Personal Bankruptcy in Canada – Top 20 FAQs to Consider

If you’re struggling to pay your bills every month, you may be thinking about bankruptcy to help you relieve these financial pressures. Filing for personal bankruptcy can be a viable option if you have unsecured debt you can’t pay and you’re worried about legal actions your creditors may initiate.

As with any life decision this big, we’re sure you have many questions. Below, we briefly answer the top 20 personal bankruptcy FAQs that Canadians like yourself have asked. If you’d like more detailed answers specific to your circumstances, please feel free to reach out to us. We’ve helped numerous Canadians in the same situation achieve a fresh financial start.

Top 20 Personal Bankruptcy in Canada FAQs

What Is Bankruptcy?

Personal bankruptcy is a legal proceeding in Canada governed by the Bankruptcy and Insolvency Act. Personal bankruptcy offers relief to individuals who cannot meet their monthly financial obligations and may need help to get their overwhelming debt under control. This insolvency proceeding can offer Canadians a fresh financial start in as little as nine months.

Do I Qualify for Personal Bankruptcy in Canada?

To file personal bankruptcy, you must be insolvent. To be insolvent you must meet the following requirements:

• You are unable to meet your monthly financial obligations when they’re due; or
• Your assets are worth less than your debts;

and

• You owe at least $1000 in unsecured debt.
• You reside, do business, or hold most of your assets in Canada.

If you meet these requirements, you’re able to file for personal bankruptcy in Canada.

How to File for Bankruptcy Without a Lawyer?

A lawyer isn’t needed to file for personal bankruptcy in Canada. That being said, this isn’t a legal proceeding you can initiate on your own. By law, a Licensed Insolvency Trustee (LIT) is the only entity licensed and regulated to initiate a personal bankruptcy proceeding on your behalf.

What Debts Does Bankruptcy Affect?

Insolvency proceedings, such as personal bankruptcy, can only discharge unsecured debt. This would include:

• Credit Card Debt
• Payday Loans
• Unpaid Utility Bills
• Overdue Rent
• Money Owed to Service Providers

Secured debt, such as mortgages and car loans or debts incurred through fraud, remain unaffected by personal bankruptcy.

Can Bankruptcy Clear Student Loans?

That depends. If you have been a full- or part-time student in the past seven years, your student loan debt will remain largely unaffected by personal bankruptcy. If you’ve been out of school for more than seven years, all of your school loans can discharged in as few as nine months through personal bankruptcy depending on your specific circumstances.

Can Bankruptcy Clear Tax Debt?

For the most part, yes. If you’re unable to pay your current or past-due income taxes, they may included and discharged through personal bankruptcy. For this to happen your tax debt must not be related to fraud or tax evasion.

Can Bankruptcy be Denied?

Unlike a consumer proposal, creditors can not vote down your personal bankruptcy filing. That being said, if your Licensed Insolvency Trustee finds evidence of debt through fraud, the hiding of assets, or misrepresentation of your income and expenses, they may refuse to file personal bankruptcy on your behalf, or potentially refer your file for investigation by the Office of the Superintendent of Bankruptcy.

Will Debt Collectors Keep Bothering Me After Bankruptcy?

No. Once personal bankruptcy is filed, an immediate stay of proceeding is initiated. This means all legal action to recover unsecured debt must stop. This includes:

• Collection Calls
• Past Due Notices
• Wage Garnishments with very few exceptions
• Legal Threats
• Court Action
• Freezing Bank Accounts

Personal bankruptcy offers not just debt relief but relief from legal action related to that debt as well.

What do You Lose When you Declare Bankruptcy?

The belief that you’ll lose everything by filing bankruptcy is unfounded. Unless you own assets with significant value, it’s unlikely you’ll lose much. The assets you will lose in personal bankruptcy could include:

• Vacation Home(s)
• Rental Properties
• High-value Household Items
• Certain Investments
• Collectibles (art, antiques, jewelry, etc.)
• Second Vehicles
• Recreational Vehicles

Certain assets are exempt and vary by province. The only way to be certain of what you’ll lose is to contact a Licensed Insolvency Trustee.

How to File for Bankruptcy and Keep your Car?

Rules for keeping your car during bankruptcy vary by province. As a general rule, if your car falls below a certain value, it is exempt from being taken to pay your creditors. It may also be exempt if it is leased or financed for near its value and the payments are up to date.

If you File for Bankruptcy what Happens to Your House?

If you are up-to-date on your mortgage payments, your house cannot be foreclosed upon to pay your creditors in a personal bankruptcy proceeding. If you have equity in your home, you may need to use that equity to pay your unsecured creditors. The amount of equity in your primary residence that is exempt from being liquidated to pay your debts varies by province.

What is the Downside of Filing for Bankruptcy?

While personal bankruptcy offers debt and legal relief from your creditors, it’s not without its downsides, which could include:

• Lower Credit Score
• Difficulty Obtaining Credit
• Loss of Non-exempt Assets
• Loss of Home Equity
• Difficulty Renting

Discussing the advantages and disadvantages of personal bankruptcy with a Licensed Insolvency Trustee is important. This will give you a better understanding of how it will affect you and your family. 

How does Bankruptcy Affect your Spouse?

Filing for personal bankruptcy should have no effect on your spouse’s credit rating or finances. The only time your spouse will be affected financially will be if:

• They have co-signed for any of your unsecured loans.
• You hold joint, unsecured debts together.

Your debts and credit rating are your own and will not affect your spouse.

Can Bankruptcy Affect My Job?

It’s unlikely that filing for personal bankruptcy will affect your job. The only exceptions would be if:

• You work in banking or finance.
• You must be personally bonded and insured for your job.
• Your job requires a security clearance.
• You’re the director of a corporation.

Speak with an LIT as while there are some exceptions, there is generally little risk to employment.

If you don’t fall within certain job exemptions, it’s illegal for your company to fire you simply for filing for personal bankruptcy.

How Long Does Bankruptcy Last in Canada?

As a general rule, a personal bankruptcy can last:

• 9 Months – First bankruptcy, and you have no surplus income requirements.

• 21 Months – First bankruptcy, and you have surplus income requirements.

• 24 Months – Second bankruptcy, and you have no surplus income requirements.

• 36 Months – Second bankruptcy, and you have surplus income requirements.

To determine if you will have surplus income requirements, you must meet with a Licensed Insolvency Trustee.

How to File for Bankruptcy with No Money Up-Front?

Filing for personal bankruptcy should not require much, if any, money upfront. Your first consultation with your LIT will be free of charge. If you decide personal bankruptcy is your best option, there will be filing fees and costs involved. These costs and fees can be spread out monthly throughout the bankruptcy to make them more manageable.

How Long does Bankruptcy Stay on Credit Report in Canada?

This depends on whether this is your first bankruptcy. If so, personal bankruptcy will stay on your credit report as an R9 rating, the lowest rating available, for six years after it is discharged. If this is your second bankruptcy, the R9 rating can stay on your credit report for up to 14 years after the bankruptcy is discharged.

How Many Times can You Declare Bankruptcy in Canada?

There is no set limit on the number of times you can file for bankruptcy in Canada. That being said, subsequent bankruptcies’ cost, duration, and consequences are more severe after your first personal bankruptcy.

Are there Alternatives to Bankruptcy in Canada?

There are a few different alternatives to personal bankruptcy, including:

• Consumer Proposals
• Negotiating With Your Creditors
• Credit Counselling
• Effective Money Management

There are advantages and disadvantages to each of these personal bankruptcy alternatives. Setting up a free consultation with a Licensed Insolvency Trustee can help you decide which debt relief option is best for you.

Is Filing for Bankruptcy Public Record in Canada?

Yes, but accessing this information requires payment of a fee. As such, it is uncommon for friends, neighbours, your work, etc to find out unless you tell them yourself. Personal bankruptcies are filed and recorded by the Office of the Superintendent of Bankruptcy (OSB). In addition, bankruptcies are also reported to credit bureaus. If someone has your personal information, they can use these agencies to see if you’ve filed for personal bankruptcy.

Were These Personal Bankruptcy in Canada FAQs Helpful?

If you’re drowning in unsecured debt and unable to make your monthly payments, personal bankruptcy might be your best option. We’re hoping these personal bankruptcy FAQs have answered some of your questions about the process. 

If you have additional questions or would like to start the personal bankruptcy process, please feel free to reach out for a free initial consultation. It’s quite possible that within a year, all of the stress and aggravation associated with your financial problems could be a thing of the past.