Money problems can hit anyone these days. Job loss, divorce, losing a spouse, or getting sick can quickly throw your finances off track.
If you're drowning in debt, bankruptcy might help. It gives you a fresh start by clearing some of what you owe so you can move forward.
What is bankruptcy?
Bankruptcy helps when you can't pay your debts anymore. It's a legal way out when you're stuck.
When you file for bankruptcy:
Your credit card and other unsecured debts get wiped out
Creditors must stop bothering you
You get a fresh start
Only Licensed Insolvency Trustees can handle bankruptcies. They work under Canadian bankruptcy law.
When bankruptcy ends, most of your debts are gone for good. You don't have to pay them back.
Who can file for bankruptcy?
You can file for bankruptcy in Canada if:
You owe at least $1,000 in credit cards, loans, or other unsecured debts
You can't pay your bills when they're due
You live in Canada or own property here
You don't need to be a Canadian citizen. Permanent residents can file, and even people living outside Canada who own property here.
Key benefits of bankruptcy
Wipes out most credit card debt, payday loans, and tax bills
Stops collection calls and wage garnishments right away
Can be done in just 9 months
Keeps your essential stuff safe (provincial laws protect basic assets)
But remember: bankruptcy stays on your credit report for six years after discharge.
Most people feel a huge weight lift once they file. If you're drowning in debt, the relief often outweighs the drawbacks.
How much does bankruptcy cost?
You don't need money upfront to file bankruptcy. Your costs depend on what you earn and what you own.
Basic Cost
The minimum is $2,250, paid as $250 monthly for 9 months. This covers government fees and your trustee's work.
Extra Payments If You Make Good Money
In Canada, the more you earn, the more you pay in bankruptcy.
If you make more than the government's limit, you'll pay extra (50% of whatever you earn over that limit). This can stretch your bankruptcy to 21 months for first-timers.
Try our calculator to see what you might pay.
If your income is high, look into a consumer proposal instead - it might be cheaper.
What Stuff Can You Keep?
You don't lose everything in bankruptcy. You can keep:
All your clothes and personal items
Household furniture (up to $14,180)
One vehicle (up to $7,117 in Ontario)
Work tools (up to $14,405)
Most pensions and RRSPs (except what you added in the last year)
But you will lose your tax refund for this year and any past refunds you haven't gotten yet.
If you own valuable things, a consumer proposal might be better.
What debts are discharged in bankruptcy?
Bankruptcy wipes out most unsecured debts:
Credit cards
Personal loans
Installment loans
Bank loans
Payday loans
Unpaid bills
Tax debts
Student loans (if you've been out of school for 7+ years)
These debts don't go away:
Child support and alimony
Court fines
Debts from fraud
Newer student loans (less than 7 years old)
Your mortgage and car loans stay in place. If you keep making payments, you can keep your home and car.
How long does bankruptcy last?
Your bankruptcy length depends on your income and if you've filed before:
9 months: First bankruptcy with low income
21 months: First bankruptcy with higher income
24 months: Second bankruptcy with low income
36 months: Second bankruptcy with higher income
When it's over, you get a discharge certificate that officially releases you from your debts.
How bankruptcy affects your credit
A first bankruptcy stays on your credit report for 6-7 years. A second one stays for 14 years.
Will you get credit again?
Yes. Your credit score can improve within 2 years after discharge if you're careful with money.
Some credit card companies might offer you a card even while you're bankrupt, depending on your situation.
Rebuilding tips:
Get a secured credit card
Pay all bills on time
Keep credit card balances below 30% of your limit
After 6-12 months of good payments, try for another credit card
Check your credit report occasionally to track progress and fix errors, but don't obsess over it. Rebuilding credit takes time.
The bankruptcy process
Bankruptcy in Canada works like this:
Find a Licensed Insolvency Trustee (LIT). These government-regulated professionals help with your money troubles. They'll look at your financial situation after you show them income statements, bank records, and what you own.
Your LIT reviews your options. If you owe less than $250,000, you might qualify for a consumer proposal instead of bankruptcy. A proposal lets you pay back only part of what you owe or gives you more time to pay.
If bankruptcy is your best choice, your LIT will file paperwork with the Office of the Superintendent of Bankruptcy. Once approved, you're officially bankrupt.
Meet with your creditors. Your LIT handles most of this for you.
Your LIT sells some of your assets to pay creditors. Laws in your province decide what you can keep.
Tell your LIT about any job changes or money you receive.
Attend two counselling sessions to learn better money management.
Get discharged from bankruptcy. This erases most debts, but you'll still need to pay child support, alimony, and some other obligations.
Getting back on your feet after debt problems
Life throws financial curveballs at everyone. Whether it's losing your job, going through divorce, losing a spouse, or dealing with illness, money troubles can hit fast.
Bankruptcy isn't your only option when debt gets overwhelming. It's usually a last resort, but it does offer a clean slate when you're truly stuck.
Making the Right Choice for Your Future
Before deciding, weigh all your options carefully:
Bankruptcy works best when you have mostly unsecured debt, low income, and few assets
Consumer proposals might save you money if you have steady income or valuable assets
Credit counselling helps if you can pay everything back but need structure
Whatever you choose, the goal is the same—getting back on solid financial ground.
Moving Forward
The debt relief journey isn't easy, but thousands of Canadians go through it every year. Most people feel immediate relief once they take action. The collection calls stop, the stress decreases, and you can finally sleep at night.
After bankruptcy or a proposal, rebuilding your finances takes time but isn't impossible. Within a couple years of being discharged, you can rebuild decent credit if you stick to good habits.
Remember that financial setbacks don't define you. Many successful people have faced money troubles and bounced back stronger. The key is learning from the experience and creating better financial habits going forward.
This article gives general information only. It's not legal, financial, or professional advice. Talk to a qualified professional about your situation before making decisions.
We try to keep this info accurate and up-to-date, but can't guarantee it's perfect. Our views might change as things develop. KOHO doesn't endorse any third parties mentioned here, their websites, or their services.