Personal Bankruptcy in Canada: Complete Guide & Requirements (2026)

Personal bankruptcy is a federally regulated legal process under the Bankruptcy and Insolvency Act that eliminates 100% of most unsecured debts in exchange for surrendering non-exempt assets and paying surplus income if your earnings exceed government thresholds. Only Licensed Insolvency Trustees regulated by the Office of the Superintendent of Bankruptcy can administer bankruptcies in Canada. First-time bankruptcy discharges in 9 to 21 months depending on whether you have surplus income, making it the fastest debt relief option available.

Bankruptcy should be considered a last resort. While it eliminates debt completely and provides immediate legal protection from creditors, it creates severe consequences including potential loss of assets, mandatory income reporting, and an R9 credit rating that remains on your credit report for 6 to 7 years after discharge. In the 12 months ending September 2025, only 23.3% of Canadians filing insolvency chose bankruptcy while 76.7% chose consumer proposals, which protect all assets and create less severe credit impact. Most people with steady income and assets to protect find alternatives like consumer proposals provide better outcomes.

How Bankruptcy Works

Free Consultation with Licensed Insolvency Trustee

Only Licensed Insolvency Trustees (federally licensed LITs) can file bankruptcies in Canada under the Bankruptcy and Insolvency Act. They are regulated by the Office of the Superintendent of Bankruptcy. Initial consultations are always free and confidential. During your consultation, the LIT reviews your complete financial situation including all debts, income, assets, and monthly expenses. The trustee is legally required to explain all available options including bankruptcy, consumer proposals, debt consolidation, and other alternatives before recommending any specific path. Bring a list of all debts with creditor names and amounts, proof of income such as pay stubs or government benefits statements, a list of assets with estimated values, and your monthly living expenses.

Licensed Insolvency Trustees work for creditors but are also regulated by the Office of the Superintendent of Bankruptcy to ensure fair treatment of bankrupts. Their fees are set by federal tariff regulations, so costs are similar across all trustees. Schedule consultations with multiple LITs to compare recommendations and ensure you receive thorough explanations of alternatives. Learn more about how to file bankruptcy in Canada and what documents you’ll need.

Filing and Stay of Proceedings

When you decide to proceed with bankruptcy, you sign an Assignment in Bankruptcy and your LIT files it electronically with the Office of the Superintendent of Bankruptcy. Filing creates an immediate stay of proceedings that legally stops all creditor collection activity including phone calls, letters, lawsuits, wage garnishments, and bank account seizures. Creditors who contact you after receiving notification from your trustee violate federal law and face penalties.

The stay of proceedings is one of bankruptcy’s most powerful benefits. If your wages are currently being garnished, the garnishment stops immediately upon filing. If creditors have obtained judgments against you, they cannot enforce them. If you face a lawsuit for debt, the legal action halts. This immediate relief gives you breathing room to complete the bankruptcy process without harassment or financial pressure. Read about what happens when you file bankruptcy for a complete timeline.

Surrendering Non-Exempt Assets

Provincial exemptions protect certain assets from seizure during bankruptcy. Assets you may lose include home equity above your provincial exemption amount, vehicle equity exceeding exemption limits, all non-registered investments and savings accounts, RRSP contributions made in the 12 months before filing, tax refunds for the current year and previous year, inheritance received during your bankruptcy period, and second vehicles or recreational vehicles.

Assets you keep include basic household furniture and clothing, locked-in RRSPs and pension plans except contributions from the last 12 months, one vehicle up to your provincial exemption limit, tools necessary for your trade or profession, and basic personal belongings. Provincial exemptions vary dramatically. Ontario protects only $10,783 in home equity while Alberta protects $40,000. Check your provincial exemption limits to understand exactly what you’ll keep or lose.

If your assets exceed exemptions, you have three options: pay the trustee the non-exempt amount in cash to keep the asset, allow the trustee to seize and sell the asset with proceeds going to creditors, or file a consumer proposal instead to protect all assets regardless of value. Many people with significant home equity choose consumer proposals specifically to avoid losing their homes. Understanding bankruptcy and your house helps you evaluate whether bankruptcy makes sense for your situation.

Monthly Duties During Bankruptcy

You must file Income and Expense Statements monthly with your trustee for your entire bankruptcy period. These statements detail all money earned from employment, self-employment, government benefits, rental income, and any other sources. Your trustee uses these reports to calculate surplus income obligations and verify your financial situation remains consistent with your bankruptcy filing.

If your monthly income exceeds federal surplus income thresholds, you pay 50% of the excess to your trustee monthly. For 2025-2026, the threshold for a single person is approximately $2,543 to $2,666 monthly. A single person earning $3,666 monthly exceeds the threshold by $1,000 to $1,123, requiring $500 to $561 in monthly surplus income payments. If your average surplus income payments exceed $200 per month after 7 months, your first-time bankruptcy automatically extends from 9 months to 21 months.

You must attend two mandatory financial counseling sessions provided by your trustee covering budgeting, credit management, and financial planning. You must surrender all tax refunds including GST credits to your trustee. You cannot obtain credit over $1,000 without disclosing your bankruptcy status to lenders. You must notify your trustee before traveling internationally, though travel is generally permitted. Failure to comply with these duties can result in refusal of discharge, extending your bankruptcy indefinitely.

Automatic Discharge

First-time bankruptcy with no surplus income results in automatic discharge after 9 months. First-time bankruptcy with surplus income averaging $200 or more monthly extends to 21 months. Second bankruptcy takes 24 months with no surplus income or 36 months with surplus income. Third or subsequent bankruptcies require court hearings and typically take 36+ months.

After discharge, remaining unsecured debts are permanently eliminated and you receive a Certificate of Discharge. Creditors cannot contact you about discharged debts or report them as owing on your credit report. The bankruptcy notation remains on your credit report for 6 to 7 years from discharge date, but you can immediately begin rebuilding credit through secured credit cards and responsible credit management.

Calculate what you would pay in a consumer proposal instead

Who Qualifies for Bankruptcy

Basic Eligibility Requirements

Anyone who owes at least $1,000 in unsecured debt and is unable to pay debts as they come due qualifies for bankruptcy in Canada. You must be insolvent, meaning you owe more than you own or cannot pay bills when due. You must be a Canadian resident or have property in Canada for the majority of the 6 months before filing. There is no maximum debt limit for bankruptcy, unlike consumer proposals which cap unsecured debt at $250,000 excluding mortgages.

Your income level does not disqualify you from bankruptcy, but it significantly affects the total cost through surplus income payments. Employment status does not matter—you can file bankruptcy whether employed, self-employed, unemployed, or receiving government benefits. Credit score is irrelevant since bankruptcy is designed for people who cannot repay debts regardless of credit rating.

Ideal Candidates for Bankruptcy

Bankruptcy works best for people with no income or very low income below surplus thresholds, minimal assets with little equity above provincial exemptions, debt exceeding $250,000 unsecured which makes consumer proposals unavailable, people who are already judgment-proof with no wages to garnish, people who cannot afford even the reduced payments in consumer proposals, renters who have no home equity at risk, and people who need immediate complete debt elimination in under two years.

A renter earning $2,200 monthly with $45,000 in credit card debt pays only $1,800 to $2,500 total for a 9-month bankruptcy with no surplus income and emerges debt-free. For this person, bankruptcy is faster and cheaper than any alternative. Similarly, someone owing $300,000 in unsecured debt cannot file a consumer proposal due to the $250,000 limit, making bankruptcy the only legal insolvency option available.

Poor Candidates for Bankruptcy

Bankruptcy is usually not the right choice if you have steady employment income above surplus thresholds, own significant home equity that exceeds provincial exemptions, work in licensed professions that restrict bankrupts such as lawyers, accountants, or real estate agents, have co-signers on debts who you want to protect from full liability, own investments or RRSPs with contributions in the last 12 months, or can afford consumer proposal payments that would cost less than bankruptcy surplus income.

A homeowner with $80,000 in home equity in Ontario must pay $69,217 to the trustee to keep their home ($80,000 minus $10,783 exemption). This same person could file a consumer proposal, keep all home equity, and pay based on what they can afford rather than asset values. For most employed homeowners, consumer proposals provide better financial outcomes. Understanding when to file bankruptcy helps you evaluate timing and alternatives.

Bankruptcy vs All Competing Options

Bankruptcy vs Consumer Proposal

Consumer proposals are the primary alternative to bankruptcy and now represent 76.7% of all consumer insolvency filings. A consumer proposal is a legally binding agreement to repay a portion of your debt—typically 30% to 50%—over up to 5 years.

Consumer proposals protect unlimited home equity, require no monthly income reporting, impose no surplus income calculations, and create less severe R7 credit ratings that disappear 3 years after completion. The trade-off is longer timeline and creditor approval requirement. Most Canadians with steady income and assets choose consumer proposals. Read the detailed consumer proposal vs bankruptcy comparison to understand which option saves you more money.

Bankruptcy vs Debt Consolidation

Debt consolidation loans combine multiple debts into a single loan with one monthly payment, ideally at lower interest rates. Consolidation requires good credit and steady income to qualify.

Debt consolidation makes sense only if you can afford to repay 100% of debt and qualify for loans based on credit score and income. If you cannot qualify for consolidation or cannot afford full repayment, bankruptcy or consumer proposals provide debt reduction. Learn more about debt consolidation loans in Canada and qualification requirements.

Bankruptcy vs Debt Settlement

Debt settlement involves negotiating directly with creditors to accept reduced lump sum payments. Settlement companies often charge high fees and provide no legal protection.

Debt settlement provides no stay of proceedings, so creditors can continue lawsuits and garnishments during negotiations. Creditors are not required to cooperate with settlement offers and may refuse. Settlement companies frequently charge fees of 15% to 25% of enrolled debt with poor success rates. If you need legal protection from creditors, bankruptcy or consumer proposals provide immediate relief that settlement cannot offer.

Bankruptcy vs Credit Counselling

Non-profit credit counselling agencies offer Debt Management Plans that consolidate payments and reduce interest rates through agreements with participating creditors.

Debt Management Plans through credit counselling work only if you can afford to repay 100% of principal over time and if all major creditors agree to participate. DMPs provide no legal protection, so non-participating creditors can continue collection efforts including garnishments. If you cannot afford full repayment or need immediate legal protection, bankruptcy or consumer proposals provide stronger relief.

Explore all debt relief options with a free Licensed Insolvency Trustee consultation

When Bankruptcy Is Actually Better

Bankruptcy makes financial sense when debt exceeds $250,000 unsecured and consumer proposals are not available, when you have no income or income below surplus thresholds making bankruptcy cheaper than proposals, when you own minimal assets with equity below provincial exemptions, when you need fastest possible timeline under 21 months, or when you are already judgment-proof with no wages or assets for creditors to seize.

For most Canadians with steady income and assets to protect, consumer proposals provide better outcomes. But for the subset of people with no income, minimal assets, and overwhelming debt, bankruptcy delivers the fastest and cheapest path to financial recovery. Economic uncertainty and potential job losses make understanding both options critical—read consumer proposal vs bankruptcy for guidance on choosing between these options.

Bankruptcy Costs Breakdown

Cost Components

Bankruptcy costs consist of three main components: Licensed Insolvency Trustee fees regulated by federal tariff, surplus income payments if your income exceeds government thresholds, and the value of non-exempt assets surrendered to the trustee. The total cost varies dramatically based on your income and assets.

LIT Fee Structure

Licensed Insolvency Trustees charge fees based on a federally regulated tariff structure. The trustee receives 100% of the first $975 in receipts, 35% of receipts between $975 and $2,000, and 50% of receipts over $2,000. Receipts include all money paid to the trustee from surplus income, asset sales, and any other sources.

For a first-time bankruptcy with no surplus income and no assets, the minimum cost is approximately $1,800 to $2,500. This covers the trustee’s administrative costs, filing fees, and two counseling sessions. You typically pay this amount in monthly installments of $150 to $200 over 9 months. The trustee may require an upfront retainer of $500 to $1,000 before filing, with the balance paid monthly.

Surplus Income Thresholds and Calculations

If your monthly income exceeds federal surplus income thresholds, you must pay 50% of the excess to your trustee monthly. The Office of the Superintendent of Bankruptcy sets thresholds annually based on family size.

Your spouse’s income counts toward the family income calculation even if they are not filing bankruptcy. If your average monthly surplus income exceeds $200 after 7 months, your first-time bankruptcy automatically extends from 9 months to 21 months.

Real Cost Examples

Low-income renter: Single person renting with $30,000 debt, earning $2,200 monthly, no assets. No surplus income. Total cost: $1,800 paid over 9 months = $200 monthly. Emerges debt-free after 9 months.

Employed renter: Single person renting with $50,000 debt, earning $3,666 monthly, no assets. Surplus income: $500-$561 monthly. First bankruptcy extends to 21 months due to surplus. Total cost: approximately $12,700 ($10,500-$11,781 surplus income + $2,200 trustee fees).

Homeowner: Single person with $60,000 debt, $3,200 monthly income, $30,000 home equity in Ontario. Surplus income: $300-$365 monthly for 21 months = $6,300-$7,665. Non-exempt home equity: $19,217 ($30,000 minus $10,783 exemption). Total cost: approximately $27,500-$28,900 to keep home plus trustee fees.

For employed homeowners, consumer proposals almost always cost less than bankruptcy and protect all home equity. Understanding bankruptcy costs in Canada helps you compare total expenses across all options.

Compare bankruptcy costs to consumer proposal costs using our calculator

What Debts Are Eliminated

Dischargeable Debts

Bankruptcy eliminates most unsecured debts permanently. Dischargeable debts include all credit card balances, personal loans from banks and finance companies, payday loans and high-interest short-term loans, lines of credit both secured and unsecured, medical bills and dental bills, utility arrears for electricity, gas, water, and internet, unpaid rent to former landlords, tax debt to Canada Revenue Agency including personal income tax, GST and HST debt, and CPP and EI remittances for self-employed.

Canada Revenue Agency tax debt is fully dischargeable in bankruptcy with two exceptions. Tax debt resulting from fraud or willful evasion may not be discharged. If you owe $200,000 or more in income tax and that amount represents 75% or more of your total unsecured claims, Section 172.1 high-tax debtor rules apply requiring court-approved discharge with additional conditions. For most people with ordinary tax debt under $200,000, bankruptcy eliminates CRA debt completely. Read about filing bankruptcy on CRA tax debt for detailed rules.

Non-Dischargeable Debts

Certain debts survive bankruptcy and you remain legally obligated to pay them in full. Non-dischargeable debts include child support arrears and ongoing child support, spousal support and alimony obligations, court fines and victim restitution orders, debts arising from fraud, theft, or intentional harm, student loans if less than 7 years since you were a full-time or part-time student, and secured debts like mortgages and car loans if you keep the collateral.

Student loans become dischargeable only after 7 years from the date you ceased to be a full-time or part-time student. If you file bankruptcy 5 years after graduation, you still owe your student loans after discharge. Courts can reduce the waiting period to 5 years in cases of extreme financial hardship under Section 178(1.1), but this requires a separate court application, legal representation, and proof of circumstances beyond your control preventing repayment. Hardship applications are rarely successful.

Secured debts like mortgages and car loans are not eliminated if you keep the collateral. If you want to keep your house, you must continue mortgage payments during and after bankruptcy. If you surrender your house to the lender and they sell it for less than you owed, the deficiency becomes an unsecured debt that is discharged in bankruptcy. The same applies to vehicle loans—if you surrender the vehicle and a deficiency remains after sale, bankruptcy eliminates that amount.

Section 172.1 High-Tax Debtor Rules

If you owe $200,000 or more to Canada Revenue Agency in income tax debt and that tax debt represents 75% or more of your total unsecured claims, you are classified as a high-tax debtor under Section 172.1 of the Bankruptcy and Insolvency Act. High-tax debtors do not receive automatic discharge after 9 or 21 months. Instead, your trustee applies to court for discharge and the court sets conditions such as paying a portion of the tax debt, extending the bankruptcy period, or requiring surplus income payments for longer than standard terms.

High-tax debtor provisions exist to prevent people from deliberately accumulating massive tax debt and then eliminating it through bankruptcy. If you have substantial CRA debt approaching $200,000, consider consumer proposals which avoid high-tax debtor rules entirely and allow you to repay a negotiated portion typically 30% to 50% over up to 5 years. Use the CRA debt calculator to explore your options.

Asset Exemptions and What You Lose

Provincial Asset Exemptions

Each province and territory sets its own bankruptcy exemptions protecting certain assets from seizure. Exemptions vary dramatically across Canada, affecting whether bankruptcy makes financial sense for your situation.

Quebec and Saskatchewan offer unlimited home equity and vehicle exemptions, making bankruptcy attractive for homeowners in those provinces. Ontario’s low $10,783 home equity exemption means most homeowners with mortgages face losing their homes or paying substantial amounts to trustees. Alberta’s $40,000 home equity exemption provides reasonable protection for modest homeowners. Check your specific provincial exemption rules before filing.

What You Keep

Assets protected from seizure in all provinces include locked-in RRSPs and registered pension plans except contributions made in the 12 months before filing, basic household furniture and appliances necessary for living, clothing and personal effects for you and your dependents, one motor vehicle up to your provincial exemption limit, tools and equipment necessary for your trade or profession up to provincial limits, and medical and dental aids required for health.

Locked-in RRSPs are fully protected regardless of amount if contributions were made more than 12 months before filing bankruptcy. RRSP contributions made within 12 months of filing must be paid to the trustee. This rule prevents people from transferring non-exempt cash into RRSPs immediately before bankruptcy to shield assets from creditors.

What You Lose

Assets commonly seized in bankruptcy include home equity exceeding provincial exemptions, vehicle equity exceeding provincial limits, all non-registered investment accounts and savings accounts, cash on hand over nominal amounts, second vehicles or recreational vehicles, valuable collections such as art, jewelry, or antiques, rental properties and vacation properties, and RRSPs contributed to within 12 months of filing.

Tax refunds for the current year and previous year are seized by the trustee. If you file bankruptcy in February 2026, you surrender your 2025 tax refund when filed in early 2026 plus any refund for 2026 when eventually filed. Inheritances received during your bankruptcy period must be paid to the trustee. Lottery winnings and other windfalls during bankruptcy go to creditors.

Home Equity Example

A homeowner in Ontario with a house worth $500,000 and a $400,000 mortgage has $100,000 equity. Ontario protects $10,783, so the non-exempt equity is $89,217. The homeowner must pay $89,217 to the trustee in cash to keep the house or the trustee will force sale. Since most bankrupts cannot access $89,217, they either surrender the house or file a consumer proposal instead to protect all equity. Understanding bankruptcy and your house protection is critical before filing.

Vehicle Equity Example

A person in Ontario owns a car worth $15,000 with no loan, creating $15,000 equity. Ontario protects $7,500 in vehicle equity, so the non-exempt equity is $7,500. The person must pay $7,500 to the trustee to keep the car or surrender the vehicle. The trustee sells the vehicle, keeps $7,500 for creditors, and returns $7,500 to the bankrupt who must then buy another vehicle. Learn about rules for keeping your car in bankruptcy and provincial differences.

Impact on Credit and Rebuilding

Credit Rating and Report

Bankruptcy creates an R9 credit rating, the lowest possible rating on the scale from R1 (pays as agreed) to R9 (bad debt). All accounts included in bankruptcy receive R9 ratings during your bankruptcy period. Your credit score drops to approximately 450 to 550 immediately upon filing.

First bankruptcy stays on Equifax credit reports for 6 years after discharge and TransUnion reports for 7 years after discharge in Ontario and most provinces. Some provinces have different reporting periods. Second bankruptcy remains on both credit bureaus for 14 years after discharge. During this period, the bankruptcy notation appears prominently on your credit report, significantly impacting your ability to obtain credit, rent apartments, or qualify for employment requiring credit checks.

Access to Credit During Bankruptcy

While bankrupt, you cannot obtain credit over $1,000 without disclosing your bankruptcy status to the lender. This disclosure requirement effectively prevents access to traditional credit cards, loans, and lines of credit. Some lenders specialize in high-interest credit for bankrupts, but interest rates often exceed 30% annually.

After discharge, you can apply for secured credit cards requiring a deposit of $500 to $1,000 that serves as your credit limit. Secured cards report to credit bureaus as regular credit cards, helping you rebuild credit history. Use your secured card for small purchases monthly and pay the full balance every month to demonstrate responsible credit management.

Credit Score Rebuild Timeline

Most people achieve credit score improvements on this timeline after bankruptcy discharge:

Year 1-2 after discharge: Credit score 550-620. Secured credit card only. No unsecured credit available. No mortgage qualification.

Year 3-4 after discharge: Credit score 620-680. May qualify for unsecured credit cards with annual fees. Some lenders offer small personal loans. Mortgage possible with 20%+ down payment and higher interest rates.

Year 5-6 after discharge: Credit score 680-720. Normal credit access returns. Competitive mortgage rates available. Major credit cards approve applications.

Year 7+ after discharge: Bankruptcy notation removed from credit report. Credit score 700+ achievable. Full credit access restored.

Consistent secured card use, paying all bills on time, keeping credit utilization under 30%, avoiding new collections or judgments, and maintaining stable employment all accelerate credit recovery. Most bankrupts achieve 680+ credit scores within 5 to 7 years of discharge.

Mortgage Qualification Post-Bankruptcy

Conventional mortgage lenders typically require waiting 2 to 3 years after bankruptcy discharge before considering applications. You need minimum 20% down payment, stable employment for 2+ years, credit score above 650, and debt service ratios under 40%. Some alternative lenders offer mortgages within 12 months of discharge but charge interest rates 1% to 3% higher than conventional rates and require larger down payments.

If you currently own a home with a mortgage and file bankruptcy, you can keep the home by continuing mortgage payments if your equity is within provincial exemptions. The mortgage continues as agreed and is not affected by bankruptcy since it is a secured debt. Your mortgage lender cannot demand full repayment or change terms based solely on bankruptcy filing.

Monitor your credit score recovery free after bankruptcy discharge

Impact on Spouse and Joint Debts

Spouse’s Credit Unaffected

Your bankruptcy affects only you as the person filing. Your spouse’s or common-law partner’s credit report remains completely unaffected. Their credit score does not change. They continue to have normal access to credit in their own name. Lenders cannot deny your spouse credit applications based on your bankruptcy.

This separation applies even if you are married or living common-law. Canadian credit reporting treats each person individually. Your spouse’s credit file contains no reference to your bankruptcy unless they co-signed specific debts included in your filing.

Joint Debts Become Spouse’s Responsibility

While your spouse’s credit remains unaffected, joint debts including co-signed credit cards, lines of credit, personal loans, and other obligations become your spouse’s sole legal responsibility after your bankruptcy. When you are discharged from a $20,000 joint credit card, the creditor can pursue your spouse for the entire $20,000.

This consequence is one of the most significant drawbacks of bankruptcy for married couples. Your discharge transfers 100% of joint debt liability to your spouse who did not file bankruptcy. Creditors frequently increase collection efforts against non-bankrupt spouses after one spouse files, knowing the non-bankrupt spouse now bears full responsibility.

Spouse’s Income in Surplus Calculation

Your spouse’s income is included when calculating your surplus income obligations even though they are not filing bankruptcy. The surplus income threshold increases based on family size including your spouse. A single bankrupt has a threshold around $2,543 monthly while a married couple has a threshold around $3,166 monthly.

However, your spouse’s actual income increases the family income used in the calculation. If you earn $2,000 monthly and your spouse earns $3,000 monthly, family income is $5,000. Compared to the $3,166 two-person threshold, surplus income is approximately $1,834, and you pay 50% ($917) monthly. Your spouse’s high income significantly increases your bankruptcy cost even though they are not filing.

Consumer Proposals Protect Spouses Better

Consumer proposals create the same co-signer liability for joint debts—creditors can pursue non-filing spouses for joint debt. However, consumer proposals are often preferable because you retain all assets including home equity, avoiding forced sales that displace your entire family. Additionally, consumer proposals can be structured with payments you can afford based on your income alone, potentially reducing the impact of spouse’s income on your obligations. Read more about how bankruptcy affects your spouse and strategies to protect them.

Special Situations

Licensed Professions

Certain professional licensing bodies restrict or prohibit members who are bankrupt or were recently discharged. Restricted professions commonly include lawyers and paralegals, chartered accountants and CPAs, real estate agents and brokers, financial advisors and investment dealers, insurance agents and brokers, and corporate directors.

Each professional body has specific rules. Some prohibit practicing while bankrupt, requiring suspension of license. Others allow continued practice but require disclosure to clients and employers. Some impose no restrictions during bankruptcy but require disclosure when applying for reinstatement or renewal of licenses. Check with your specific professional regulator before filing bankruptcy to understand consequences for your license and career.

International Travel

You must notify your Licensed Insolvency Trustee before traveling outside Canada while bankrupt. International travel is not prohibited, but trustees need to know your location in case urgent matters arise requiring your attention. Business travel for employment is generally approved without issues. Vacation travel is permitted but trustees may question expensive vacations if you claim inability to pay debts.

Your passport is not seized or suspended during bankruptcy. Canadian passport authorities do not cancel passports based on bankruptcy status. However, some countries including the United States have entry requirements that could theoretically be affected by bankruptcy, though this is extremely rare for Canadian bankrupts.

Business Debts and Personal Guarantees

If you are self-employed or own a business, bankruptcy discharges personal liability for business debts including business credit cards, supplier accounts, business lines of credit, and commercial leases if you signed personal guarantees. Your business does not continue after personal bankruptcy—you must cease business operations when you file.

If you want to continue your business, consider consumer proposals which allow you to maintain business operations while settling debts. Consumer proposals are much better options for self-employed individuals who need to preserve client relationships and business reputation.

Second Bankruptcy

Second bankruptcy takes 24 months with no surplus income or 36 months with surplus income to discharge. The longer timeline and extended credit impact make second bankruptcy expensive in both time and money. Second bankruptcy remains on credit reports for 14 years after discharge instead of 6 to 7 years for first bankruptcy.

The Office of the Superintendent of Bankruptcy scrutinizes second bankruptcies more carefully. Trustees must explain why you became insolvent again and whether bankruptcy is appropriate versus consumer proposal. Courts may impose discharge conditions requiring payments to creditors even if you qualify for automatic discharge based on timeline.

If you previously filed bankruptcy and face financial difficulties again, consumer proposals are almost always better choices. Proposals avoid the severe credit impact of second bankruptcy and often cost less than extended surplus income payments.

Criminal Consequences

You cannot be jailed for ordinary debts in Canada. Bankruptcy is a civil legal process, not a criminal matter. However, criminal charges are possible if you commit fraud related to bankruptcy including deliberately hiding assets from your trustee, transferring assets to family members immediately before filing to avoid seizure, lying about income or debts on bankruptcy documents, or failing to disclose material information to your trustee.

These situations are rare and require deliberate dishonest actions. People who provide complete, honest information to trustees and comply with bankruptcy duties face no risk of criminal prosecution. Learn more about whether you can go to jail for debt in Canada and what actions create legal risk.

Common Bankruptcy Myths

Myth: You Lose Everything

This is the most common bankruptcy misconception. Provincial exemptions protect essential assets including reasonable home equity, vehicle equity, household goods, clothing, RRSPs, and tools of trade. Many people who file bankruptcy lose no assets at all because their equity falls within exemption limits or they own no substantial assets.

A renter with no vehicle or minimal vehicle equity, household furniture, clothing, and an RRSP keeps everything when filing bankruptcy. Their total asset loss is zero. Even homeowners with modest equity within exemption limits keep their homes by continuing mortgage payments.

Myth: Everyone Will Know You Filed

Bankruptcy filings are public records searchable through the Office of the Superintendent of Bankruptcy website, but creditors and trustees do not notify employers, family members, or neighbors. Most people never discover someone filed bankruptcy unless they specifically search for that person or the bankrupt voluntarily discloses.

The only exception is if a creditor objects to your discharge, which requires a court hearing. Court hearing notices may be published in local newspapers, making the bankruptcy public in your community. However, objections are rare and usually involve suspected fraud or failure to comply with bankruptcy duties.

Myth: You Can File Bankruptcy Yourself

Only Licensed Insolvency Trustees can administer bankruptcies in Canada under the Bankruptcy and Insolvency Act. You cannot file bankruptcy without an LIT. Any company or person claiming to file bankruptcy on your behalf either employs an LIT or is operating illegally.

Some companies advertise bankruptcy and debt relief services but are actually debt settlement companies or credit counseling agencies, not trustees. Always verify you are working directly with a Licensed Insolvency Trustee by checking the OSB database at the Office of the Superintendent of Bankruptcy website.

Myth: All Debts Are Eliminated

As explained earlier, child support, spousal support, court fines, fraud debts, student loans under 7 years old, and secured debts if you keep collateral all survive bankruptcy. Section 178 of the Bankruptcy and Insolvency Act lists all non-dischargeable debts. Most people have primarily credit cards and loans which are discharged, but always verify your specific debts with an LIT.

Myth: Bankruptcy Ruins Your Life Forever

Credit rebuilds within 5 to 7 years for most people. The bankruptcy notation drops off credit reports 6 to 7 years after discharge. Most employment is unaffected except certain licensed professions. You can own property, start businesses, obtain mortgages, and live normally after discharge. Bankruptcy creates temporary financial restrictions, not permanent life consequences.

Many people report feeling enormous relief after bankruptcy discharge despite credit impact. The elimination of overwhelming debt, end of creditor harassment, and ability to move forward financially outweigh credit score concerns for most bankrupts.

Alternatives to Consider First

Consumer Proposals

Consumer proposals reduce debt by 60% to 80% while protecting all assets and creating less severe R7 credit ratings. Proposals take longer than bankruptcy at 3 to 5 years but avoid asset seizure and surplus income rules. Most Canadians with steady income prefer consumer proposals. Read the detailed consumer proposal guide and use the consumer proposal calculator to compare costs.

Debt Consolidation Loans

If you have good credit and stable income, debt consolidation loans allow repaying 100% of debt at lower interest rates. Consolidation preserves credit scores and avoids legal filings. Requirements are typically credit score above 650, debt service ratio under 40%, and 2+ years employment stability. Learn about debt consolidation options and qualification criteria.

Credit Counseling and Debt Management Plans

Non-profit credit counseling agencies offer Debt Management Plans that consolidate payments and reduce interest rates, usually to zero. DMPs require repaying 100% of principal over 3 to 5 years. This option works if you can afford full repayment without interest but cannot manage current high-interest payments. Explore credit counseling services available in your area.

Debt Settlement

Debt settlement involves negotiating lump sum payments with creditors for less than full balance. Settlement provides no legal protection and requires having cash available for lump sum offers. Success rates vary and many settlement companies charge high fees. Understand debt settlement pros and cons before pursuing this option.

Statute of Limitations Strategy

If you are judgment-proof with no income or assets to seize and your debts are approaching provincial limitation periods, you may choose to do nothing and wait for debts to become unenforceable. This strategy works only if creditors cannot garnish wages or seize assets during the limitation period. Learn about statute of limitations on debt in Canada and provincial limitation periods.

Wage Garnishment Protection

If your primary concern is wage garnishment, consumer proposals and bankruptcy both stop garnishments immediately upon filing. Consumer proposals typically cost less than bankruptcy for employed people while providing the same immediate garnishment protection. If you face job loss due to tariffs or economic downturn, understand wage garnishment protection strategies and use the wage garnishment calculator to see how much creditors can seize.

Next Steps

Schedule Free LIT Consultations

Contact multiple Licensed Insolvency Trustees for free initial consultations. Trustees must explain all available options including bankruptcy, consumer proposals, and alternatives before recommending any specific path. Compare recommendations from at least two or three trustees to ensure you receive thorough advice.

What to Bring to Consultations

Prepare a complete list of all debts including creditor names, account numbers, and amounts owed. Bring proof of income such as recent pay stubs, government benefit statements, or tax returns if self-employed. Create a list of all assets with estimated values including home, vehicles, bank accounts, investments, RRSPs, and personal property. Calculate your monthly living expenses including rent or mortgage, utilities, food, transportation, insurance, and other regular costs.

Questions to Ask Trustees

Ask each trustee to explain total bankruptcy cost including base fees, surplus income estimates, and asset impacts. Request comparison of bankruptcy versus consumer proposal for your specific situation with estimated timelines and total costs for each option. Verify the trustee’s experience, credentials, and licensing with the Office of the Superintendent of Bankruptcy. Understand all monthly obligations including reporting requirements, counseling sessions, and payment schedules.

LITs Must Explain All Options

Licensed Insolvency Trustees are legally required to act in creditors’ interests but also must treat bankrupts fairly and explain all debt relief options. If a trustee recommends bankruptcy without thoroughly discussing consumer proposals and alternatives, consult other trustees for second opinions. Most reputable trustees present consumer proposals as the primary option for people with income and assets, recommending bankruptcy only when appropriate for specific situations.

Compare All Your Options

Use the debt solutions comparison tool to review bankruptcy, consumer proposals, debt consolidation, debt settlement, and credit counseling side by side. Understanding total costs, timelines, credit impacts, and asset protection for each option helps you make informed decisions about your financial future.

Get your free Licensed Insolvency Trustee consultation today

Bottom Line

Personal bankruptcy eliminates 100% of most unsecured debts in 9 to 21 months but creates significant consequences including R9 credit rating for 6 to 7 years, potential loss of assets above provincial exemptions, and mandatory surplus income payments if you earn above government thresholds. Only 23.3% of Canadians filing insolvency choose bankruptcy while 76.7% choose consumer proposals, which protect all assets and create less severe credit impact. Bankruptcy costs $1,800 to $2,500 minimum for simple cases or up to $15,000+ with surplus income and assets. Bankruptcy makes sense for people with no income, minimal assets, debt over $250,000, or those who are already judgment-proof, but consumer proposals provide better outcomes for most Canadians with steady income and assets to protect. Schedule free consultations with multiple Licensed Insolvency Trustees to compare bankruptcy versus consumer proposals for your specific situation.

Calculate what you would pay in a consumer proposal instead using the consumer proposal calculator.

Disclaimer: This article provides general information about bankruptcy in Canada and should not be considered legal or financial advice. Bankruptcy rules vary by province and individual circumstances. Consult with a Licensed Insolvency Trustee for advice specific to your situation.

Last updated: February 1, 2026

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