Non-Dischargeable Debts in Canada (2026)

Not all debts disappear in bankruptcy. Section 178(1) of the Bankruptcy and Insolvency Act lists specific debt categories that survive bankruptcy discharge. Understanding these rules before choosing your debt relief path prevents costly surprises and helps you select the most effective strategy.

This guide provides the complete list of non-dischargeable debts, explains how consumer proposals treat them differently, and outlines strategic planning considerations. Use the Consumer Proposal Calculator to compare options based on your specific debt composition.

Section 178(1) BIA: The Complete List

The Bankruptcy and Insolvency Act Section 178(1) identifies the following debts that are not released by bankruptcy discharge.

Family Support Obligations

Alimony, child support, and other family maintenance obligations survive bankruptcy under all circumstances. These debts cannot be discharged in bankruptcy or included in consumer proposals. Arrears continue accumulating during bankruptcy and the Family Responsibility Office or provincial equivalent enforces collection after discharge.

If family support obligations create financial distress, addressing your other debts through bankruptcy or consumer proposal frees cash flow to meet support payments. Eliminating credit card and loan payments may provide enough monthly savings to stay current on support obligations.

Court-Imposed Fines and Penalties

Fines imposed by a court including criminal fines, regulatory penalties, and court-ordered restitution survive bankruptcy. These obligations cannot be discharged or included in proposals.

Traffic fines, provincial offences, and criminal restitution orders remain your responsibility regardless of insolvency proceedings. Payment plans are available directly through the court or provincial collections office.

Debts Arising from Fraud or Misrepresentation

Debts incurred through fraud, false pretences, or fraudulent misrepresentation survive bankruptcy. This applies to situations where you obtained credit using false information on applications, misrepresented your income or assets to obtain a loan, or incurred debt without any intention to repay.

A creditor must apply to the court to have a specific debt declared non-dischargeable under this provision. The creditor bears the burden of proving fraud. Routine consumer debt with missed payments does not qualify as fraud regardless of what aggressive creditors may claim.

Student Loans (Under 7 Years)

Student loans are not dischargeable in bankruptcy unless seven or more years have passed since you ceased being a full-time or part-time student. The clock starts from your last day as a student, not from graduation or from when you received the loan.

A hardship exception allows discharge after five years if you can prove in court that you acted in good faith regarding the loan and continuing to repay would cause undue hardship. This requires a separate court application after filing bankruptcy.

Consumer proposal advantage: Student loans can be included in proposals regardless of when you left school. This is the single most important strategic difference between bankruptcy and proposals for borrowers with recent student loans.

Debts from Intentional Bodily Harm

Debts arising from assault, sexual assault, wrongful death, or bodily harm caused by criminal or intentional acts are not dischargeable. Court-awarded damages from these actions survive bankruptcy.

This provision applies only to intentional or criminal acts, not to negligence-based claims or accidents.

Government Overpayments Obtained by Fraud

Government benefit overpayments obtained through misrepresentation or fraud survive bankruptcy. This includes Employment Insurance overpayments from unreported income, social assistance overpayments from false declarations, and similar government benefit fraud.

Legitimate overpayments caused by administrative error or timing issues are generally dischargeable. Only overpayments involving fraud or misrepresentation fall under Section 178(1).

Trust Fund Liabilities (Section 178(1)(f))

Money received by you in a fiduciary capacity is non-dischargeable. The most common examples are:

• GST/HST collected by an unincorporated business owner that was not remitted to CRA
• Source deductions (CPP, EI, income tax) withheld from employees but not remitted
• Funds held in trust as part of a professional or fiduciary role (lawyers, real estate agents, executors)
• Amounts you held as agent or trustee for another party

Trust fund liabilities are technically dischargeable in some interpretations because the deemed-trust provisions and Section 178(1)(d) interact in complex ways, but the practical risk is significant. CRA actively litigates these cases. Including trust fund liabilities in a consumer proposal almost always produces a cleaner result because the proposal is a contract that binds creditors regardless of the underlying classification.

The Section 178(1) List in Plain Language

Section 178(1) BIA reads as a dense legal text. Translating it into plain language helps you map your debts to the right category.

If a debt is not in this list, it is dischargeable. That covers credit cards, lines of credit, personal loans, payday loans, cellphone bills, utility arrears, medical bills, CRA personal income tax, vehicle loan deficiencies, mortgage deficiencies, and most government benefit overpayments without fraud.

Consumer Proposal vs Bankruptcy: Strategic Comparison

The treatment of non-dischargeable debts creates the most significant strategic difference between consumer proposals and bankruptcy.

Consumer proposals address student loans regardless of timing, include CRA debts that could technically be discharged in bankruptcy but are reduced more cost-effectively through proposals, and potentially include fraud-related debts because creditors voluntarily accept the proposal terms.

When Bankruptcy is Still Better

Bankruptcy remains preferable when you have no non-dischargeable debts, no significant assets, and minimal income. Discharge occurs in nine to twenty-one months compared to up to five years for proposals. If all your debts are dischargeable consumer debts, bankruptcy provides faster relief.

When Consumer Proposal is Better

Proposals are strategically superior when you have student loans under seven years old, when you want to keep assets like your home or vehicle, when you have income above surplus income thresholds, or when you have debts that creditors might challenge as fraud-related in bankruptcy.

Planning Around Non-Dischargeable Debts

Step 1: Categorize Your Debts

List every debt and classify it as dischargeable or potentially non-dischargeable. Most Canadians find that the vast majority of their debt is fully dischargeable. Credit cards, personal loans, lines of credit, medical debt, and CRA tax obligations are all dischargeable in bankruptcy and includable in proposals.

Step 2: Calculate the Non-Dischargeable Portion

Determine the total amount of debts that would survive bankruptcy. If non-dischargeable debts represent a small percentage of your total debt, bankruptcy may still be appropriate because it eliminates the dischargeable portion and frees cash flow for the surviving obligations.

If non-dischargeable debts represent a significant portion, a consumer proposal that addresses all debts together provides better overall reduction.

Step 3: Consult a Licensed Insolvency Trustee

A trustee reviews your complete financial picture including all debts, income, assets, and family obligations. They calculate the cost and outcome of both bankruptcy and consumer proposal scenarios specific to your debt composition. This consultation is free and confidential at every LIT office in Canada.

Find a Licensed Insolvency Trustee near you →

Common Misconceptions

“CRA tax debt cannot be discharged.” False. Personal income tax debt is fully dischargeable in bankruptcy and includable in consumer proposals. CRA debt is treated as a regular unsecured claim.

“If I used my credit card knowing I could not pay, that is fraud.” Generally false. Accumulating consumer debt beyond your ability to repay is not fraud unless you made specific false representations to obtain credit. A creditor must prove actual fraud through a court application.

“Student loans can never be discharged.” False. Student loans are fully dischargeable after seven years from leaving school. The five-year hardship exception also exists through court application.

“All government debts survive bankruptcy.” False. Only government overpayments obtained through fraud survive. Regular CRA tax debt, EI overpayments from honest mistakes, and similar government obligations are dischargeable.

Student Loan Deep Dive: Date-of-Last-Study Rules

The 7-year rule is the most consequential non-dischargeable debt provision because it affects nearly half of Canadian filers under age 40. Getting the date right is critical.

The clock starts on the last day you were a student. This is not graduation date, withdrawal date filed on paper, or your last loan disbursement. It is the actual final day you were registered as a full-time or part-time student.

The clock resets every time you return to school as a full-time or part-time student, regardless of whether you take new student loans. A two-week certificate program two years ago can reset your clock.

Federal versus provincial. The 7-year rule applies to Canada Student Loans (federal portion) and provincial integrated programs (Ontario’s OSAP, Alberta’s Alberta Student Aid, etc.). Pure provincial student grants typically follow the federal model in most jurisdictions, but check your specific province.

Apprenticeship loans. Canada Apprentice Loans follow the same 7-year rule.

Lines of credit “for school.” A bank line of credit you used to fund education is not a student loan under the BIA. It is ordinary unsecured credit and is dischargeable in bankruptcy regardless of the 7-year rule.

Strategy. If you are within 7 years of leaving school and student loan debt is significant, a consumer proposal addresses it directly. If you are at the 6.5-year mark and can survive financially for 6 more months, waiting may unlock full bankruptcy discharge. A Licensed Insolvency Trustee will help you do the math.

Creditor Opposition to Discharge

Creditors who believe a debt arose from fraud or misrepresentation can file an opposition to your bankruptcy discharge or apply under Section 178(1) to have a specific debt declared non-dischargeable.

The process:

1. The creditor files a notice of opposition before your discharge hearing.
2. The court holds a discharge hearing where you, the trustee, and the opposing creditor present evidence.
3. The judge may grant an absolute discharge, conditional discharge (e.g., pay an additional sum), suspended discharge (delayed for months), or refused discharge.
4. The court may also declare specific debts non-dischargeable while still discharging the rest.

Common opposition triggers:

• Large credit card balances accumulated in the 90 days before filing
• Cash advances exceeding $1,000 in the 60 days before filing
• Loans obtained shortly before filing without repayment intent
• Inconsistent or false information on credit applications
• Unreported income on tax returns leading to CRA reassessments

How to reduce opposition risk:

• Stop using credit at least 90 days before filing
• Disclose every debt and asset honestly to your trustee
• File when you stop being able to pay, not after a “last hurrah”
• Cooperate fully with creditor information requests

If you anticipate opposition, a consumer proposal often produces a better outcome than bankruptcy because creditors voluntarily accept the proposal terms — there is no opposition mechanism in the same way.

Real-World Scenarios

Scenario 1: Recent graduate with $35,000 student loan and $20,000 credit card debt. Graduated three years ago. Student loans are 4 years from the 7-year mark. Bankruptcy would discharge the credit cards but leave the entire student loan owing. A consumer proposal can include both at a 60-80% reduction. Proposal wins clearly.

Scenario 2: Self-employed contractor with $40,000 personal income tax, $15,000 unremitted HST, and $25,000 credit cards. Bankruptcy discharges the income tax and credit cards. The HST trust fund portion is at risk of surviving discharge under Section 178(1)(f). A consumer proposal includes all three categories at a single negotiated rate. Proposal is the safer path.

Scenario 3: Parent with $60,000 in child support arrears and $30,000 in credit cards. Family support cannot be included in either bankruptcy or proposal. Bankruptcy or a proposal addresses only the credit cards, freeing cash flow to bring support current. The strategic question is which path frees more cash for support — usually a proposal because surplus income payments in bankruptcy may exceed proposal payments.

Scenario 4: Director of a defunct corporation with $80,000 personal director liability assessment from CRA. Director liability for trust funds creates personal exposure. A consumer proposal includes the director assessment and resolves it for 60-80% less. Bankruptcy may discharge the assessment but the trust fund classification creates uncertainty. Proposal removes ambiguity.

Scenario 5: Court-ordered restitution from a criminal conviction plus $50,000 unsecured debts. The restitution order survives both bankruptcy and proposal. Insolvency relief addresses only the unsecured debts. A bankruptcy may be appropriate if you have no assets and minimal income; a proposal works if you want to retain assets while getting the same relief on unsecured debts.

Next Steps

1. List your debts and identify any that may be non-dischargeable under Section 178(1)
2. Calculate your options using the Consumer Proposal Calculator to compare bankruptcy versus proposal outcomes
3. Get a professional assessment from a Licensed Insolvency Trustee — find one near you for a free confidential review of your complete debt portfolio

Compare all debt relief solutions →

Disclaimer: This article provides general information about non-dischargeable debts in Canadian bankruptcy and should not be considered legal advice. Consult with a Licensed Insolvency Trustee for advice specific to your situation. Section 178(1) BIA interpretations may vary by jurisdiction and circumstance.

Last updated: April 1, 2026