Bankruptcy Canada — Complete Guide to What Happens & What to Expect

Personal bankruptcy in Canada eliminates most unsecured debt. Here's exactly what the process looks like, what you keep, what it costs, and how life looks after discharge.

What Is Personal Bankruptcy in Canada?

Personal bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act (BIA) that provides relief from overwhelming debt. When you file, a Licensed Insolvency Trustee (LIT) administers your estate. Non-exempt assets are liquidated to pay creditors. At discharge, remaining eligible debts are legally eliminated.

Bankruptcy is not failure — it is a legislated fresh-start mechanism that exists specifically for situations where debt has become mathematically unpayable. Over 100,000 Canadians file insolvency proceedings annually.

How Long Does Bankruptcy Last?

Situation	Discharge Timeline
First-time bankruptcy, no surplus income	9 months
First-time bankruptcy, surplus income required	21 months
Second bankruptcy, no surplus income	24 months
Second bankruptcy, surplus income	36 months

Surplus income is calculated using OSB guidelines. If your net monthly income exceeds the threshold for your household size, you must pay 50% of the surplus to your trustee monthly.

What Assets Do You Keep?

Each province has exemptions — assets you keep regardless of bankruptcy. Common Canadian exemptions include:

• Ontario: Up to $10,783 in household goods; one vehicle up to $7,117; RRSPs except contributions in the last 12 months; clothing; most pension income
• Alberta: One vehicle up to $5,000; household goods up to $4,000; clothing; tools of trade up to $100; principal residence equity up to $40,000
• BC: Household goods up to $4,000; one vehicle up to $5,000; tools up to $100

RRSPs (except last 12 months' contributions) are protected in all provinces. Your home equity above the provincial exemption must be paid to the trustee or surrendered.

The Bankruptcy Process — Step by Step

• Step 1: Free consultation with a Licensed Insolvency Trustee
• Step 2: LIT files assignment into bankruptcy with the OSB — automatic stay stops all collection, garnishment, and legal action immediately
• Step 3: You submit monthly income/expense reports to the LIT
• Step 4: Attend two mandatory credit counselling sessions
• Step 5: Pay surplus income if required
• Step 6: Discharge — debts eliminated, fresh start begins

What Debts Survive Bankruptcy?

Not everything is discharged. These debts survive bankruptcy:

• Student loans less than 7 years old (OSAP, NSLSC)
• Child and spousal support arrears
• Court-ordered fines, penalties, and restitution
• Debts from fraud or misrepresentation
• Secured debts (mortgage, car loan — you keep paying or surrender the asset)

Cost of Bankruptcy in Canada

The minimum cost for a first-time bankruptcy with no assets is approximately $1,800–$2,000, which covers the LIT's administration fee. This is typically paid in monthly installments of $200/month over 9 months. If you have surplus income, additional payments apply.

Credit Report Impact

Bankruptcy is recorded as an R9 (worst possible rating) on your credit report and stays for:

• Equifax: 6 years from discharge date (first bankruptcy); 14 years for second bankruptcy
• TransUnion: 6–7 years from discharge date

During and after bankruptcy, you can open a basic bank account, get a secured credit card, and begin rebuilding. Many people are surprised to find they can qualify for a secured card within 1–2 years of discharge.

Bankruptcy vs. Consumer Proposal — Which Is Right for You?

Bankruptcy makes sense when: debt far exceeds any realistic repayment ability, you have few assets to protect, and speed of resolution is important.

A consumer proposal makes sense when: you have assets worth protecting, you can afford modest monthly payments, and you want a less severe credit mark (R7 vs. R9, and 3 years post-completion vs. 6–7).

For many Canadians with $20,000–$100,000 in debt, a consumer proposal is the preferred path because it protects assets and carries a less severe and shorter credit impact.

Life After Discharge — Rebuilding Starts Now

The day after discharge, your debt slate is clean. Rebuilding priorities:

• Get a secured credit card immediately — use it for small recurring purchases and pay in full monthly
• Build a small emergency fund first ($1,000–$2,000) so new emergencies don't lead back to debt
• Switch to a spending account that prevents overdraft — prepaid options eliminate the risk of repeating the cycle
• Monitor your credit report every 6 months to ensure the bankruptcy notation is removed on schedule