Bankruptcy in Canada: How It Works

What happens when you file

Once your trustee files the assignment, a stay of proceedings stops most creditors — including wage garnishments and collection calls. Your non-exempt assets are transferred to the trustee, who sells them for the benefit of creditors. You make monthly payments based on your income during the bankruptcy.

Surplus income

The OSB publishes yearly income thresholds based on household size. If your net household income exceeds the threshold, you pay a share of the excess (generally 50%) into the bankruptcy, and a first bankruptcy lasts 21 months instead of 9.

What you can keep

Exemptions are set by provincial law and typically cover basic household furniture, clothing, tools of your trade and, in most provinces, a vehicle up to a set value. RRSPs are generally protected except for contributions made in the 12 months before filing. Home equity is the asset most at risk — this is a key reason people choose a consumer proposal instead.

Debts bankruptcy does not erase

• Child and spousal support
• Court fines and penalties
• Debts from fraud
• Student loans, if less than 7 years have passed since you stopped being a full- or part-time student
• Secured debts, if you keep the asset (the lender keeps its security)

Credit impact

A first bankruptcy typically remains on your credit report for six to seven years after discharge, depending on the credit bureau and province; a second bankruptcy stays longer. A consumer proposal usually leaves your file sooner.

Free tools

Related guides

• Consumer Proposal in Canada: How It WorksHow a consumer proposal works in Canada: who qualifies, the $250,000 limit, the 5-year maximum, the creditor vote, credit impact and what it costs.
• What Is a Licensed Insolvency Trustee?What a Licensed Insolvency Trustee does in Canada, how fees are regulated, what to bring to the first meeting and how to check a trustee's licence with the OSB.
• CRA Tax Debt and the Requirement to PayWhat a CRA Requirement to Pay means, how CRA garnishes wages and bank accounts, payment arrangements, taxpayer relief, and how tax debt fits into a proposal or bankruptcy.