Bankruptcy is a legal process in which an insolvent person (someone who owes more than they own and cannot repay their debts as they come due) assigns their non-exempt assets to a Trustee. They are thereby released from their obligation to pay back the eligible debts. All legal actions are stopped in a bankruptcy under consumer protection law (the Bankruptcy and Insolvency Act). You must be discharged from bankruptcy after a set period of time.

Depending on a few things, a bankruptcy can be between 9 and 36 months. A normal, basic bankruptcy is 9 months. If certain basic duties are not performed, a court can extend the length of a bankruptcy to any length and impose conditions on your discharge.

The bankruptcy law sets out a key alternative to bankruptcy: a consumer proposal.

Your bankruptcy is an individual action – it will not affect the credit rating of your spouse or your family.

An individual is allowed certain personal exemptions on their property in a bankruptcy. This means you can keep your car if it is under a certain value. And you can keep your house if it has no equity value. You are also allowed to keep all personal effects such as furniture and jewelry, provided you have nothing that is of significant value (e.g., art collection, expensive hobby car etc.).

During an insolvency proceeding in Canada under the Bankruptcy and Insolvency Act, a bankrupt is not allowed access to unsecured credit of any kind (credit cards, lines of credit). The point is, essentially, to stop the bleeding. If you are having your existing unsecured debt discharged in a bankruptcy filing, it would not be right to be incurring additional unsecured debt simultaneously. This is also consistent with the financial rehabilitation concept of bankruptcy: the idea is to emerge debt-free.

But you ARE allowed to have secured debt during a bankruptcy. So that means car loans, mortgages, home equity loans, and the like. But it also means you can apply for a secured credit card, which would allow you to make purchases online, rent cars, etc. A secured card means giving the lender a security deposit, and then using the card to make purchases. The credit limit is usually very low, which helps maintain spending discipline. It also allows you to rebuild your credit during bankruptcy, as the card is tied to your credit bureau.

It depends on a number of factors, such as your income, what you own (excluding personal exemptions) and if you have been bankrupt before. It can cost as little as $1,800 ($200 for 9 months) in a basic bankruptcy.

All unsecured debts:

  • Credit card balances
  • Lines of credit
  • Personal loans
  • Retail cards (Future Shop, the Bay etc.)
  • Bank account overdrafts
  • Payday loans
  • Utility balances
  • Personal income tax owing
  • Student loan balances (must be out of school more than 7 years)
  • Shortfalls on secured loans

Your responsibility for your debts is released in a bankruptcy, but not that of anyone who has co-signed or guaranteed a debt of yours. They are then responsible for the entire debt balance.


You are legally obligated to tell the Trustee about any lottery winnings. You would only lose whatever amount was required to cover your bankruptcy obligations. The rest you would keep.

Licensed Insolvency Trustees spend a lot of time dispelling myths about bankruptcy in general. There is a lot of misinformation on the internet, especially, which people often take as gospel: if it’s in writing, it must be true! Let’s take a minute to review some of the most common ones we hear.
(Also, people really like lists these days, so we’ll even do it in list form.)
If you prefer this in video form, I’m here on You Tube.
Here are the Top 5 myths about bankruptcy in Canada:

#1. I will lose my house & personal possessions

First, it is the equity in a house that is of interest to the trustee – in other words, would there be any money left over after sale costs? If not, then keep your house during a bankruptcy. As long as you keep paying your mortgage, you can keep your house. If your house does have equity, Ontario property legislation allows you $10,000 in exemption. So you’d have to have over $10,000 in equity before the house was of interest to the trustee. And even then, if you made a settlement with the trustee to pay the equity into the estate, you could keep your house and that equity payment would be distributed by the trustee to the creditors. Very few trustees actually seize houses these days because of these factors. As far as personal possessions, there are also exemptions for this, but unless there are significant items such as fine art which could be liquidated, personal items are not seized.

#2. My trustee will tell me what I can spend my money on

Also false. The trustee assists the bankrupt in laying out a personal monthly budget that is reasonable, but it is a guideline based on income. Since income is reported monthly during a bankruptcy, the trustee sees where you money is going, and provided it is reasonable there is no need for any issues regarding the bankrupt’s discharge.

#3 I will go to jail

Absolutely not. This is not a Dickens novel. Debtor prisons existed long ago, but the spirit of the bankruptcy law today is rehabilitative in nature – i.e., the government wants you to have a fresh start. Bankruptcy law is not meant to be punitive.

#4 My spouse/partner’s credit will be affected

Totally untrue. Nobody can cause credit harm to another person simply by virtue of filing a bankruptcy in Canada. Even married people cannot do any credit harm to each other. If you have joint debts, of course, and only one person files bankruptcy, the other is liable for that debt, but that would have been the case anyway.

#5 I will not be able to renew my mortgage

Almost every client with a conventional mortgage asks this as often their mortgage is coming up for renewal during the time of bankruptcy. Mortgages are usually amortized over a maximum of 25 years. Interest rates are set for specific periods. When the rate comes up for renewal, it is usually a formality with a conventional bank and as long as you are current with your payments there should not be an issue.

Talk to an expert


What some of our satisfied clients are saying


Howard & Deanne








Len & Jody




Jan, Restaurant Owner
