2025-08-01
2 minute read
Many Canadians are struggling with their finances in an uncertain economic landscape. Inflation has increased the cost of daily expenses, including groceries and housing, and high interest rates are making it more challenging to pay down debts.
Debt can pile up quickly in this environment — especially if you experience an emergency like a vehicle repair, loss of employment, or unexpected medical costs. You may be considering Bankruptcy if you are no longer able to meet your financial obligations and debt payments each month. However, you may have questions about how Bankruptcy will affect your employment and salary.
Let’s discuss what happens during a Bankruptcy and review how it can impact your employment and salary.
Bankruptcy is a legal process that provides immediate protection to those experiencing financial struggles. The Bankruptcy process is administered by a Licensed Insolvency Trustee (LIT), who will help you prepare and file all the necessary documents with the Office of the Superintendent of Bankruptcy.
A Bankruptcy stops garnishments on your wages, with the exception of garnishments for support payments, and prevents harassment from creditors. The process typically lasts between nine and 21 months, where you will file monthly income and expense reports with the LIT and pay any required amounts to the LIT.
During the Bankruptcy process, you must attend two financial counselling sessions and provide the LIT with the necessary information to complete your tax returns for the year in which you file Bankruptcy. You will be discharged from the Bankruptcy once you have completed these steps.
You do not have to inform your employer when you file for Bankruptcy. If you are searching for a job, you have no obligation to disclose that you have filed for Bankruptcy if a potential employer does not ask you directly.
Filing for Bankruptcy will not prevent you from being employed in most professions and your employer typically cannot fire you because of your Bankruptcy. However, a Bankruptcy can affect your employment when your position requires you to be bonded. This means your employer requires you to be covered by a fidelity bond to protect against situations such as theft or fraud.
Bonding typically requires you to pass a background check, demonstrate financial responsibility, and have no history of fraud or theft — and many view Bankruptcy as a risk indicator for financial responsibility.
Certain professions, such as lawyers, accountants, or insurance and investment brokers, require you to have a bond and to disclose whether you are currently bankrupt or have been in the past. Your ability to conduct fiduciary duties, such as handling trust accounts, may be limited until you are discharged from Bankruptcy.
If you are a bonded employee, it is important to review your company’s policies or meet with a member of your human resources department. This will help ensure you understand how a Bankruptcy could impact your employment or your job responsibilities.
Bankruptcy typically has a minimal impact on your salary. Your employer cannot reduce your salary, and your wages are protected under provincial and federal labour laws.
You will work with a Licensed Insolvency Trustee (LIT) during a Bankruptcy to pay back your debts. If your wages are being garnished by a creditor, the LIT will inform your employers or payroll department of your Bankruptcy to prevent your wages from being garnished.
However, your surplus income may be seized during a Bankruptcy. The LIT will calculate whether you earn more than the threshold set by the government, and if you earn over this threshold you are required to make surplus income payments during your Bankruptcy.
While this affects the total amount you take home from your salary, a Bankruptcy will not impact your gross salary or how much your employer pays you.
If you are struggling with financial stress and considering Bankruptcy or other debt relief solutions, contact an LIT. These professionals have the knowledge to help you explore all the debt relief options so that you can choose the solution that works best for your unique situation. Together, we can help you achieve a fresh financial start.
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