📅 Last Updated: September 6, 2022
✏️ Written By Bryan Daly
🕵️ Fact-Checked by Caitlin Wood

As great of a city as Toronto is, living costs are among the most expensive in Canada, as a result, many residents struggle with financial issues. Problems arise when people in Toronto take on more debt than they can afford. While some debt can be good when handled responsibly, having too much can lead to severe consequences.

Unfortunately, when debt becomes unmanageable, being forced to declare bankruptcy might be one of those consequences. Although the process can be helpful in many ways, it can also negatively affect your financial health. Keep reading to learn more.

Looking for a bad credit loan in Toronto? Check this out.

Your Debt: What Happens to it When You File for Bankruptcy in Toronto?

Personal bankruptcy is a legal process that Toronto residents can opt for when they have at least $1,000 of consumer debt, but no viable way of paying it off. Essentially, you would file a legally binding document with a licensed insolvency trustee in Toronto, who will present it to the Court on your behalf. This process eliminates the majority of your unsecured debts and ends all collection efforts, wage garnishments, mounting penalties and interest that are piling up against you.

Debts That Qualify in Toronto

Not all debt types are eligible to be discharged. In fact, only unsecured debt, which has no collateral attached, can be included, such as:

  • Credit card bills
  • Unsecured loans
  • Personal lines of credit
  • Outstanding utility, internet/cable, and cell phone bills
  • Payday loans

Secured debts (backed by collateral), can’t be included. For instance:

  • Mortgage payments
  • Home equity products
  • Vehicle loans
  • Secured loans
  • Traffic tickets and other legal charges
  • Child support and alimony payments

For more information about secured and unsecured debt, click here.

The Results

The ultimate outcome here is that you should be left with a clean slate. However, a bankruptcy may result in even further consequences, such as:

  • Surplus income payments over several years (if you have a large income)
  • The loss of most of your assets (house, car, etc.) as partial payment
  • Mandatory credit counselling sessions and monthly meetings with your trustee
  • Severely reduced credit score and credit rating.
  • A record of the incident on your credit report, which lasts for 7 years per filing
  • Extreme difficulty getting approved for any new credit during the whole process

Your Alternatives: How Can Bankruptcy Be Avoided?

Since a bankruptcy can have such a heavy impact on your finances in Toronto, it should only be chosen as a last resort. If you think you can avoid the process, it might be better to look into some of the following less drastic alternatives:

Borrowing Using Your Home Equity

If you’ve built up home equity, which is done by paying down your mortgage and/or increasing the value of your property, you can apply for a home equity loan or a HELOC (home equity line of credit) in Toronto. You can then use your second mortgage to consolidate your outstanding debts and pay the funds back over time. That said, if you already have bad credit and financial health, this might not be the best option for you.

Want to know how to consolidate high-interest debt into your mortgage? Find out here.

Applying for a Debt Consolidation Loan or Program

Consolidation involves grouping all your unsecured debts together and paying them off in one go, leaving you with one payment and interest rate to deal with. This can be done in two different ways:

  • Debt consolidation loan – You would take out one large loan with a lender in Toronto, consolidate your debts with it, then pay it back through monthly installments. Again, you may need good credit and a reasonable income to qualify. This is a better option for those who are looking to streamline their finances and reduce interest, but who have no problem handling the responsibility of a loan.
  • Debt consolidation program – While your payments would be similar, the actual process involves entering a program with a certified credit counsellor in Toronto, who will negotiate a deal with your lenders on your behalf. You would then make payments toward that counsellor, who will send them to the lenders, eventually freeing you from their collection efforts.

Debt Settlement

With a debt settlement, you would reach out to your lenders to broker a deal and have your outstanding balance reduced, rather than you paying back the full amount. This can be done on your own or with a debt settlement company. However, unlike a bankruptcy, a debt settlement is not a legally binding process. Therefore, your lenders don’t need to accept the deal or cease their collection efforts, even if they do accept.

Consumer Proposals: How Are They Different?

If you’re not eligible for or you aren’t interested in any of the solutions above, but you’d still like to avoid bankruptcy, a consumer proposal may be the way to go. While the process is somewhat similar, it should still be placed ahead of bankruptcy when you’re considering debt management products in Toronto.


  • It’s a legally binding process that’s administered by an insolvency trustee
  • Frees you from your unsecured consumer debts
  • Ends collection efforts, wage garnishment, and penalties against you
  • Involves making payments toward your trustee over several years
  • Has a lasting negative effect on your credit and financial profile
  • Credit counselling and regular meetings with your trustee may be mandatory


  • Your trustee will administer a deal with your lenders that reduces your outstanding balances
  • They’ll then have 45 days to accept or reject the proposal
  • If accepted, your payments will go directly to the lenders, rather than the Court
  • You must have a minimum of $5,000 but a maximum of $250,000 in consumer debt in order to qualify
  • You won’t have to surrender your assets or make surplus income payments
  • Your credit rating will drop to an R7
  • A record will only stay on your credit report for 3 years following completion

The True Cost of BorrowingDo you know what the true cost of borrowing is? Learn more here.

Your Credit: How Can It Be Repaired After a Bankruptcy?

As we said, your credit is going to take a significant negative impact after your bankruptcy. So, before you file, be sure that you’ll be able to get by in Toronto without credit during the 7 years that follow. Realistically, it may be difficult to repair your credit after the fact. However, it can be done if you’re willing to put forth the effort.

Get a Secured Credit Card

Secured credit cards are a good option when you don’t qualify for traditional cards in Toronto. To be approved, you would have to lay down a security deposit equal to your desired credit limit. You can then spend some time making responsible payments, which will gradually increase your credit score. Once the card expires and you’ve paid back your full balance, your deposit will be reimbursed. The goal here would be to repair your credit enough so that traditional cards are no longer out of reach.

Handle Your Bills in Responsibly

One of the most important steps to improving your credit to never miss a payment date and always pay the full amount. This applies to your active credit products, as well as any other services you pay for, such as internet and utilities. Every payment you default on will result in credit damage.

While internet and utility companies in Toronto generally don’t report your activity to Canada’s credit bureaus (Equifax and TransUnion), they might if you continually miss payments. Nonetheless, if you don’t qualify for credit products after a bankruptcy, you can request that those companies do report your payments, thereby increasing your credit slowly.

Check Your Credit Report Regularly

Although the resulting credit damage from a bankruptcy is inevitable, reviewing your credit report on a regular basis afterward will help you monitor your progress. You can also do this to check for any errors, as well as signs of identity theft or fraud that may be causing additional harm to your credit score. If you find any such evidence, you can dispute it with the bureau in question. Just remember that Equifax and TransUnion carry a slightly different version of your credit report, so it helps to examine both copies and make sure everything lines up.

Read this to find out why you have more than one credit score.

Bankruptcy or Not, Loans Canada Can Help

If you’ve decided to file for bankruptcy in Toronto or you’re looking to avoid it at all costs, you can trust in Loans Canada to help. Contact us for more information about the process or to learn about other debt relief solutions available to you in Toronto.

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