Bankruptcy Consultation

It’s understand that some financial issues can become too overwhelming to handle on your own and that sometimes filing for bankruptcy is the only option. While bankruptcy is one of the most extreme debt relief solution out there, it’s also one of the best ways to regain financial control when you’re neck deep in debt.

What Is Bankruptcy?

Generally speaking, bankruptcy is a legally binding debt management process that you can file for when you’re totally out of options. The procedure itself is then regulated under the terms of Canada’s Bankruptcy and Insolvency Act, and can only be administered by a court officer known as a Licensed Insolvency Trustee.

Bankruptcy is by far the most effective way of reducing your unmanageable consumer and household debts. When put into play, it should also end any debt collection penalties and legal fines that you’ve been charged with, such as wage garnishment, late fees, and accumulating interest.  

To complete your bankruptcy, you will have to make a series of mandatory payments toward the court over 9 months. This period can be extended to 21 months if you’re required to pay surplus income payments. Once you’ve made your payments, you’ll be automatically discharged from bankruptcy.

Who Is Eligible For Bankruptcy In Canada?

Prior to filing for bankruptcy anywhere in Canada, it’s important to figure out if your particular case is actually eligible for the procedure. 

In fact, it’s a good idea to speak thoroughly with a number of professional sources beforehand, such as a financial adviser, a credit counsellor, and a Licensed Insolvency Trustee to determine whether it is truly your best option. 

Essentially, you can become eligible for bankruptcy if:

  • You have a minimum of $1,000 worth of unsecured consumer debt
  • Your total debt amount outweighs the estimated value of your assets
  • You can provide sufficient proof that you’re unable to pay your debts on time by more conventional methods

There are also specific types of debt that can and can’t be included in the bankruptcy process. More often than not, only your unsecured debts, as well as those that relate to certain non-credit sources can be successfully discharged. 

Unfortunately, most secured debts cannot be included because a creditor still holds ownership over one or more of your assets (which you would have initially offered as collateral). Many forms of legally or government-assigned debts must also be excluded. 

Eligible Debts For Bankruptcy

  • Credit cards
  • Payday loans
  • Personal lines of credit
  • Unsecured loans
  • Traditional student loans
  • Non-credit bills (utilities, internet, etc.) 

Ineligible Debts For Bankruptcy

When Is Bankruptcy The Right Choice?

Bankruptcy, while effective in more ways than one, is not a process that you should enter on a whim. It is reserved for cases of extreme, unmanageable debt and is only the right choice when you:

  • Have at least $1,000 of unsecured/non-credit debt
  • Are being frequently contacted by collection agencies
  • Are comfortable with the potential loss of certain assets
  • Are able to get by without credit products for several years after the process
  • Are willing to attend a number of credit counselling sessions
  • Have gotten proper advice from certified financial professionals
  • Have exhausted all the less harmful options that are available to you
  • Have an income that’s large enough to support all your court payments but too small to pay off your debts within a reasonable time frame
debt management options

Pros And Cons Of Filing For Bankruptcy In Canada

Suffice to say, bankruptcy is rarely the right choice, simply because of the damage it can do to your financial profile. For a better idea of whether you should even attempt such a procedure, be sure to carefully read through all the following benefits and drawbacks.


  • Easy To QualifyIn Canada, there is no specific limit for the maximum amount of debt you can have in order to qualify for bankruptcy. 
  • Legally BindingBankruptcy results in an automatic, legally binding stay of proceedings. Meaning once, you file for bankruptcy, your creditors and debt collectors can no longer contact you about your debt. Moreover, any lawsuits or wage garnishments against you will stop.
  • Short ProcessIf you complete all your court duties, you may be discharged from bankruptcy after 9 months (which is shorter than some other debt management methods).  
  • Gets Rid Of Debt – This will effectively eliminate your unsecured debts, allowing you to rebuild your finances and fix your credit report over time. 


  • Surplus Payments – If your income crosses the court-mandated threshold of your province/territory, you may be forced to make surplus income payments for quite some time. 
  • FeesThis may include a number of court-related costs, such as a base contribution of $1,800 – $2,000 and several administrative fees. 
  • Negative Impact On Credit – There will be a heavy negative impact on your credit reportGenerally, you’re assigned the lowest credit rating (R9) when you file for bankruptcy.
  • Assets Are Sold Although some of your personal belongings will be exempt, many of your assets will be seized as payment toward the court.
  • Public Record The ordeal will become a matter of public record, so potential lenders, as well as the federal government may see it when performing background checks.

What To Expect When Filing For Bankruptcy

With all the information above, it can be tough to know whether bankruptcy is really the right debt relief option for your situation. However, you may have an easier time making your decision if you’re aware of what to expect from the process. 

Working With a Licensed Insolvency Trustee

As previously mentioned, a licensed insolvency trustee is the only person that is legally permitted to administer a bankruptcy. While you must meet with them regularly and follow their instructions, the advice they give you can definitely be worth the effort. Any trustee should also give a free, private consultation after you contact them by phone or online. 

Length Of A Bankruptcy

The overall time that you’re involved in a bankruptcy will depend on how much debt you have, how high your monthly/yearly income is, and what assets you own. That said, you may be fully discharged in as little as 9 months, as long as you haven’t declared bankruptcy in the past, make all your payments on time, and perform every duty that the court assigns you. 

Surplus Income Payments

Although the designated threshold varies from province to province, you may have to consistently relinquish a portion of your household income if it goes over a certain amount. Depending on how much you owe, these surplus income payments can last for several months, maybe even years. You may only be able to retain enough income to live off.  


If your debt is large enough, many of your assets will be seized in accordance with the regulations of your particular province or territory. This may mean your home equity, your car or truck, your investments and RESPs, as well as any windfalls you earn during the process (lottery winnings, inheritance, etc.). 

Exemptions may include (but aren’t limited to):

  • Various personal items (clothes, furniture, etc.)
  • Tools, vehicles, and machinery that you use for work
  • Personal vehicles that do not exceed a certain value
  • RRSP contributions that have not been made within the past year
  • Home equity balances under $10,000

Bankruptcy FAQs

Will My House Be Seized During a Bankruptcy?

Although this will depend on how much you owe and where you live, your house may be foreclosed and sold at auction if your home equity is over the court-designated threshold when you file. While this is a rare occurrence in Canada, it is still a significant risk that must be taken into consideration. 

Is a Bankruptcy Going to Affect My Spouse?

Luckily, filing for bankruptcy will not directly impact your spouse or common-law partner’s finances. Nonetheless, they may be affected personally if you live in the same house or share any non-exempt joint accounts, such as RRSPs. They may also see the effect if they cosigned a loan with you before or after your bankruptcy. 

Can My Income Tax Debts Be Included?

Another major benefit of a bankruptcy is that your unpaid income taxes can be treated like most unsecured debts. Although there are different exceptions in every province, a Licensed Insolvency Trustee may even be able to negotiate with the Canada Revenue Agency and get your unpaid balance reduced if you can prove that you will be unable to pay it on time.

How Will My Credit Be Affected?

On the other hand, one of the biggest drawbacks to a bankruptcy is the severe negative effect it can have on your credit report. Firstly, all accounts that are associated with the process will automatically receive the lowest credit rating (R9).  Afterward, the information will remain in your credit history for 7 years following your final discharge date. All this can cause your credit score to decrease and make it extremely difficult to get approved for favorable credit products with low interest rates until your credit has recovered.   

What Bankruptcy Alternatives Are Available to Me?

Remember, a bankruptcy is the most serious debt relief option in Canada and must only be attempted once you’ve run through all the less drastic options that are available, such as:
  • Borrowing from friends or family
  • Withdrawing from your home equity
  • Applying for a guarantor loan
  • Applying for a debt consolidation loan
  • Entering a debt consolidation program
  • Going to credit counselling
  • Offering your creditors a debt settlement

Thinking of Filing for Bankruptcy in Canada?

If you are out of alternatives and your debt is only growing, filing for bankruptcy may be your last option. Don’t worry, because Loans Canada can help you get back on track by putting you in contact with the best debt specialists in your area or by helping match you with the right debt relief service. 


Debt Glossary

Balance Transfer

A balance transfer is a process of transferring current debt owed to one lender to another lender. Balance transfers are most commonly used in relation to credit card debt. The motivation to complete a balance transfer is to get a lower interest rate on outstanding debt.


When an individual is bankrupt, they are unable to pay their debts to creditors. Declaring bankruptcy is a legal process that involves handing over the bankrupt individual’s finances to a trustee.

Bankruptcy and Insolvency Act (BIA)

A legal, federal act that protects the rights of Canadian individuals who declare bankruptcy. The act also defines the process to follow when bankruptcy occurs. More specifically, the roles that creditors, trustees, and individuals take on during a bankruptcy proceeding in addition to specific conditions in which bankruptcy can be granted.

Collection Agency

A third party hired by a creditor to collect outstanding debts from a borrower. A collection agency is usually hired after the creditor has made various attempts to collect the debt from the borrower on their own without success. Collection agencies tend to be more aggressive with their actions to collect debts.


If a creditor has been trying to collect a borrower’s debt without success, they may sell the debt to a collection agency. When this happens, the borrower’s account is classified as “in collections”. Any type of debt can go into collections including library fees, medical fees and credit card debt. Accounts in collections can negatively impact your credit score and report in the long term.

Consumer Proposal

A formal offer proposed by the borrower to the creditor to resolve owed debts. Consumer proposals may request that the borrower pay a portion of the owed balance that is considered to be a full payment or extending the due date of the debt. These tactics can be used exclusively or in conjunction along with other negotiation methods. The creditor can either accept or deny the proposal.


Someone who is trained to provide guidance on personal, social or psychological issues. In relation to finances, counsellors help people learn how to manage their finances appropriately and make informed financial decisions.

Credit Counselling

A professional advisory service that helps individuals create a plan to repay their debt and improve their credit. Credit counselling agencies are typically not-for-profit in Canada, sometimes even a public service. For-profit credit counselling agencies exist in Canada as well.

Credit Risk

The level of risk associated with a borrower defaulting on debt repayment. If the risk of the borrower defaulting is high, then credit risk is high, and vice versa.


Amount of money an individual has borrowed (from lenders and credit card companies) and is in the process of repaying.

Debt Consolidation

The process of rolling over multiple debts into one, single loan or repayment plan. The reason why individuals consolidate debt is to get a lower overall interest rate and to focus on one monthly payment as opposed to many.

Debt Management Program

A type of debt consolidation program that utilizes the services of a credit counselling agency to ensure an ideal repayment plan. Usually, a debt management program will help you achieve a lower monthly payment and more timely payments to lenders.

Debt Settlement

The process of paying an agency to negotiate your debts with creditors. The goal is to reduce the total amount you owe that will be seen as full payment. Debt settlement can help you reduce the amount you owe, but it can also hurt your credit score because creditors often don’t want to negotiate unless there have been many missed payments or collection records indicate that you can’t repay your debt.


Failing to make payments toward your debt for a lengthy period of time. Lenders have their own individual ways of classifying default, it may be as little as 60 days or as long as a year. Defaulting on debt can impact your credit negatively, especially if the defaulted account is sent to collections.


The act of pushing something off to a later time. In terms of finances, this means paying a debt later than when it’s due or creating an arrangement where the customer receives the product or service now but pays later.

Discharged Bankruptcy

The act of releasing a bankrupt individual from all or most of his or her debts. Sometimes not all debt is included in a bankruptcy, these debts would not be forgiven as a result of a discharge. For example, alimony, child support, and certain student loans cannot be discharged.

Financial Advisor

Someone who is employed to provide financial services or guidance on financial issues to their clients.


Intentional actions that are wrongful or criminal in nature that result in financial or personal gain for the individual who performed the actions.


If you owe debts that you are not repaying, your lender can request a court order that has the power to remove funds directly from your bank account to pay off the owed debt. The name of this court order is a garnishment. There are restrictions as to how much can be garnished from your wages.

Grace Period

A set, specific period of time after a due date when a payment can be made without consequences.


In the event that a borrower defaults, a guarantor is a person who agrees to repay the debt on the borrower’s behalf.

Identity Theft

The fraudulent act of obtaining another person’s private identification information and using it for financial or personal gain. 

Licensed Insolvency Trustee (LIT)

An individual who is licensed by the Superintendent of Bankruptcy in Canada and is authorized to administer consumer proposals, bankruptcies and manage assets held in a trust. Their profession involves helping and educating people who struggle with debt problems. 


A legal claim on the property of an individual to ensure that debt will be repaid. For example, a lien is placed on a vehicle that is being financed and will only be removed once the loan has been paid off in full.

Long-Term Debt

Debt that must be repaid over a period of twelve months or longer.

Lump-Sum Payment

A large, singular payment made at a specific point in time as opposed to numerous small payments spread out over various points in time.

Minimum Payment

The lowest amount of money you are required to pay towards a credit card or other debt by a specific date to avoid a particular penalty.


A negative bank account balance caused by withdrawing more money than what is in the account. 

Payment Period

The period of time over which a borrower is obligated to make a payment. Payment periods could be weekly, bi-weekly or monthly, sometimes even longer.


If you owe money for a loan that has collateral and you default on the loan, the creditor can claim the collateral through the process of repossession. The repossessed collateral is sold and used to cover the owed amount of the loan. Assets that are commonly repossessed are cars, houses, equipment, and boats.

Right Of Offset

A legal right held by banks to seize deposited funds from a chequing or savings account to repay an owed amount that is in default. 

Short-Term Debt

Debt that must be repaid in under twelve months.

Snowball Repayment Method

A debt repayment strategy designed to motivate individuals to tackle repaying multiple debts. The strategy involves repaying the lowest debt amount first, then the next lowest debt amount, then working up to pay the highest amounts one by one. The idea is that individuals will be motivated to continue paying down their debt because there are many successes in the early stages of this plan. The drawback of the repayment strategy is that it is not the most cost-effective strategy.

Statute of Limitations

A law that dictates the maximum amount of time all parties in relation to a particular case have to take legal action. After that period of time passes, legal action cannot be taken, unless under special circumstances. Each crime, whether civil or criminal, has a different set statute of limitations.

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