What Happens When You File Bankruptcy in Canada? Timeline & Effects

Filing bankruptcy immediately stops wage garnishment within 1 to 2 pay periods, ends collection calls within 24 hours, freezes all creditor lawsuits, and releases bank account freezes within 48 to 72 hours through the automatic stay of proceedings. You surrender assets exceeding provincial exemptions or pay the difference to keep them, make monthly payments to your trustee (minimum $200 to $250 or higher if surplus income applies), and receive discharge in 9 to 21 months for first-time bankruptcy.

Understanding what happens during and after bankruptcy helps you prepare for the process and avoid surprises. The Bankruptcy and Insolvency Act establishes specific requirements, timelines, and protections that apply to every bankruptcy in Canada. With Canada’s 2026 financial crisis driving more Canadians toward insolvency solutions, knowing what to expect from the bankruptcy process is essential.

What happens immediately when you file bankruptcy?

The automatic stay of proceedings under Section 69.3 of the Bankruptcy and Insolvency Act takes effect the moment your Licensed Insolvency Trustee electronically files your assignment in bankruptcy with the Office of the Superintendent of Bankruptcy. This stay is immediate, automatic, and does not require court approval or creditor notification—it exists by operation of law.

Wage garnishment stops within one to two pay periods. Your trustee notifies your employer and the garnishing creditor immediately upon filing. Employers must stop garnishment deductions as soon as they receive notice—typically within 24 to 48 hours. However, payroll processing schedules mean one or two more garnished paychecks may occur before garnishment fully stops. If garnishment continues beyond two pay periods, your trustee can provide bankruptcy certificates to your employer proving the stay is in effect.

Collection calls and letters stop within 24 hours of creditors receiving notice. Your trustee sends electronic and mail notifications to all creditors listed in your bankruptcy filing. Creditors must immediately stop all collection communications including phone calls, emails, text messages, and collection letters. Automated dialer systems may take 24 to 48 hours to update, resulting in one or two final calls. After 48 hours, any continued collection is a violation of the BIA—report violations to your trustee.

Bank account freezes imposed by creditors are released within 48 to 72 hours. If CRA or other creditors froze your bank account before bankruptcy, your trustee notifies them to release the freeze immediately. Most creditors process releases within 2 to 3 business days. Money in the account at the time of bankruptcy filing may be claimed by the trustee as an asset—consult your trustee about protecting account balances if you have significant funds in accounts at filing.

All creditor lawsuits are frozen immediately and cannot proceed. Active lawsuits stop at whatever stage they reached before bankruptcy—discovery, trial scheduling, or judgment enforcement. Court hearings scheduled after your filing date are automatically stayed. Judgments obtained before bankruptcy cannot be enforced during bankruptcy. After discharge, lawsuits and judgments for dischargeable debts are permanently eliminated.

Interest stops accumulating on all unsecured debts on your filing date. Credit cards, lines of credit, personal loans, payday loans, and other unsecured debts stop accruing interest the day you file. No matter how long your bankruptcy lasts—9 months, 21 months, or longer—interest never accumulates. A $30,000 credit card balance at 19.99% interest saves approximately $6,000 per year in interest charges from the filing date forward.

Secured creditors maintain their rights to collateral. The stay of proceedings does not stop mortgage foreclosure if you are behind on payments or vehicle repossession if you default on a car loan. To keep your house or keep your car, you must stay current on secured debt payments throughout bankruptcy. The stay protects you from unsecured creditors, not secured lenders with collateral rights.

Monthly payments to your trustee begin immediately. Most trustees require first payment within 30 days of filing. Payment amounts depend on your income—low-income filers typically pay $200 to $250 monthly covering minimum fees and counselling costs. Higher-income filers with surplus income pay significantly more based on the formula: (monthly net income minus threshold) times 50%. Set up automatic payments to avoid missed payments that risk discharge refusal.

What assets do you lose in bankruptcy?

Assets exceeding provincial exemptions must be surrendered to your bankruptcy trustee or you must pay the non-exempt amount to keep them. Provincial legislation sets specific dollar amounts protecting basic necessities including home equity, vehicle equity, household goods, clothing, and tools of trade.

Provincial exemption amounts vary significantly by location. Ontario protects $10,783 in home equity and $7,117 in vehicle equity for 2026—among the highest in Canada. Alberta protects $40,000 in home equity but only $5,000 in vehicle equity. British Columbia protects $12,000 home equity in Greater Vancouver and Victoria or $9,000 elsewhere, plus $5,000 vehicle equity. Quebec and Newfoundland protect zero home equity.

Calculate non-exempt equity for each asset. Home equity equals fair market value minus mortgage minus 5% selling costs minus provincial exemption. Vehicle equity equals fair market value minus loan balance minus provincial exemption. If results are positive, you owe that amount to the trustee. Negative equity means the asset is fully protected.

Home equity above exemptions requires payment to keep your house. If you have $40,000 equity in Ontario where the exemption is $10,783, you must pay $29,217 to the trustee. Most people cannot afford this, forcing them to choose between losing their home or filing a consumer proposal that protects 100% of equity regardless of amount—see consumer proposal costs for typical payment amounts. Payment plans over the bankruptcy period are sometimes accepted.

Vehicle equity above exemptions requires payment or surrender. If you own a vehicle worth $15,000 outright in Ontario, you must pay $7,883 to keep it. Financed vehicles with equity below exemptions are kept by continuing loan payments. Many people strategically trade expensive vehicles for cheaper ones before bankruptcy to reduce non-exempt equity.

RRSP contributions made in the 12 months before filing are not protected. If you contributed $10,000 to your RRSP during the year before bankruptcy, the trustee seizes that $10,000. RRSP contributions older than 12 months are fully protected regardless of total value—you can have $500,000 in RRSPs from contributions over 12 months old and keep everything.

Tax refunds for the bankruptcy year and all prior years belong to the trustee. If you file bankruptcy in April 2026, your 2025, 2024, 2023, and all earlier refunds go entirely to the trustee. The 2026 refund is pro-rated—the trustee receives approximately 28% (January to April) and you keep 72%. Refunds for 2027 and later years are fully yours.

Bank account balances at the time of filing are assets claimed by the trustee. If you have $3,000 in your checking account when you file, the trustee claims this amount. Most people spend down bank balances before filing—paying rent, utilities, and other necessities—to avoid surrendering cash to the trustee. Consult your trustee about timing deposits and withdrawals around your filing date.

Household goods, furniture, and clothing are protected up to reasonable values. Provincial exemptions for household goods range from $5,000 to $7,000. Unless you own extremely valuable furniture or electronics, household goods rarely exceed exemptions. Trustees do not seize everyday items like beds, couches, TVs, and kitchen appliances of normal value.

Jointly owned assets are divided by ownership percentage. If you and your spouse jointly own a home with $100,000 total equity, your share is $50,000 (if 50/50 ownership). Apply your provincial exemption to your $50,000 share only. Your spouse’s $50,000 is completely protected. Only your ownership percentage is at risk in bankruptcy.

Inherited assets received during bankruptcy belong to the bankruptcy estate. If a relative dies and leaves you $50,000 during your bankruptcy period, this inheritance goes to the trustee. Inheritances received after discharge are fully yours. Some people delay bankruptcy filings if they expect inheritances within the next 12 months.

Life insurance policies with cash surrender value may require payment to keep. Term life insurance has no cash value and is not an asset. Whole life or universal life policies may have cash surrender values—the amount you would receive if you cancelled the policy. Cash values exceeding exemptions must be paid to the trustee or policies are surrendered.

Tools of trade used for employment are protected up to provincial limits. If you are a mechanic, your tools are protected up to approximately $5,000 to $10,000 depending on province. Self-employed contractors can protect essential equipment. The tools must be necessary for earning income—recreational tools and hobby equipment are not protected.

How long does bankruptcy last?

First-time bankruptcy with no surplus income discharges automatically after 9 months. Automatic discharge means no court hearing or application is required—you receive discharge by operation of law when you complete all bankruptcy requirements including two counselling sessions and monthly income reporting.

First-time bankruptcy with surplus income extends to 21 months minimum. Surplus income applies when your net monthly income exceeds federal thresholds adjusted annually—$2,666 per month for a single person in 2025, $3,318 for a couple. You pay 50% of income exceeding the threshold to the trustee. The 21-month timeline cannot be shortened even if you pay surplus income early.

Second-time bankruptcy requires 24 months minimum with no surplus income or 36 months with surplus income. Automatic discharge may be available but creditors and trustees scrutinize second bankruptcies carefully. Many second-time bankruptcies require court applications for discharge with hearings where creditors can oppose discharge or request conditions.

Third-time or subsequent bankruptcies have no automatic discharge timeline. You must apply to court for discharge regardless of circumstances. The judge determines whether to grant discharge and what conditions to impose. Discharge may be refused entirely for serial bankrupts who repeatedly use bankruptcy to avoid debts without addressing underlying financial problems.

Timeline extensions occur when you fail to meet bankruptcy requirements. Missing counselling sessions, failing to file monthly income reports, or refusing to cooperate with your trustee extends discharge indefinitely until requirements are completed. Discovering hidden assets or income during bankruptcy can extend timeline or require court applications to amend discharge terms.

Discharge refusal happens in extreme cases. Judges refuse discharge when bankrupts commit fraud, hide assets, fail to disclose income, refuse to cooperate, or otherwise abuse the bankruptcy process. Discharge refusal means you remain bankrupt indefinitely—all stay protections continue but debts are not discharged. You must eventually return to court with evidence of compliance to seek discharge. If you’re experiencing warning signs you need a consumer proposal, addressing debt problems early avoids reaching the point where bankruptcy becomes necessary.

Conditional discharge requires meeting specific conditions before discharge is granted. Common conditions include paying a percentage of debt (often 10% to 25%), completing financial management courses beyond the two mandatory sessions, or waiting an additional suspension period. Section 172.1 for high tax debt may impose 25% repayment conditions on income tax exceeding $200,000.

Absolute discharge eliminates all dischargeable debts with no conditions or future obligations. This is the standard outcome for first-time bankrupts who complete all requirements. After absolute discharge, you owe nothing on discharged debts and creditors cannot pursue collection regardless of how much debt was included.

Can you work and earn income during bankruptcy?

Working and earning income during bankruptcy is fully permitted and encouraged. Employment helps you pay monthly bankruptcy costs, maintain housing, and support dependents. There are no income limits or restrictions on earning capacity during bankruptcy.

Report all income to your trustee monthly. You must disclose employment income, self-employment income, bonuses, commissions, government benefits, rental income, investment income, and any other income sources. Monthly income reporting is mandatory—failure to report triggers discharge refusal or bankruptcy annulment.

Surplus income calculations adjust monthly based on reported income. If you earn $4,000 net one month and $5,000 the next month due to overtime, your surplus payment increases that month. Income decreases—losing a job or reduced hours—lower surplus payments. Trustee recalculates surplus every month based on actual income, not projected or averaged income.

Income increases during bankruptcy extend timeline if surplus is triggered. If you file bankruptcy with $3,000 monthly income (below the $2,666 threshold) and get a raise to $4,500 monthly, you now have surplus income. This extends your discharge from 9 months to 21 months and adds approximately $19,300 in surplus payments ($917 monthly times 21 months).

Self-employment income is permitted but requires detailed reporting. Self-employed bankrupts must provide monthly financial statements showing business revenue, expenses, and net income. Trustees scrutinize self-employment expenses to ensure they are legitimate business expenses, not personal spending disguised as business costs. Net self-employment income is treated the same as employment income for surplus calculations.

Changing jobs or receiving raises must be reported within 5 days. The BIA requires immediate disclosure of material changes in circumstances. If you accept a new job at higher pay, notify your trustee within 5 days. Delayed reporting that results in underpaid surplus income can lead to discharge conditions requiring back payment of all underpaid surplus.

Second jobs and side income are treated as regular income for surplus calculations. If you work two part-time jobs totaling $4,000 monthly, surplus is calculated on total income. Starting a side business during bankruptcy requires reporting all income—even $500 monthly from freelance work affects surplus calculations.

Bonuses and commissions are income in the month received. A $10,000 year-end bonus received in December counts as December income, significantly increasing that month’s surplus payment. Some trustees average large bonuses over multiple months to reduce payment spikes—discuss bonus treatment with your trustee before receiving large one-time payments.

Investment income and passive income count toward surplus calculations. If you own rental property generating $1,000 monthly net income after expenses, this increases your surplus income calculations. Dividend income from investments, interest income from savings, and capital gains realized during bankruptcy are all income subject to surplus calculations.

Spouse’s income affects surplus thresholds even if your spouse is not filing bankruptcy. The 2025 Superintendent’s Standards use household income and household size to determine thresholds. A single person threshold is $2,666 monthly, but a couple threshold is $3,318 monthly. Your spouse’s income raises the threshold, potentially reducing your surplus payments.

Severance payments and termination packages are income when received. If you are laid off and receive a $30,000 severance package during bankruptcy, this is income in the month received. Large severance payments can trigger substantial one-time surplus payments—potentially $10,000 to $15,000 or more. Discuss severance timing with your trustee before accepting packages if possible.

What debts are eliminated by bankruptcy?

Most unsecured debts are discharged in bankruptcy, permanently eliminating your legal obligation to pay them. Discharge means creditors cannot pursue collection, garnish wages, sue for payment, or take any collection action on discharged debts. Collection attempts after discharge violate federal law.

Credit card debt is fully discharged regardless of amount or age. All credit card balances including principal, interest, and penalties are eliminated. Post-discharge, creditors may close accounts permanently—most credit card companies will not issue new credit to discharged bankrupts for 2 to 3 years.

Personal lines of credit and loans are discharged. Bank loans, personal lines of credit from financial institutions, and private loans from finance companies are unsecured debts eliminated in bankruptcy. Secured lines of credit (HELOCs) on property you keep must continue being paid if you want to keep the property.

Personal income tax debt, penalties, and interest are discharged. Federal and provincial income tax arrears are eliminated regardless of age or amount. Bankruptcy immediately stops CRA collection including wage garnishment and account freezes. Exception: if you owe $200,000+ in income tax representing 75%+ of total debt, Section 172.1 may require 25% repayment as discharge condition.

Payday loans are fully discharged. Multiple payday loans totaling $10,000 or more are common in bankruptcies. These high-interest loans are unsecured debts completely eliminated. Payday lenders cannot sue or garnish wages after discharge even if they claim you signed agreements waiving bankruptcy rights—such waivers are void under the BIA.

Utility arrears are discharged but utilities may require deposits. If you owe $2,000 in electricity arrears, this debt is eliminated. However, utility companies may require security deposits of $300 to $500 to continue service after bankruptcy. Deposits are eventually refunded after 12 to 24 months of consistent payment.

Medical bills and dental bills are discharged. Costs not covered by provincial health plans—prescription drugs, dental work, optometry, physiotherapy—are unsecured debts eliminated in bankruptcy. Medical providers cannot refuse future care based on discharged debt though they may require payment at time of service.

Collection agency debts are discharged. If original creditors sold debts to collection agencies, those collection accounts are eliminated. Collection agencies must stop all collection activity upon receiving bankruptcy notice. Post-discharge collection attempts can result in penalties against the collection agency.

Deficiencies on repossessed or surrendered collateral are discharged. If you had a car loan with $15,000 owing and the lender repossessed and sold the car for $10,000, the $5,000 deficiency is unsecured debt discharged in bankruptcy. Mortgage shortfalls when houses sell for less than owing are also discharged.

Business debts and GST/HST remittance debt from self-employment are typically discharged. Failed businesses create substantial unsecured debt—unpaid suppliers, lease obligations, GST/HST remittances. These are personal obligations for sole proprietors and are discharged. Corporate debts are separate—personal bankruptcy does not eliminate corporate obligations unless you had personal guarantees.

What debts survive bankruptcy?

Certain debts are not discharged by bankruptcy under Section 178 of the Bankruptcy and Insolvency Act. You remain legally obligated to pay these debts after discharge—creditors can pursue collection including garnishment and lawsuits.

Child support and spousal support arrears survive bankruptcy. Current support obligations and accumulated arrears are not discharged. If you owe $20,000 in child support arrears when you file bankruptcy, you still owe $20,000 after discharge. Support obligations have priority status and cannot be eliminated through bankruptcy.

Student loans less than 7 years from end of studies are not discharged. Calculate 7 years from the date you ceased being a full-time or part-time student—not from when you received the loan. If you finished school in June 2021, student loans are not discharged until July 2028. After 7 years, student loans are discharged like other unsecured debts.

Court fines, restitution orders, and penalties imposed by courts survive bankruptcy. Criminal fines, traffic fines, restitution ordered for criminal acts, and penalties for regulatory violations are not discharged. These are debts to society, not commercial debts, and bankruptcy does not eliminate them.

Debts arising from fraud or fraudulent misrepresentation are not discharged. If a creditor proves you obtained debt through fraud—lying on loan applications, using stolen identity, operating Ponzi schemes—those debts survive under Section 178(1)(d). The burden of proof is on the creditor to prove fraud in court.

Alimony and maintenance obligations are not discharged. Any court-ordered payments for spousal support or child support survive bankruptcy regardless of whether called alimony, maintenance, or support. Agreements between parties may also survive if they meet certain legal requirements.

Secured debts on property you keep continue unchanged. Your mortgage is not eliminated by bankruptcy if you keep your house—you must continue mortgage payments. Car loans continue if you keep your vehicle. Bankruptcy only discharges your personal liability if you surrender secured property—keeping property means keeping secured debt.

Payroll source deductions for employers are not discharged. If you were an employer and withheld CPP, EI, and income tax from employee paychecks but failed to remit to CRA, you remain personally liable after bankruptcy. These are trust funds that never belonged to you and cannot be discharged.

Damages awarded for assault, sexual assault, or intentional bodily harm are not discharged. Civil judgments for intentional torts—assault, battery, sexual assault, intentional infliction of emotional distress—survive bankruptcy. Negligence-based judgments are typically discharged, but intentional harm judgments survive.

Debt incurred after filing date is not included in bankruptcy. If you obtain new credit cards, take out new loans, or incur new debts after your bankruptcy filing date, these are post-bankruptcy obligations not affected by your discharge. Keep post-bankruptcy finances separate.

How does bankruptcy affect credit and borrowing?

Bankruptcy appears on your credit report as R9 rating—the most severe rating on the R-scale from R1 (paid as agreed) to R9 (bankruptcy). The R9 rating remains on your credit report for 6 years from discharge date in most provinces, or 7 years in Prince Edward Island, Quebec, and certain other regions.

Credit score drops to 400 to 500 range typically. Pre-bankruptcy scores may have already fallen to 550 to 650 due to missed payments and high utilization. Bankruptcy itself adds an additional 150 to 200 point drop. Most bankrupts have credit scores between 400 and 500 at discharge.

Traditional credit is unavailable during bankruptcy. You cannot obtain new credit cards, personal loans, or lines of credit while an undischarged bankrupt. Credit applications ask “Have you ever filed bankruptcy?” and credit bureau reports show active bankruptcy status. Lenders universally decline active bankrupts.

Secured credit cards become available after discharge. Secured cards require a cash deposit—typically $500 to $2,000—that serves as your credit limit. Use secured cards responsibly by paying full balances monthly to rebuild payment history. After 12 to 18 months of responsible secured card use, many people qualify for unsecured credit cards.

Credit rebuilding begins immediately after discharge. Your bankruptcy notation remains for 6 to 7 years, but positive payment history on new credit gradually improves your score. Most discharged bankrupts achieve credit scores of 650 to 700 within 2 to 3 years by maintaining secured cards, paying all bills on time, and keeping credit utilization below 30%.

Mortgage qualifying is possible 2 to 3 years after discharge. B-lenders and alternative mortgage lenders approve mortgages for discharged bankrupts with 2 to 3 years of credit rebuilding, stable employment, and 10% to 20% down payments. Interest rates are typically 1% to 3% higher than prime rates. After 5 to 7 years, mainstream lenders may approve mortgages at competitive rates.

Vehicle financing becomes available within months of discharge. Subprime auto lenders specialize in financing for people with poor credit including recent bankrupts. Interest rates range from 12% to 29% depending on credit rebuilding progress. After 2 to 3 years, prime auto lenders offer rates of 5% to 8%.

Employment is generally not affected by bankruptcy. Most employers do not check credit reports. Federally regulated positions (banks, government, securities, law enforcement) may require credit checks, and active bankruptcy may disqualify candidates. After discharge, most employment credit checks focus on whether you have current financial problems—a 3-year-old bankruptcy is typically not disqualifying.

Professional licenses may require disclosure. Lawyers, accountants, financial advisors, and certain other professionals must disclose bankruptcies to licensing bodies. Disclosure does not automatically prevent licensing, but licensing bodies may impose conditions or investigate financial competence. Each profession has different rules—consult your professional regulator.

Renting apartments may be affected. Some landlords conduct credit checks and deny applications from recent bankrupts. Others focus on income verification and rental history. Being upfront about bankruptcy and providing references from previous landlords often overcomes credit concerns. After 2 to 3 years, rental applications face fewer obstacles.

Consumer proposals create R7 credit rating instead of R9—less severe than bankruptcy. R7 remains on credit reports for 3 years after completion versus R9 remaining 6 to 7 years from bankruptcy discharge. Proposals typically complete in 3 to 5 years, meaning total credit report impact is 6 to 8 years versus bankruptcy’s 6.5 to 7.75 years (9-21 months bankruptcy plus 6 years).

Bottom Line

Filing bankruptcy immediately stops wage garnishment within 1 to 2 pay periods and collection calls within 24 hours through the automatic stay of proceedings, while discharging most unsecured debts including credit cards, personal loans, lines of credit, income tax, payday loans, and medical bills in 9 to 21 months for first-time filers. You surrender assets exceeding provincial exemptions—Ontario protects $10,783 home equity and $7,117 vehicle equity, Alberta protects $40,000 home equity and $5,000 vehicle equity—or pay the difference to keep them, with tax refunds for the bankruptcy year and all prior years going to your trustee. Debts that survive bankruptcy include child support, student loans less than 7 years old, court fines, secured debts on property you keep like mortgages and car loans, and payroll source deductions for employers. Credit impact is severe—R9 rating for 6 to 7 years from discharge—but rebuilding begins immediately after discharge with secured credit cards, and most people achieve 650 to 700 credit scores within 2 to 3 years through responsible credit use. Consumer proposals offer similar debt relief with less severe R7 credit rating and full asset protection regardless of equity amounts—if you have home equity exceeding $15,000 or vehicle equity exceeding $10,000, calculate your consumer proposal cost to compare against bankruptcy costs including asset buyouts and surplus income payments.

Disclaimer: This article provides general information about bankruptcy in Canada. Bankruptcy rules vary by province and personal circumstances. Consult with a Licensed Insolvency Trustee for advice specific to your situation.

Last updated: February 2, 2026