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Bankruptcy Consultation

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Bankruptcy Consultation

At Loans Canada we understand that some financial issues can become too overwhelming to handle on your own and that sometimes filing for bankruptcy is the only option – despite the fact that we often advise our clients to avoid it. We also understand that simply because it might be your only option, it doesn’t make it any easier. That’s why we want to help you regain control of your future and your finances. We’ll work closely with you to help find the right debt relief specialist who understands what you’re going through.

What is Bankruptcy?

Generally speaking, a 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. However, we can connect you with a debt specialist who can advise you on what to do before going down this path.

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 a minimum period of 9 months. Ideally, this would leave you with little to no debt remaining and allow you to start over with a clean slate. 

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

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

Ineligible Debts

  • Mortgages
  • Home equity loans & lines of credit
  • Secured loans
  • Federal student loans
  • Vehicle loans
  • Legal fines (tickets, lawsuits, etc.)      

Concerned about who will know once you file for bankruptcy? This article is for you. 

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

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.


  • In Canada, there is no specific limit for the maximum amount of debt you can have in order to qualify for bankruptcy. 
  • Bankruptcy results in an automatic, legally binding stay of proceedings.
  • If you complete all your court duties, you may be discharged from bankruptcy after 9 months (which is shorter than some other debt management methods).  
  • This will effectively eliminate your unsecured debts, allowing you to rebuild your finances and fix your credit report over time. 


  • 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. 
  • This may include a number of court-related costs, such as a base contribution of $1,800 – $2,000 and several administrative fees. 
  • There will be a heavy negative impact on your credit report. 
  • Although some of your personal belongings will be exempt, many of your assets will be seized as payment toward the court.
  • 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. 

We can connect you with a debt specialist with whom you can discuss your options, before working with a trustee.

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 payments can last for several months, maybe even years. You may only be able to retain enough income to live off.  

To learn more about surplus income payments, take a look at this article. 


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

Before you choose whether or not to file for bankruptcy in Canada, take a look at some of the questions that people in debt will frequently ask concerning the process itself. 

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. 

For a deeper look at how your spouse could be affected by your bankruptcy, click here

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. 


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