How Bankruptcies Work in Canada – A Step-by-Step Guide
By Jordan Evans
Is bankruptcy a practical solution for your debt problems, and what does the bankruptcy process in Canada actually involve? When you’re struggling to keep up with your bills and the collection calls and letters won’t stop, easing your money stress is naturally top of mind. And bankruptcy might come to mind. Most of us are familiar with the word ‘bankruptcy,’ but far fewer of us understand how it actually works or what the long-term implications are.
Here’s an overview of what to expect if you’re considering bankruptcy in Canada, and key points you might not be aware of.
What is Bankruptcy?
The short answer is that bankruptcy is a legal solution for your unsecured debts. It’s a formal process governed by the federal Bankruptcy and Insolvency Act, and it usually only becomes an option once it’s clear you can’t realistically repay what you owe and you’ve explored your other choices. While only unsecured debts are included in a bankruptcy, your secured debts and related assets are very much involved as well.
If you’re researching bankruptcy and alternatives online, watch out for American bankruptcy terms, e.g. Chapter 7, 11, and 13. These don’t apply in Canada. Our system is overseen by the Office of the Superintendent of Bankruptcy (OSB), and it works quite differently.
What Are the Steps Involved in Declaring Bankruptcy?
Declaring bankruptcy is a 10-step process, but it’s not something you do on your own. The only way to file bankruptcy in Canada is through the services of a Licensed Insolvency Trustee, formerly known as a bankruptcy trustee. Trustees are licensed by the OSB and must follow strict guidelines and procedures to help you obtain your discharge from the bankruptcy process. For a full breakdown of each stage, see our step-by-step bankruptcy process guide.
Personal Bankruptcy in Canada – All the Information You Need to Know
Get Help to Understand Your Financial Situation and Options
You may already know you’re in trouble. You’re missing payments on your secured and unsecured debts, your credit cards are maxed out, and your accounts have been handed over to collection agencies. Don’t wait to contact us and meet with a professional Credit Counsellor to talk through your next steps.
While bankruptcy might be the first thing that comes to mind, alternative options include debt management programs, debt consolidation, debt settlement, or a consumer proposal. Get professional advice and answers to your questions before deciding on the best way to deal with your debts.
It’s a hefty decision, so take your time. If your creditors want an answer, let them know you’re meeting with one of our Counsellors and that you’ll get back to them after you’ve had your appointment. When you’re past due, creditors are usually relieved to hear that you’re asking us for help. It tells them action is finally underway, and most are happy to wait a week or two for the details. And if you come across a creditor who is unfamiliar with the Credit Counselling Society (CCS), suggest that they review our website and reach out. We have a dedicated team of specialists who would be happy to answer their questions and explain how we help clients.
Meet with a Licensed Insolvency Trustee
Your Credit Counsellor will refer you to a Licensed Insolvency Trustee if bankruptcy looks like it could be the right option for you. We don’t charge for this referral, and we’ll give you several names of trustees you can contact. Everything you and your Credit Counsellor discuss will help you get ready for that appointment. In fact, the majority of our clients surveyed who needed the services of a bankruptcy trustee, reported that seeing one of our Counsellors first helped them be more prepared for the appointment with the trustee.
Choosing the right trustee matters, since they’ll be your advisor throughout the process, from filing your paperwork to pointing you toward rebuilding your credit once you’ve obtained your discharge. You should never have to pay an up-front fee for a referral to a trustee, and your initial consultation, where you’ll go over your income, assets, and debts, is free. Keep in mind that once you assign yourself into bankruptcy, it’s very difficult to change your mind, so it’s worth carefully weighing all your debt relief options first.
Questions to Ask a Trustee
Going into that first meeting with a trustee can be nerve-wracking. To get the most out of your appointment, it can help to jot your questions down ahead of time. You may want to ask:
- Are you a Licensed Insolvency Trustee registered with the Office of the Superintendent of Bankruptcy? (If you verified their licensing ahead of time, you may want to ask about their experience instead, such as how long they have been a trustee, or what they like best/least about being a trustee.)
- Based on my income, debts, and assets, would a consumer proposal or another option serve me better than bankruptcy?
- What will happen specifically to my house, car, RRSP, and other assets I own?
- What could make my bankruptcy take longer?
- How will this affect my credit rating, and what does rebuilding look like afterward?
- What happens if a creditor opposes my discharge?
Your trustee should be able to answer all of these clearly, and in a way that you understand. If you’re unsure about their answers, it’s worth asking again or speaking with a different trustee. As long as you don’t sign anything at a first appointment and only use it to gather information, you will be able to have an initial appointment with another trustee elsewhere if need be.
Filing for Bankruptcy
Once you decide to file for bankruptcy, your trustee prepares the paperwork based on the information you provide, including your income, assets, debts, living situation, and overall circumstances, and then files it with the court. At that point, you’re officially considered bankrupt.
Once your bankruptcy is filed and accepted, an automatic stay of proceedings kicks in. This means your creditors must stop trying to collect what you owe, they can’t start new legal action against you, and they can’t garnish your wages.
Your trustee will walk you through the whole process, including your responsibilities and obligations, so you know what’s needed to obtain your discharge and complete the bankruptcy process.
Can I Declare Bankruptcy and Keep My House?
What Happens to Your Debts and Assets When You Go Bankrupt?
Each province allows you to keep a certain amount of assets when you go bankrupt, but anything beyond that will need to be sold or cashed in to pay toward your debts. Your trustee, as an officer of the court, sells your assets for you. Not all unsecured debts are wiped out through bankruptcy either. Typically, student loans that are less than seven years old, family support payments and arrears, and certain court fines are notable exceptions.
Bankruptcy can also affect your family, even if they aren’t the ones filing for insolvency. If any of your debts are joint or co-signed, the co-borrower is responsible for the payments if you are bankrupt. RESP money set aside for your kids’ education can be seized, contributions made to your RRSP in the 12 months before you filed will go toward paying your debts, and equity in your home or vehicle may be lost. You’ll also give up your tax refunds during the time you are bankrupt and your trustee files your returns for you.
Can I Keep My Car If I File for Bankruptcy?
Obtaining Discharge and Getting Back on Track
Staying in touch with your trustee throughout the process is important so that you actually obtain your discharge. Once the burden of collection calls and steep minimum payments is behind you, you’ll have new responsibilities as you start with a clean slate.
You’ll need to cover your trustee’s fees and other administrative charges, which can add up. You’re also required to stay accountable by providing monthly income statements to your trustee and attending your mandatory credit counselling sessions to build better financial habits. If a discharge hearing is required in your case, your trustee will explain what to expect and help you prepare.
Costs and Fees for Bankruptcy in Canada
Bankruptcy takes a toll on your credit rating, and it takes real effort to rebuild your credit afterward. Debts included in your bankruptcy typically stay on your credit report for six to seven years after your discharge date, depending on the credit bureau and your province, though lenders may keep their own internal records longer. There’s also a good chance a financial institution won’t want to lend to you again if you owed them money when you went bankrupt.
Where to Get Help to Decide If You Should Enter the Bankruptcy Process?
Declaring bankruptcy is a big decision, and not one to enter into lightly. The process itself takes time, nine to 21 months for a first bankruptcy and longer for subsequent bankruptcies. There are requirements you must meet to obtain your discharge, so that you don’t end up lingering in limbo. Because bankruptcy is a legal process and a matter of public record, it could also affect your employment, including self-employment, professional licensing, or ability to be bonded. That’s why many people explore the alternatives to bankruptcy first. You never know what the future holds so there’s no sense making a decision for the short-term that could limit you long-term. Contact us now and one of our Credit Counsellors would be happy to walk you through the process, answer your questions, and give you the information you need to decide if declaring personal bankruptcy is right for you. Appointments are free, confidential, and without judgement. We’re simply here to help you.
Last Updated on July 3, 2026
