Bankruptcy in Canada: Every Question Answered (2026)

Bankruptcy in Canada wipes out most unsecured debt through a legal process that takes 9 months for first-time filers. It costs $1,800 minimum, protects specific assets under provincial exemptions, and gives you a clean financial start. In 2025, 140,457 Canadians filed insolvencies under the Bankruptcy and Insolvency Act. You are not alone, and the process is far less painful than most people expect.

This page answers every question you have about bankruptcy—costs, process, assets, your spouse, your job, your credit, and your alternatives. Each answer links to a deeper article if you want the full picture.

The Basics: What Bankruptcy Actually Does

Bankruptcy is a federal legal process under the Bankruptcy and Insolvency Act (BIA). A Licensed Insolvency Trustee (LIT) files paperwork with the Office of the Superintendent of Bankruptcy (OSB). The moment that paperwork is filed, creditors must stop all collection activity. Wage garnishments freeze. Lawsuits pause. Harassing phone calls end.

What debts go away?

• Credit card balances
• Personal loans and lines of credit
• Payday loans
• Medical and dental bills
• Most CRA income tax and GST/HST debt
• Utility arrears
• Cell phone contracts

What debts survive?

• Secured debts (mortgage, car loan) unless you surrender the asset
• Child support and alimony
• Court-ordered fines and restitution
• Student loans less than 7 years old
• Debts arising from fraud or misrepresentation

Tanya in Brampton owed $47,000 across six credit cards and a $9,200 CRA tax bill. She filed bankruptcy, and every dollar of that $56,200 was discharged 9 months later. Her secured car loan stayed in place because she kept making payments. That is a typical outcome.

For the full breakdown of what happens the day you file, read What Happens When You File Bankruptcy in Canada.

The Process: Filing to Discharge

The bankruptcy process has clear steps. No surprises.

Step 1: Free consultation with a Licensed Insolvency Trustee

You sit down with a LIT for 45 to 60 minutes. They review your debts, income, assets, and household size. This consultation is always free. You can meet in person, by phone, or on video. The trustee explains whether bankruptcy is your best option or whether a consumer proposal makes more sense.

Step 2: Filing the paperwork

The trustee prepares your assignment in bankruptcy and files it with the OSB. You sign the documents. The stay of proceedings takes effect immediately—creditors cannot contact you.

Step 3: Monthly duties

You make monthly payments to the trustee (typically $200 to $250 for a basic first-time bankruptcy). You report your income each month. You attend two mandatory counselling sessions about money management and the causes of your financial difficulty. Sessions cost $85 each and are included in your total payment.

Step 4: Surplus income review

At month 7, the trustee calculates your average income over the bankruptcy period. If your net monthly income exceeds $2,514 (single person, 2026 threshold), you pay 50% of the excess. Surplus income extends your bankruptcy from 9 months to 21 months for first-time filers.

Step 5: Discharge

If no creditor or the OSB opposes your discharge, it happens automatically. First-time filers with no surplus income receive an automatic discharge at 9 months. You are legally released from your debts. Done.

For every detail of the filing process, see How to File Bankruptcy in Canada: Step-by-Step. For discharge timelines and what can delay them, read Bankruptcy Discharge Timeline.

Ready to talk to a Licensed Insolvency Trustee? Find one near you for a free, confidential consultation.

The Cost: What Bankruptcy Costs in Canada

The cost depends on three factors: base trustee fees, surplus income, and non-exempt assets. Here is how they stack up.

Trustee fees are set by the federal government under Rule 128 of the BIA. You do not pay the trustee separately—fees come out of your monthly payments. There is no upfront cost.

Derek in Red Deer earned $3,800 net per month as a welder. His surplus income was ($3,800 − $2,514) × 50% = $643 per month for 21 months. His total bankruptcy cost was roughly $13,500. A consumer proposal would have cost him $350 per month for 48 months ($16,800 total), but it would have protected his truck equity and kept the R7 rating instead of R9.

For the complete fee structure, read How Much Does Bankruptcy Cost in Canada?. To see how surplus income is calculated, visit Surplus Income Rules Explained.

Your Assets: What You Keep and What You Lose

The biggest myth about bankruptcy: you lose everything. You don’t.

Every province sets exemptions—assets the trustee cannot touch. These vary widely across Canada.

What you keep in every province

• Necessary clothing and household furnishings (up to provincial limits)
• Tools of your trade (up to exemption limits)
• Food
• RRSPs, RRIFs, and RDSPs (except contributions made in the last 12 months)
• Most pensions

What varies by province

• Home equity: Ontario exempts $10,783. Alberta, Saskatchewan, and Manitoba have full homestead protections of $40,000 or more. BC exempts $12,000 (or $9,000 outside Metro Vancouver)
• Vehicle equity: Ontario allows $7,117, Alberta $5,000, BC $5,000, Quebec $7,609
• Personal property: Ranges from $2,000 in some provinces to $10,000+ in others

Marissa in Sudbury owned a home with $8,500 in equity and drove a 2017 Honda Civic worth $6,200 with no loan. Both fell under Ontario’s exemptions. She kept her home, her car, and her RRSP. She lost nothing.

If your equity exceeds the exemption, you have options. You can pay the difference to the trustee over time, refinance, or in some cases negotiate a lower amount. Losing the house to a forced sale is rare.

For province-by-province exemption tables, read Bankruptcy Exemptions by Province. For house-specific rules, see Can You Keep Your House in Bankruptcy?. For vehicle rules, visit Can You Keep Your Car in Bankruptcy?.

For a complete overview of how assets are treated, read Bankruptcy and Your Assets in Canada.

Worried about losing assets? Talk to a trustee who can calculate your exact exemptions before you file.

Your Life: Job, Spouse, Credit, Housing

Your job

Your employer is not told you filed bankruptcy. The only exception is if a wage garnishment is already in place—the trustee sends a notice to stop it. Certain professions (financial advisors, some licensed professionals) have reporting requirements, but most workers face zero job impact.

Your spouse

Bankruptcy is individual. Your spouse’s credit score, bank accounts, and assets are not affected unless you share joint debts. Joint debts like co-signed loans become 100% your spouse’s responsibility after you file. Your spouse’s income does count toward the surplus income calculation, but it raises the threshold too.

If both of you carry heavy joint debt, filing together or doing a joint consumer proposal often makes more sense. Read the full breakdown at Does Bankruptcy Affect My Spouse?.

Your credit

Bankruptcy places an R9 on your credit report—the lowest rating. A first bankruptcy stays for 6 years after discharge (Equifax) or 7 years (TransUnion). A second bankruptcy stays for 14 years.

Here is the reality: if you are considering bankruptcy, your credit is already damaged. Collections, missed payments, and maxed-out accounts have likely dropped your score below 500. Bankruptcy stops the bleeding and gives you a fixed timeline to recover.

Most people rebuild to a 650+ score within 2 to 3 years after discharge using a secured credit card and smart payment habits. Read exactly how at Rebuild Credit After Bankruptcy.

Your housing

You keep your current rental. Landlords in most provinces cannot evict you for filing bankruptcy. If you rent, nothing changes.

If you own a home, equity above your provincial exemption must be dealt with—but forced sales are uncommon. Most people negotiate a buyout or refinance.

Getting a new mortgage after bankruptcy is possible 2 years after discharge with a rebuilt credit score and a down payment.

CRA and tax debt

CRA tax debt is fully dischargeable. Filing bankruptcy stops CRA garnishments and account freezes on the day you file. CRA can object to your discharge if your tax debt exceeds $200,000 or makes up 75%+ of your total unsecured debt, but this affects a small number of filers. Full details at Bankruptcy and CRA Tax Debt.

Bankruptcy vs Consumer Proposal

Not sure which option fits? Here is the honest comparison.

A consumer proposal lets you repay 20% to 40% of your debt over up to 5 years. You keep all your assets. Your credit gets an R7 rating instead of R9. Payments are fixed and never increase, even if your income goes up.

Bankruptcy is faster (9 to 21 months vs up to 60 months) but has more restrictions. You report income monthly. Surplus income can increase your payments. Non-exempt assets are at risk.

When bankruptcy is the better choice

• Your income is low and stable (no surplus income risk)
• You have minimal assets or all assets fall within exemptions
• You need the fastest possible fresh start
• Your debt is so large that even 20% would be unaffordable in a proposal

When a consumer proposal wins

• You earn above the surplus income threshold ($2,514/month single)
• You have significant home or vehicle equity
• You want to keep your R7 credit rating instead of R9
• You prefer fixed payments that will not change
• You have filed bankruptcy before (second-time bankruptcy lasts 24 to 36 months)

For the full side-by-side comparison, read Consumer Proposal vs Bankruptcy in Canada. Use the Consumer Proposal Calculator to estimate what a proposal would cost in your situation. You can also compare all debt relief options at a glance.

When to file

Timing matters. The right moment to file is when your debt exceeds your ability to repay it within 3 to 5 years, collection actions are escalating, or your mental health is suffering from financial stress. Waiting too long lets interest pile up, garnishments drain your paycheque, and CRA liens attach to your assets. Read more at When to File Bankruptcy in Canada.

Not sure which path is right? A Licensed Insolvency Trustee will review both options with you in a free consultation. Find one near you.

Your Next Step

You read this far because debt is weighing on you. That stress is real. The good news: 140,457 Canadians went through this process in 2025, and the vast majority came out the other side with their homes, their cars, and their peace of mind.

Bankruptcy is not failure. It is a legal tool designed to give honest people a fresh start. The Bankruptcy and Insolvency Act exists for exactly this reason.

Your next move is simple. Book a free consultation with a Licensed Insolvency Trustee in your area. They will review your full financial picture, tell you exactly what bankruptcy would cost, what you would keep, and whether a consumer proposal is a better fit.

You do not need to decide anything today. But you do need to talk to someone who can give you real numbers instead of more worry.

Find a Licensed Insolvency Trustee near you →