How long does the Bankruptcy process last?

The past several years have been hard on most Canadians. Many lost their jobs during the COVID-19 pandemic, and, for some, their finances have yet to recover. While the lockdowns are over, inflation is now rampant and high interest rates are making debt increasingly expensive.

You might be looking for a solution to your financial stress, and you could have heard that Bankruptcy will help you achieve a fresh financial start — but you may have questions about the process. One of the most common among these is how long a Bankruptcy lasts and how it impacts your credit score.

It’s worth noting that Bankruptcy is not your only option to achieve a debt-free future. A Consumer Proposal is another solution that could fit your specific needs and free you from your financial stress. Depending on your unique situation, it may also not last as long as a Bankruptcy.

Let’s review the timeline of a Bankruptcy, a Consumer Proposal, and how a Licensed Insolvency Trustee (LIT) can help you explore each of your options to find the best solution.

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Timeline of a Bankruptcy: Nine to 21 months

The Bankruptcy process begins when you meet with an LIT for a Free Confidential Consultation. They will go over your financial situation and help you review all your options to choose the solution that works best for you.

If you decide to declare Bankruptcy, the next step is to prepare and file all required documents with the government. An LIT will assist you throughout this process. Once the paperwork is filed, a Stay of Proceedings comes into effect. This prevents your creditors from phoning or suing you — it also stops wage garnishments and halts any legal action related to your Bankruptcy.

The Bankruptcy period typically lasts nine or 21 months (if you are required to make surplus income payments). During this period, you will:

  • File monthly income and expense reports with an LIT
  • Attend two counselling sessions
  • Provide the LIT with the information they need to complete your tax returns for the year
  • Pay any required amounts to the LIT

Once you complete each of the necessary steps, you will be eligible to be discharged from Bankruptcy, meaning you will no longer be responsible for paying most of your debts.

A first Bankruptcy will impact your credit score for seven years after completion. However, you can get started on improving your credit right after your discharge.

Timeline of a Consumer Proposal: Three months to five years

Like Bankruptcy, the Consumer Proposal process begins when you meet with an LIT for a Free Confidential Consultation. A Consumer Proposal will also stop collection action, interest, and wage garnishments. However, there are a few significant differences between a Consumer Proposal and a Bankruptcy.

A Consumer Proposal can be a more flexible option than a Bankruptcy. It allows you to make an affordable monthly payment to completely satisfy your debt — and you pay back only a portion of the total amount you owe. Additionally, you get to keep all your assets and tax refunds. It will also have less of an impact on your credit report and you won’t have to fill out monthly income or expense reports.

Depending on your situation, a Consumer Proposal may not last as long as a Bankruptcy. However, the majority of your creditors will have to agree to your Proposal before you can begin this process.

If you choose a Consumer Proposal after you discuss your options with an LIT, the next step is to prepare your Proposal for your creditors. The LIT will file all required documents, including a Statement of Affairs and the Proposal. The LIT will also prepare a report and a recommendation to your creditors.

Next, your creditors will review your Consumer Proposal. The LIT will review all claims filed by your creditors and their voting letters after 45 days — if the majority (by dollar value owed) vote in favour of your Proposal, it is considered accepted. If the majority does not accept the Proposal, a meeting will be called to see if you can amend the Proposal to suit both your creditors’ demands and your budget.

If your Consumer Proposal is accepted, you will begin the process of completing the duties outlined in the Proposal. This period can last anywhere between three months to five years. During the process, you will:

  • Make all payments agreed upon within the Proposal
  • Complete the mandatory counselling sessions

You will receive a Certificate of Completion after you have fulfilled your duties and be released from most of your debts. A Consumer Proposal will impact your credit score for three or more years after completion — however, you can begin the process of rebuilding your credit score almost immediately after filing your Consumer Proposal.

Take the steps toward financial freedom

Bankruptcy and Consumer Proposals are both solutions that could help you take control of your financial future. If you are struggling with debt, an MNP LIT can help you go through your options and answer your questions — including how long it will take for you to complete a Bankruptcy or a Consumer Proposal.

Don’t hesitate to take the first step toward financial freedom. A free confidential consultation can help you find the solution that works best for your unique situation and empower you to start your journey toward a debt-free future.

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