Bankruptcy in Canada

Filing for bankruptcy is usually only considered after all other debt solutions have been ruled out. Many people are able to resolve their debt problems with alternative solutions, such as a consumer proposal. A Licensed Insolvency Trustee will carefully review your situation and explain all available debt relief options to help find the best solution available to you.

There are some debts that cannot be forgiven through bankruptcy. Even if you file for bankruptcy, you will still be responsible for the following debts: 

• Mortgage 

• Secured loans such as a car loan 

• Spousal or child support payments 

• Alimony 

• A debt arising out of fraud 

• Any court-imposed fines and penalties including traffic and parking tickets 

• Student loans if you have not been out of school for seven years 

• Restitution orders 

• In some instances, gambling debts 

While these debts cannot be included in a bankruptcy filing, bankruptcy can alleviate the stress caused by your unsecured debts and may make it easier to keep up with your secured debt payments.

Filing for bankruptcy automatically eliminates student loan debt if you have been out of school for at least seven years. If you have attended school in the last seven years you may still be able to eliminate those debts under hardship provisions. A Licensed Insolvency Trustee can explain all your options for dealing with student debt. Learn more about student loans and bankruptcy here. 

When you file for bankruptcy, you must hand over your credit cards to your LIT. An LIT will also explain credit rebuilding strategies and programs to you. You can apply for a credit card after you’re discharged from bankruptcy and will likely need to start with a secured credit card, where you would pay a deposit to guarantee your credit limit. 
 
Using a credit card responsibly is one of the most effective ways to rebuild your credit score. If you obtain a secured credit card, use it to charge a few reasonable amounts, and pay off the balance in full and on time each month, you're establishing that you're a responsible borrower.

Your home is likely your most valued possession and worrying about your home and your family is a common fear when discussing bankruptcy. Most provinces have exemptions that allow you to keep some of the equity in your home when you file for bankruptcy, however, if you’ve already paid off a large portion of your mortgage (i.e., you have built up equity in your home), filing for bankruptcy might not be the best solution for you. Bankruptcy law requires you to use that equity to pay off some of the money you owe to your creditors. 

To keep your home when filing a bankruptcy, you would need to pay a Licensed Insolvency Trustee (LIT) the amount of equity you have in your home, minus any provincial exemptions. Home equity is calculated by subtracting the remaining amount of your mortgage, along with any outstanding taxes you owe, from what your house is currently worth on the market.

Your discharge could be opposed by a creditor, an LIT, or the Superintendent of Bankruptcy. Generally, a bankruptcy discharge is opposed when the debtor has not fulfilled the requirements of the bankruptcy process. This might be due to: 

• Not making the required monthly payments  

• Failing to attend two mandatory credit counselling sessions 

• Committing an offence related to the bankruptcy claim 

There are a few other reasons why a bankruptcy claim could be opposed. For instance, if the bankruptcy was caused by gambling or a creditor suspects fraudulent activity, the bankruptcy could be opposed by the creditor. 

If the bankruptcy discharge was opposed, the debtor would have to attend a court hearing to determine the conditions they would need to fulfil in order to be discharged from bankruptcy.

Relationship breakdown is one of the many life events that can lead to financial stress and overwhelming debt. While filing for bankruptcy will eliminate your unsecured debts, any alimony and child support payments will still have to be paid if you file for bankruptcy.

A Licensed Insolvency Trustee (LIT) is an officer of the court, who acts as a mediator between debtors and creditors. An LIT is obligated to make sure that the bankruptcy process is fair for all parties.

Once you have filed for bankruptcy, it is a legally binding agreement that will stop all harassing phone calls and threats of legal action from debt collectors. On your behalf, your Licensed Insolvency Trustee will address this with all your creditors and inform them that they are no longer allowed to contact you.

Two major factors will determine the length of the bankruptcy process: whether it’s your first filing and whether you have what is known as ‘surplus income.’ A person who files for bankruptcy for the first time without surplus income can be discharged from bankruptcy after nine months. If you do have surplus income, it can take 21 months for you to be discharged from bankruptcy.   

A second bankruptcy takes 24 months to receive a discharge if you don’t have surplus income, or 36 months with surplus income. In any case, the bankruptcy process could take longer than expected if the bankruptcy is opposed by a creditor or the court. 

If you file for bankruptcy three or more times, the length of the bankruptcy will vary depending on your circumstances. 

In most provinces, an individual filing for bankruptcy is entitled to keep one vehicle worth up to a certain amount. Leased or financed vehicles are not included in your bankruptcy unless they have significant equity value over the loan amount. If you have multiple vehicles or other assets that you would like to keep, talk to your Licensed Insolvency Trustee about your options.

A wage garnishment is a legal action that allows a creditor to take money directly from your paycheque before you receive it. A creditor would need to file a lawsuit, receive a court decision that you owe them money, and then apply for a wage garnishment. 

If your wages are being garnished by a creditor, you can stop wage garnishments by repaying the debt you owe, appealing to the court to release the garnishment, or appointing a Licensed Insolvency Trustee to file a consumer proposal or bankruptcy. Both a consumer proposal and bankruptcy put a stop to wage garnishments from the date they are filed. No other debt relief strategies can legally stop a wage garnishment. 

If you have co-signed a loan with someone, whether it’s your spouse, a friend or a relative, that person will assume responsibility for paying that debt when you file for bankruptcy. You should inform them of your situation and ideally have them attend a meeting with you and your Licensed Insolvency Trustee.

If you are owed child support and/or alimony from a former spouse, and that person declares bankruptcy, you are still entitled to receive payments and will be considered a “preferred creditor” in the process. Under the Bankruptcy and Insolvency Act, you can claim missed child support or alimony payments for the previous 12 months before your ex-partner filed for bankruptcy. It would be best to speak to a family lawyer or the Licensed Insolvency Trustee handling your ex’s bankruptcy for more information.

It’s important to note that if you have been missing bill payments, have used up all or most of your available credit, or your debt has become unmanageable and you’re thinking about filing for bankruptcy, your credit rating will most likely already be negatively affected. Filing for bankruptcy will impact your credit score, giving you an R9 rating, which will stay on your file for approximately seven years. However, bankruptcy can offer you a fresh start, and help you to rebuild your credit faster than some other debt relief solutions.

Once you’ve been fully discharged from bankruptcy, you will receive a legal document called a Certificate of Discharge or an Order of Absolute Discharge. This document states that your debt has been permanently erased, and you are no longer responsible for the debts listed on your bankruptcy application. It is possible that you could receive a conditional discharge, which requires certain conditions to be met, or a suspended discharge, which does not take effect until a later date.

A Licensed Insolvency Trustee (LIT) is licensed by the Office of the Superintendent of Bankruptcy to help people who are struggling to pay their debts. An LIT is a debt solutions expert who will work with you, offering one-on-one support to find the right debt solution to help you find a path forward.  
 
LITs are also the only federally regulated debt advisors in Canada. Their fees are set by the Office of the Superintendent of Bankruptcy and they operate within the Bankruptcy and Insolvency Act of Canada to protect the rights of both debtors and creditors. An LIT is a debt solutions expert whose job is to help people fix their debt problems.  

When you file for bankruptcy it allows you to eliminate most if not all of your unsecured debts, including credit cards, lines of credit, bank loans, payday loans and income tax debts. Student loans can only be eliminated in bankruptcy if you have been out of school for more than seven years. If you have been out of school for less than seven years you may still be able to eliminate student loans under certain hardship conditions. Your LIT can review those conditions with you.

If you file for bankruptcy, it will not go on your spouse’s credit report or affect their credit rating. However, if you have co-signed any loan agreements with your spouse—or anyone else, for that matter—that person will then assume full responsibility for repaying the loan if you file for bankruptcy. In these circumstances, it is best for you and your co-signor to seek the help of a Licensed Insolvency Trustee at the same time, to make sure both of your needs are addressed.

Losing everything is one of the most common misconceptions about bankruptcy.  You will not lose everything when you file for bankruptcy in Canada. Each province and territory has exemptions to the bankruptcy law that allows you to keep some of your belongings.  

 
Personal exemptions by province/territory 

Find out what is exempt in your province by clicking on a link below: 

• British Columbia 

• Alberta 

• Saskatchewan 

• Manitoba 

• Ontario 

• Quebec 

• New Brunswick 

• Prince Edward Island 

• Nova Scotia 

• Newfoundland & Labrador 

• Nunavut 

• Northwest Territories 

• Yukon 

The vast majority of personal (non-business) bankruptcy filings are not advertised in the newspaper. While bankruptcies are in the public record, someone would usually have to pay a fee to access that information, which does not commonly occur. In most cases, no one is aware that you have filed for bankruptcy.

Only unsecured debts can be eliminated in a bankruptcy. Since a mortgage is a secured loan it is not included. If you are not behind on your payments your mortgage lender cannot cancel your mortgage or foreclose on your home because you file for bankruptcy. Also, if you are up to date on your mortgage payments most lenders will renew your mortgage even if you are bankrupt or in a consumer proposal.