Join millions of Canadians who have already trusted Loans Canada
Apply Now

Debt is something that most people will encounter and have to deal with at some point in their lives. Whether you are getting student loans for university, need a car loan for a new vehicle, or need to secure a mortgage to get your first home, having debt is inevitable.

Most of the time, having debt is no big deal as long as you are aware of the cost, can handle the debt, and make timely payments. However, there are times where debt can get the better of us and we find ourselves drowning in it. In some extreme cases, debt coupled with various financial issues might be too difficult to handle alone and you might need to look for assistance.

There are many different types of debt relief options available, each with its own benefits and drawbacks. But, sometimes, if your situation calls for it, filing for bankruptcy is the best (and potentially only) option for you, so it is important you are aware of how it works.

debt management options

What is the Process of Filing for Bankruptcy in Canada?

Before looking at how much it costs and what the main sources of that cost are, we will first take a closer look at the actual process of declaring and filing for bankruptcy in Canada. 

Step 1: Meet With a Licensed Insolvency Trustee

Discussing your financial situation with a Licensed Insolvency Trustee is one of the first steps you should take when considering bankruptcy. These are the only professionals who are legally allowed to handle bankruptcies. They will provide all the information you need, ensure you are treated fairly and will be there for you during the entire process. Your city should likely have at least a few of these individuals, so simply choose the one you feel the most comfortable and confident with.

Once you choose a LIT, you and your trustee will have to meet and do a final review of your options to ensure that bankruptcy is the right move for you. After reviewing your finances, expenses, debts, and assets, they will give you their recommendation. Of course, the final choice of what to do is always up to you.

Step 2: Filing For Bankruptcy

Once you decide to proceed with the bankruptcy filing, your trustee will give you a form to fill out. You will need to provide all of your personal information, a list of all your creditors and debts, and then a list of all of your assets. Once they have that, the initial paperwork will be filled and once you sign the forms, your bankruptcy will officially begin.

From that point on, any wage garnishments or lawsuits from creditors will stop. You also will not have to make any more payments to your creditors. During the bankruptcy process, your LIT will evaluate your assets and sell any items that aren’t exempted by provincial and federal laws. The proceeds will then be used to pay off your debts (as much as possible). Your LIT will also evaluate your income in order to determine if you need to make any surplus income payments. These payments will be used to further pay off your creditors. 

Step 3: Informing Your Creditors

From there, your trustee will send copies of the paperwork to your creditors so they will be able to file their claims. In some instances, your creditors may hold a meeting which you must attend, to obtain more information about the bankruptcy, to give direction to your LIT and to watch over the administration of your estate. 

Step 4: Your Obligations

During your bankruptcy, you will have certain obligations to adhere to which include attending credit counselling and providing a monthly income statement. Your bankruptcy should be discharged within 9 months or so and once it is, your debts will be cleared. A bankruptcy will stay on your credit report for at least 7 years, so getting your credit back in check after a bankruptcy can be a long process, but is worth it in the long run.

Recently declared bankruptcy? Learn how you can rebuild your credit.

The Three Main Costs of Bankruptcy and How Much Bankruptcy Costs

No matter which trustee you go with there are certain fees set by the government that you’ll need to pay. However, the overall costs of bankruptcy will depend on how much you make, how big your family is, your assets and more.

In total, there are three main costs associated with bankruptcy and they are:

Base Contribution

In Canada, the minimum cost for filing for bankruptcy is $1,800. This can be paid at once or in $200 installments over 9 months. This fee is used to cover certain costs like administration fees, your LIT, government fees, and more. 

Surplus Income

Surplus income payments are calculated using the income limits created by the Office of the Superintendent of Bankruptcy. To calculate your surplus income payment simply take the difference between your income and the income limit and then divide it by two. If your surplus income payment is less than $200, you can be discharged from bankruptcy after 9 months. All you’ll need to pay is the base contribution mentioned above. 

However, surplus income payments are required if your surplus income payment is more than $200. Moreover, if it is, your bankruptcy (and the associated payments) will be extended for another year (9 months to 21 months). This basically means that those who make a lot of money will generally have to pay more for their bankruptcy than those who are barely scraping by.

For example, if you’re a family of 3 with an income of $4,000, you’ll be making $567 more than the income limit of $3,433. Your surplus income payment is would be $283.5. Since your surplus income payment is more than $200, you’ll have to make these payments for 21 months instead of the base contribution for 9 months. 

Learn to calculate your bankruptcy payments.

Assets You Lose

Of course, another huge cost in your bankruptcy will be the assets you lose. You will not only lose your tax return for the year of filing (and any others that haven’t been received yet) and all of your RRSP contributions of the last 12 months, but also all of your investments. Also, you can potentially lose the equity in your home and your vehicle but that depends on which province you live in and the individual rules for that area.

Alternatives to Bankruptcy

As we mentioned briefly in the introduction of this article, there are many different options for debt relief in Canada, so don’t just assume you have to declare bankruptcy. Some common alternatives to consider are:

  • Consumer proposal – A consumer proposal is a legally binding agreement between you and your creditors to arrange for a partial repayment of your debts. Unlike a bankruptcy, your assets aren’t at risk and the effect on your credit score is not as large.
  • Debt Management Program (DMP) – A DMP is a debt relief program you can undertake by speaking to a credit counsellor. Your credit counsellor will work to reduce your debt’s interest rate, fees, monthly payment amount (by extending the loan term) and sometimes the balance itself. This program also allows you to consolidate your debts by making a single payment to your credit counsellor who will then distribute the payments to your creditors.
  • Debt Settlement – A debt settlement involves clearing your debt for less than what you owe. For example, your creditor may clear your debt for a lump sum payment of $5,000 even if you owe $8,000. This can be done by calling and negotiating with your creditors or by hiring a debt settlement company.

Frequently Asked Questions

Do I need to make surplus income payments?

You only need to make surplus income payments if your surplus income payments exceed $200. Your surplus income payment is calculated by taking the difference between your income and the income limit set by the Office of the Superintendent of Bankruptcy and then multiplying it by 50%.

How long do I need to make bankruptcy payments?

Your bankruptcy payments can be either 9 months to 21 months long depending on your surplus income payments. In general, you’ll need to make at least 9 payments of $200 if your surplus income payment is below $200. However, if your surplus income payments are above $200, your bankruptcy payments will be extended by another year, for a total of 21 months.

Bottom Line

Dealing with bankruptcy is never fun, but being prepared and knowing what to expect can soften the blow and make the entire process easier to handle and go through. Do keep in mind, that bankruptcy is an extreme debt relief solution and should only be used as a last resort. There are many alternatives to get a handle on your debts, so be sure to consider them all before a bankruptcy.

Kale Havervold avatar on Loans Canada
Kale Havervold

In his over six-year career as a professional writer, Kale has focused on writing about finance, technology, cryptocurrency, entertainment, and sports. Kale's work has been published on Yahoo, RentHop, the Regina Leader-Post,, and Kale loves to create a wide variety of personal finance-related content. Including everything from how-to guides to featured articles, to advice pieces and everything in between. Whether he’s writing about the newest piece of technology or providing tips to help people with their finances, Kale is passionate about educating Canadian consumers and making sure they have the information they need to make the best decisions.

More From This Author

Special Offers

More From Our Experts
How Will The Bank Of Canada’s Interest Rate Hike Affect You?

By Maidina Kadeer
Published on June 8, 2023

The interest rates set by the Bank of Canada, also known as the ‘bank rate’, is a key factor in determining the cost of borrowing money.
Tim Hortons’ First Credit Card Coming To Canada

By Stefani Balinsky

Tims first credit card is a Mastercard® and it is coming to Canada in the next few months. You'll want it if you like earning rewards fast
Is The Vanilla Prepaid Card The Best On The Market?

By Lisa Rennie

What is the main advantage to a Vanilla Prepaid Card? If you cannot access credit and you don't want to commit to cash, then Vanilla is always
Cash Money Versus easyfinancial Loans

By Bryan Daly

There are major differences between Cash Money and easyfinancial loans. Cash Money doesn't need as much information but easyfinancial has more
easyfinancial Loan Alternatives

By Bryan Daly

If you've been rejected a loan from easyfinancial, you'll be happy to know that there are plenty of easyfinancial loan alternatives in Canada.
How To Refinance A Mazda Car Loan

By Bryan Daly

If you're finding it difficult to keep up with your Mazda finance payments, find out if refinancing is an option for you.
How To Pay Off Student Debt In Canada Quickly

By Corrina Murdoch

When it comes to paying off student loan debt in Canada, is there a way to accelerate the process and get out of debt sooner?
Best Credit Cards With Extended Warranty 2023

By Matthew Taylor

A credit card extended warranty is a great tool to have and take advantage of. Especially for consumers who purchase expensive electronics

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Expert Tips
And Advice

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card