Frequently asked questions about bankruptcy

Filing for bankruptcy is a difficult decision, and we understand that you’d want to know as much information as possible before choosing to file. A Licensed Insolvency Trustee (LIT) will be able to explain the bankruptcy process and answer any questions you might have. But before speaking with an LIT at your local BDO office, here are some of the most frequently asked questions about bankruptcy:

Will I lose everything if I file for bankruptcy?

No, you will not. Each province and territory has its own exemptions to the bankruptcy law that allow you to keep some of your belongings. Please read more to find out what you can keep and put this misconception to rest.

Can I keep my home if I file for bankruptcy?

Depending on your circumstances, you may be able to keep your home. Read more about how this is calculated, to see how you may be affected.

Which debts can I eliminate by filing for bankruptcy?

Filing for bankruptcy allows you to eliminate 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’ve 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 local LIT can review those conditions with you.

Can I file bankruptcy for my student loan debt?

Filing for bankruptcy automatically eliminates student loan debt if you have not attended school in over 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.

Do I still have to pay alimony if I go bankrupt?

Yes. Both alimony and child support payments still have to be paid if you file for bankruptcy.

Are there any debts that can’t be eliminated by filing for bankruptcy?

Yes. Even if you file for bankruptcy, you will still be responsible for the following debts:

  • Mortgage
  • Car loan
  • Alimony
  • Child support
  • Court fines or penalties
  • Student loans, if it’s been less than seven years since you last attended school

What happens if my ex-spouse owes child support or alimony and files for bankruptcy?

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 bankruptcy law, 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 to the Licensed Insolvency Trustee handling your ex’s bankruptcy for more information.

Will filing for bankruptcy affect my spouse?

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 bankruptcy law, 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 to the Licensed Insolvency Trustee handling your ex’s bankruptcy for more information.

What happens if I’ve co-signed a loan with someone?

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.

What happens to my credit rating when I file for bankruptcy?

It’s important to note that if you’ve 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 score faster than some other debt relief solutions.

Will it be made public if I file for bankruptcy?

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.

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) is a federal government licensed debt help professional who is also an officer of the court. Despite claims that an LIT ‘only works for your creditor’, which are not true, an LIT actually acts more like a mediator between debtors and creditors, using the federal Bankruptcy and Insolvency Act to ensure fairness for all parties. If you are struggling with debt, an LIT will be able to explain every option to help find the best solution for you, and is the only licensed debt professional who can file a bankruptcy or a consumer proposal on your behalf.

Does a Licensed Insolvency Trustee work for my creditors?

A Licensed Insolvency Trustee (LIT) has duties to both debtors and creditors. An LIT is an officer of the court, and will make sure that the bankruptcy process is fair for all parties.

What are wage garnishments?

A wage garnishment allows a creditor to take some money off of 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 with your creditors, or file for bankruptcy. Both a consumer proposal and bankruptcy put a stop to wage garnishments from the date they are filed. No other debt relief strategies are able to stop a wage garnishment.

Does bankruptcy stop calls from collections agencies?

Yes. Once you have filed for bankruptcy, your Licensed Insolvency Trustee will address this with all your creditors, and collections agencies are no longer allowed to contact you.

How long does the bankruptcy process last?

There are two major factors that 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 any 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. Read more about how surplus income is calculated

If you file for bankruptcy a second time, it would take 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 individual circumstances.

What happens when I’m discharged from bankruptcy?

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.

Could anything prevent me from being discharged?

It is possible that 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 if a creditor suspects fraudulent activity, it 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.

Can I get a credit card after I file for bankruptcy?

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.

Are there alternatives to filing for bankruptcy?

Yes. In fact, filing for bankruptcy is usually considered a last resort and many people are resolving their debt problems with other 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.

Licensed Insolvency Trustees Since 1958