Will Bankruptcy Erase All Of My Debt?

The intention of Canadian bankruptcy law is to provide honest and overextended debtors the opportunity for a financial fresh start. In many cases, that means a bankrupt individual will be completely debt free once they receive their discharge from bankruptcy.

However, this is not always the case.

The Bankruptcy and Insolvency Act of Canada lists several classes of "non-dischargeable" debts which will survive a bankruptcy. It is important to understand what these are, so you can mentally and financially prepare yourself before moving forward. Also, so you can decide whether bankruptcy is the best Life-Changing Debt Solution for your unique situation.

Fines, Penalties and Restitution

Bankruptcy will not expunge any debt imposed by a court, resulting from a criminal or civil offense.

Common examples include:

• Parking and speeding tickets
• Bail
• Criminal fines
• Damages awarded in bodily harm or wrongful death suits

Spousal and Child Support

Bankruptcy affects neither current nor back payments of alimony and child support. The supporting party must continue providing court ordered maintenance payments during and following the bankruptcy.

Moreover, the stay of proceedings which eliminates current and future collections action does not apply to spousal and child support payments. Therefore, the bankrupt individual must also make efforts to catch up on any arrears throughout the bankruptcy process.

Fraud or Misrepresentation

Bankruptcy does not protect individuals from debts resulting of their own fraudulent behaviour. This applies broadly to cases of embezzlement, misappropriation of funds, defalcation while acting in a fiduciary capacity or (in Quebec) as a trustee or property administrator for others, as well as property gained and lost under false pretences.

For example, a family trust manager who — without permission — used that money to fund their own personal investments could not use bankruptcy to offset or eliminate their responsibility for any losses.

Student and Apprentice Loans

Government student and apprentice loans have a seven-year exemption period from bankruptcy protection. In other words, if an individual claims bankruptcy within seven years of their final day of studies or apprenticeship, they cannot have those debts discharged through bankruptcy. 

With that said, there are two critical exceptions to be aware of:

For government loans – individuals experiencing significant financial hardship may petition the courts to reduce the exemption period to five years instead of seven. For this to occur:

• The bankrupt individual must be able to demonstrate they have previously acted in good faith in their attempts to repay these loans
• The bankrupt individual must be able to demonstrate they will be unable to repay the debt even once they receive a discharge from their other debts through bankruptcy

For bank loans made to students – these do not qualify for the seven-year exemption period. If an individual secured student financing through a non-government lender, those debts will always qualify for bankruptcy protection.

Other Exceptions

Failure to report assets: For the general benefit of their creditors, bankrupt individuals must report all assets, income and dividends which they currently possess or expect to earn through the duration of their bankruptcy. They will be liable for anything not disclosed to their Licensed Insolvency Trustee.

Accrued interest on exempt debts: Because the above debts are exempt from discharge through bankruptcy, any interest these debts accumulate will also be unaffected by bankruptcy proceedings and the responsibility of the bankrupt individual to pay.

Free Confidential Consultation

Bankruptcy may be an effective option for many people to achieve a financial fresh start. However, it's not the only option. During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your financial situation and help you find the Life-Changing Debt Solution that's right for you. They'll weigh factors such as the type(s) and volume of debt you have, what you're able to contribute and which path will get you closest to defeating debt for good. Whether that's bankruptcy, a Consumer Proposal or other option, a Licensed Insolvency Trustee can provide the insights and perspective you need to make the best choice for your unique set of circumstances.