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Personal Bankruptcy in Canada

Bankruptcy can be intimidating, but it doesn’t have to be scary or complicated. Living with financial stress has many negative impacts on your wallet, mental health, and ability to plan.

Filing for Bankruptcy can be an emotional decision and process. However, taking back control of your finances helps give you a fresh start and gets you back on a manageable track towards freedom from debt.

What is Bankruptcy?

Bankruptcy pros and cons

Should you file for Bankruptcy?

Do you qualify for Bankruptcy filing?

Personal Bankruptcy process

What happens when you file for Bankruptcy?

Bankruptcy alternatives

FAQ about personal Bankruptcy

What is Bankruptcy?

Bankruptcy is a legal process that helps provide immediate financial protection to people experiencing overwhelming financial difficulties.

To file for personal Bankruptcy, an individual must have at least $1,000 in debt that they’re unable to repay. These can include debts such as credit card bills, loan payments, utility bills, payday loans, and mortgage payments.

If you’ve had your wages garnisheed, received past-due notices, or calls from debt collectors, Bankruptcy might be right for you.

Though typically a last resort, Bankruptcy allows you to solve your debt problems fast with the help of a Licensed Insolvency Trustee (LIT) who will guide and support you through the process.

Bankruptcy pros and cons

Advantages Disadvantages
Immediately stop collection action, interest, and garnishees Certain assets vest with the LIT
Certain assets are exempt from seizure (e.g. vehicles, household furnishings, tools of the trade, certain retirement savings) Monthly income and expense reports must be submitted to Trustee for review
Creditors can’t refuse Bankruptcy Surplus income payments may fluctuate according to monthly income
LIT will often assist with filing outstanding personal income tax returns
Creditors can oppose discharge and a court hearing may be required to get out of Bankruptcy
Process lasts between nine and 21 months if you have never been Bankrupt before, which is less than a typical Consumer Proposal
Negatively impacts your credit score for six years after completion
No limit on the size of debt load to be eligible to file
Some tax refunds are turned over to the LIT
Budgeting and money management counselling are provided
You repay less than you owe

Should you file for Bankruptcy?

People often realize they can't pay their debts all at once, after a big financial problem, or slowly over time when they see their current plan isn't working. If you see any of these signs, talk to your local MNP Licensed Insolvency Trustee for a Free Confidential Consultation. Together, you will review your entire financial situation and discuss your options for a financial fresh start.

Do you qualify for Bankruptcy filing?

To file for Bankruptcy, certain conditions must be met:

  • Debt must be at least $1,000
  • Debtor must be discharged from a previous Bankruptcy
  • Debtor must live, carry on business or have property in Canada
  • Debtor must be unable to meet regular payments as they become due
  • Property owned by the debtor must be insufficient to enable payment of all debts

Meeting these requirements does not mean you must file for Bankruptcy — other options can be explored with the help of a LIT.

Personal Bankruptcy process

Set up a Free, Confidential Consultation

Timeline: Now

The first step in determining whether Bankruptcy is the best choice for you is to meet with one of our Licensed Insolvency Trustees. They will review all your options, which include doing nothing, debt consolidation, credit counselling, Bankruptcy and Consumer Proposals.

This initial consultation includes a summary of your debts, assets, income, and expenses. We will also discuss what assets are exempt in your province and what the term surplus income would mean for you in Bankruptcy.

If Bankruptcy is your ideal debt relief option for your unique situation, we will then review the process with you in detail and make sure you understand all the implications.

Legally file for Bankruptcy

Timeline: Immediately, once information is available

Your Licensed Insolvency Trustee will assist you in preparing and filing all required documents with the federal government's Office of the Superintendent of Bankruptcy (OSB), including a Statement of Affairs (a sworn declaration of your assets, debts, income, and expenses). A Stay of Proceedings comes into effect as soon as this is filed, meaning your creditors can no longer phone or sue you, and any existing garnishees are halted.

Bankruptcy period

Timeline: 9 – 21 months

During the Bankruptcy time frame (which is nine months for your first Bankruptcy unless you have surplus income), you will generally do the following four things:

  • File monthly income and expense reports with your LIT to track whether you have surplus income, help you monitor and manage your expenses, and develop a budget.
  • Attend two financial counselling sessions — the first within three months, the second before the end of the process. During these sessions, you will discuss the causes of your financial difficulty, budgeting, restoring your credit rating, setting and achieving financial goals, and other long-term debt management strategies.
  • Provide your LIT with all required information to complete your tax returns for the year you file Bankruptcy (and prior years if needed).
  • Pay any required amounts to your LIT. These payments may be required surplus income payments and/or payments to repurchase an asset that is not exempt. They might also be the minimum amount required to cover administration costs.

Bankruptcy discharge

Timeline: 9 – 21 months

You will automatically receive your discharge (your release from Bankruptcy and the debts you owe) at the nine or 21-month mark. This is only if you have completed all the necessary steps as outlined above and a creditor or other stakeholder does not oppose your discharge.

If you do not complete the required tasks, you will not be released from Bankruptcy until those missing steps are completed. A court order will outline the remaining steps you must follow. The discharge time frames are for a first-time bankrupt person.

Debt-free. For life.

Timeline: The rest of your life

During your financial counselling sessions, your Licensed Insolvency Trustee will discuss ways to restore your credit rating during and after the Bankruptcy period. Improvements to your credit rating will take time but once the Bankruptcy is completed, you will have no remaining unsecured debts (with minor exceptions).

What happens when you file for Bankruptcy?

Credit score

Filing for Bankruptcy or a Consumer Proposal will hurt your credit rating; however, the overall impact may vary. Bankruptcy will likely drop your credit score to the lowest possible level and affect your credit worthiness. It also stops the clock on any damage currently being reported by debt collectors, so you can focus on rebuilding your credit score. A Bankruptcy will remain on your credit report for six years after discharge.


Provincial guidelines will determine which assets you can keep, such as a car and house, up to a certain value, as well as RRSPs and RESPs.


A Bankruptcy or Consumer Proposal can clear most, if not all, of your debts. Both options can eliminate unsecured consumer debts like credit cards, lines of credit, store credit cards, payday loans, tax debts, and most judgment debts from past or pending lawsuits. Unsecured debt comes from credit extended without any collateral — an asset provided to the lender as a guarantee of repayment.

Certain debts cannot be cleared through Bankruptcy in Canada for various reasons. These include secured debts, alimony or child support payments, court-imposed fines and parking tickets, student loans under seven years old, and some debts resulting from fraud.

To find out more about what debts survive Bankruptcy, read our blog.

Spouse’s credit score, assets, income, debts

Any debt in both of your names is considered joint and several debt. Whether it's a mortgage, car loan, line of credit, joint bank account with overdraft protection, or joint credit card, you are equally responsible for paying the debt in full plus interest as applicable.

If you have no unsecured debt, but your partner does, this debt is their responsibility as they signed the application and agreed to repay the amounts advanced as approved by the lender. If your partner reneges on repaying that debt, the lender cannot legally go after you to pay in their place.

To learn more about spousal debts, read our blog.

Bankruptcy alternatives

Consumer Proposal

A Consumer Proposal is a federally regulated and legally binding process for insolvent Canadian individuals. It can reduce debt owed to unsecured creditors, provide an extension of time for repayment (up to five years), or both.

To learn more about Consumer Proposals, see our Consumer Proposal Guide.

Consolidation loan

A consolidation loan is provided by a bank, credit union, or finance company to pay out other debts and consolidate several monthly payments into one monthly payment.

A consolidation loan requires an application and approval by a lender, who will consider an individual’s credit rating, income, assets, and debts. Many lenders require the individual to provide security or collateral for a consolidation loan. Interest rates on consolidation loans can be high and vary from lender to lender.

Debt Management Plan

A Debt Management Plan (DMP) is a flexible repayment plan arranged through a licensed non-profit credit counselling organization.

A credit counsellor helps create a more manageable debt repayment plan by consolidating credit cards and similar unsecured debts into one payment. This payment goes to the credit counselling agency, which distributes payments to creditors.

Credit counsellors can negotiate with creditors to reduce or eliminate interest, lowering overall costs. However, certain debts, like unpaid taxes and student loans, cannot be included in a DMP. To qualify, your debts must be in good standing rather than in collections.

Deciding which strategy will work best can be difficult without professional advice, as the right strategy will depend on various factors. A Licensed Insolvency Trustee can assess your situation and explain different ways to repay debts, along with the pros, cons, and costs of each option.

A meeting with a Licensed Insolvency Trustee is free, confidential, unbiased, and can help you find the best debt solution for your unique financial situation.

FAQ about personal Bankruptcy

Licensed Insolvency Trustee holding up a piece of paper and advising a person on bankruptcy options.

Consumer Proposal vs Bankruptcy

Consumer Proposals and Bankruptcies are both government legislated options which can provide you with relief from significant debt problems. In addition, both debt solutions can only be administered by a Licensed Insolvency Trustee and provide a legal stay of proceedings which require creditors to discontinue harassing collection calls, garnishment or other legal proceedings.

Determining which, if either, option is an appropriate solution in your own unique situation depends on a number of variables. Let’s explore the advantages and disadvantages of both a Consumer Proposal and a Bankruptcy.

Compare Your Options

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