.
Can my employer find out about my bankruptcy?
Bankruptcy proceedings in Canada are public record — listed in the OSB Insolvency Register — but employers rarely check this database. Your employer would only know if your wages were being garnished (which stops at filing) or if they happened to search the public registry. Most employers never find out.
Is a consumer proposal better than bankruptcy?
For most Canadians, yes — if they qualify. A consumer proposal lets you keep all assets, has no surplus income obligations, results in a shorter credit bureau notation (R7 vs R9), and often costs more in total but less in disruption to your life. A free consultation with a Licensed Insolvency Trustee can help you compare both options for your specific situation.
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