January 15, 2021
Bankruptcy is often misunderstood, but it can be a practical solution for managing overwhelming debt. BDO Licensed Insolvency Trustee Shannon Jackson explains how filing for bankruptcy for the first time works in Canada, what to expect during the process, and how it can provide a fresh financial start.
Choosing to file for bankruptcy is a challenging decision to make. There are a lot of stigmas around bankruptcy and for many people, it feels like a failure. It shouldn’t seem that way. It’s really a chance at a fresh start. It doesn’t last forever either. A first bankruptcy in Canada can be completed in under a year.
In Canada, bankruptcy is a formal process overseen by a Licensed Insolvency Trustee, who guides you through each phase, from initial debt assessment to final discharge. We spoke to BDO Licensed Insolvency Trustee Shannon Jackson to learn more about the bankruptcy process.
You may think that the more debt you have, the more likely it is you’ll have to declare bankruptcy. That’s not the case though explains Shannon Jackson.
Your assets and income play a bigger role than the amount of debt you have, she says.
“Bankruptcy is usually the best option for someone with no valuable assets and a lower-than-average income. In those cases, it’s often the fastest and most cost-effective way to eliminate debt,” says Shannon.
Someone with a house may want to avoid bankruptcy and consider filing a consumer proposal instead, since the equity in the home is considered a valuable asset. On the other hand, someone who rents and has limited income may find bankruptcy to be the most appropriate solution, she says.
Bankruptcy offers legal protection to people who can no longer afford to pay their debts. Once filed, a stay of proceedings immediately stops collection calls, wage garnishments, and most legal actions from creditors.
Filing for bankruptcy removes most of your unsecured debts. Unsecured debts are debts not backed by a physical asset. Credit cards, personal loans and payday loans are unsecured debt, for example.
Instead of making separate monthly payments to each creditor, you’ll make just one monthly payment towards your bankruptcy fees. This amount can vary depending on your income and will be determined by a Licensed Insolvency Trustee after they gain a full understanding of your financial situation.
It should be noted you cannot remove a car loan or a mortgage by filing for bankruptcy, as they are backed by a physical asset, the car or home in this case.
A Licensed Insolvency Trustee, like Shannon Jackson, manages the bankruptcy process, ensuring you understand your obligations while working to eliminate your eligible debts.
There’s no shame in reaching out for professional help if you’re having money troubles. Many Canadians are currently experiencing financial problems. A joint survey by BDO Debt Solutions and CPA Canada in March of 2025 found that a third of Canadians say they’re worse off financially than a year ago. Almost half of Canadians are currently living paycheque-to-paycheque as well.
During your first meeting, a Licensed Insolvency Trustee, like Shannon, will assess your financial situation and discuss available debt relief options.
“We begin by looking at your income and living expenses, as well as your assets. That helps us determine what is the right option for you,” says Shannon Jackson.
“If, after meeting with us, you decide bankruptcy is the best solution for you, we will explain your responsibilities during the process,” says Shannon. “You will often find that you will have more room in your budget moving forward because you’re no longer struggling to cover multiple debts.”
Your Trustee will be with you for the entire bankruptcy filing process. They will ensure you understand your rights and obligations and will communicate with your lenders and creditors. If you choose to file for bankruptcy, the Trustee will draw up the necessary paperwork and file it with the Office of the Superintendent of Bankruptcy Canada.
As mentioned, when you file for bankruptcy, a stay of proceedings is put in place, which provides you with protection from your unsecured creditors halting collection efforts and wage garnishment and further legal action.
Certain debts aren’t covered by a stay of proceedings, such as car loan debt. If you make support payments, such as child or spousal support, you’ll be required to continue to do so as they can’t also be included in a bankruptcy. Filing for bankruptcy could make these payments easier to handle.
“After someone files for bankruptcy, they don’t have to handle all those debts they were trying to pay off before. This usually gives them more flexibility to pay for any assets they want to keep, like a car for example,” Shannon says.
A Licensed Insolvency Trustee will walk you through which debts are covered and what remains your responsibility, ensuring you understand your obligations before filing.
While you may think bankruptcy is a complicated process, there are only four things you need to do to meet the terms of any bankruptcy.
These are:
“The duties in bankruptcy are all pretty straightforward,” notes Shannon Jackson
“If you engage in the process, you’ll be able to complete your bankruptcy duties, no problem. It'll be very straightforward, and you'll be able to make a fresh start,” she says.
Let’s take a close look at how these work.
You’ll have to complete two credit counselling sessions before the end of your bankruptcy. You and your counsellor will discuss your financial challenges and you’ll learn money and debt management strategies that will help you rebuild your finances and improve your credit score.
As part of the bankruptcy process, you’ll be required to provide monthly income and expense statements to your Trustee, who will regularly review your finances. If your financial situation changes (for example, you get a new job with a higher income), you may need to make additional monthly payments during the term of your bankruptcy.
When you file for bankruptcy, your Trustee files your tax returns for the year in which you start the bankruptcy. They will complete a pre-bankruptcy tax return, which covers income earned from January 1 up to the day before you file for bankruptcy.
They will also file a post-bankruptcy tax return for the period from the date of filing to December 31 of that same year. Any tax refunds from these filings are considered assets and are automatically paid to your bankruptcy estate to help pay creditors (not applicable to Quebec income taxes). Your LIT will explain how this process affects you.
One of the key responsibilities during bankruptcy is making your monthly payments to your Licensed Insolvency Trustee.
Your Trustee calculates the payment amount based on your income and household size. If you earn more than the government’s set limit for basic living expenses, you may need to make additional payments, called surplus income payments. Your LIT will clearly explain how much you need to pay each month and how long you must make payments. Again, many first bankruptcies can be completed in under a year.
You may have to give up certain assets to help pay your creditors what you owe, but each province has its own set of rules about what assets you may keep. You will not lose everything. A Licensed Insolvency Trustee will review your assets before you file and let you know which possessions you may keep.
In most provinces, you can keep essential household items like furniture and appliances, clothing, and tools of the trade needed for your job. Depending on where you live, you may also be able to keep a vehicle up to a certain value and some home equity if it falls within the exemption limit. In many cases, registered retirement savings plans (RRSPs) are protected, except for contributions made in the last 12 months.
Assuming you complete all your duties during the bankruptcy period, you’ll receive a certificate of discharge.
If you haven’t completed all your duties, when you approach the date of your discharge, the Trustee will submit a report to the Office of the Superintendent of Bankruptcy, summarizing how the bankruptcy has gone so far. This report is also mandatory for second or third bankruptcies.
“We essentially give them an update to say that the person has completed their duties, or if they haven't, then we'll make a note that there is something outstanding, for example a counselling session,” Shannon Jackson explains.
Shannon notes that if a bankruptcy duty has not been completed, the Trustee will then follow up with the person to let them know what hasn’t been completed and to ensure it’s done by the discharge date of bankruptcy.
“We want everyone to get discharged. We don’t want you to be bankrupt any longer than you need to be,” she says.
One of the biggest concerns people have when filing for bankruptcy is how it will affect their credit score. That shouldn’t hold people back from asking for help though says Shannon. She says most people already have a low credit score by the time they come in for help.
It’s important to understand that this process of rebuilding your credit after bankruptcy will take time—it won’t happen overnight. As Shannon points out, "It’s going to take time. It’s slow and gradual, but it is possible to do it right."
Filing for bankruptcy will drop your credit rating down to the lowest possible score, an R9. It will also stay on your credit report for 6 to 7 years. That doesn’t mean that it is impossible to rebuild credit during that timeframe.
Shannon recommends using a secured credit card to start. A secured credit card is a credit card that requires a deposit. In some cases, the credit card lender will approve a higher credit limit than the amount of the deposit.
Once you have a secured credit card, you can begin by using the card for predictable expenses, like a tank of gas or your cell phone bill—something you have already budgeted to pay.
“The key is to always pay it off in full and on time at the end of every month, so that it never carries a balance,” she says. This way, you never pay any interest.
The more frequently and responsibly you use the card, and the longer history you have with the account, the better it will be for your credit score.
If debt is weighing you down, you don’t have to face it alone. A Licensed Insolvency Trustee, like Shannon Jackson, can help you understand your options and find the right solution for your situation.
By speaking to a Trustee like Shannon Jackson, you’ll get professional guidance on how to deal with your debt and move toward financial stability. Contact us today to take the first step toward a fresh financial start.
January 15, 2021
Bankruptcy is often misunderstood, but it can be a practical solution for managing overwhelming debt. BDO Licensed Insolvency Trustee Shannon Jackson explains how filing for bankruptcy for the first time works in Canada, what to expect during the process, and how it can provide a fresh financial start.
