Solutions
Bankruptcy in Canada

Bankruptcy in Canada

What is personal bankruptcy?

Personal bankruptcy is a legally binding agreement under the Bankruptcy and Insolvency Act, which is designed to provide financial protection to individuals who can no longer repay their debts. If you are facing financial challenges, you are within your rights to ask for debt forgiveness.

Filing for bankruptcy is sometimes a necessary solution to a debt problem.

For people who need immediate relief from unmanageable debt, personal bankruptcy can be an important step towards financial recovery. However, it is always a last resort option. A Licensed Insolvency Trustee (LIT) will only recommend bankruptcy after all other debt relief options have been explored.

When you decide to file for bankruptcy, a stay of proceedings is issued, and you receive immediate protection from your creditors. This means that all collections activities will stop. Creditors are prohibited from contacting you or pursuing legal action against you. Your LIT will now deal with your creditors on your behalf.

The bankruptcy process usually takes nine months. At the end of your bankruptcy, you are legally discharged from your debts.

What debts can be included?

Bankruptcy includes most debts that are unsecured or without collateral.

Examples of unsecured debts
Credit cards/Store credit cards
Bank loans
Payday loans
Unpaid taxes
Medical bills
Student loan debt
(if 7 years have passed since you were last a student)
What debts cannot be included?

Secured debts that are backed by an asset — as well as some other financial obligations are excluded from bankruptcy.

Examples of secured debts
Mortgage
Car loans
Alimony
Child support
Court fines

Eligibility requirements for filing personal bankruptcy

To be eligible to file for bankruptcy in Canada you must meet certain requirements:

  1. You owe at least $1,000 in unsecured debt;
  2. You are unable to pay your debts as they come due;
  3. You are insolvent, meaning you owe more than the value of the assets you own;
  4. You must either reside, do business, or have property in Canada.

Pros and cons of personal bankruptcy

ProsCons
Unsecured debts are erasedPotential loss of non-exempt assets
Protection from creditorsNote on credit report for up to 7 years
Process can be completed in 9 monthsMonthly payments based on income
Credit counselling sessionsMonthly budgeting statements
Freedom from debt
Some debts are excluded

Deciding to file for bankruptcy is a big decision. It involves careful counselling from a Licensed Insolvency Trustee, who is your best resource for understanding how bankruptcy will affect your own financial situation.

There are many bankruptcy myths and they can actually hinder someone from exploring their debt relief options. Let’s answer some frequently asked questions about filing for bankruptcy.

Need help exploring your debt relief options?

Finding debt relief

Personal bankruptcy: a real-life example

Everyone's financial situation is different, but it helps to hear about other people's stories.

This real-life debt story is about a couple who were dealing with a health crisis illustrates the relief that a debt relief program, like bankruptcy or consumer proposal, can provide to people who are going through tough times.

Recent advice