In this guide
What is bankruptcy?
Personal bankruptcy is a legal process under the Bankruptcy and Insolvency Act that eliminates most of your unsecured debt. A Licensed Insolvency Trustee handles the filing, deals with your creditors, and takes you through to discharge.
You hand over any assets that aren’t protected by law, perform certain duties, and, in exchange, you’re released from debts you can’t repay.
When you file, you make payments based on your household’s monthly net income. If you own assets that aren’t protected, they may be sold to help repay your creditors, but you may be allowed to keep them if you repay the trustee what they are worth.
Most people are declared bankrupt through no fault of their own. They just need some help to get back on their feet. It is a positive step for people drowning in debt that they cannot repay.
1. Free assessment with a Licensed Insolvency Trustee
Bankruptcy starts with a free, confidential meeting with a Licensed Insolvency Trustee. This is the only professional licensed by the government to file for bankruptcy or a consumer proposal in Canada.
The trustee reviews your income, debts and assets, then explains your options. Bankruptcy isn’t always the right choice. The trustee reviews your income, debts, and assets, then explains your options. Bankruptcy isn’t always the right choice.
A trustee is mandated by law to walk you through all available options and to make a suggestion based on your circumstances, so they will tell you if a consumer proposal or another route fits you better.
You don’t pay to have this conversation. The first consultation is free, there’s no charge to have your paperwork prepared, and you’re under no obligation to file.
2. Filing and the stay of proceedings
Once you decide to go ahead, the trustee files your bankruptcy with the Office of the Superintendent of Bankruptcy. From that moment, you’re legally protected from your creditors.
A stay of proceedings is put in place the day you file. Collection calls stop very shortly. Wage garnishments are lifted for most debts. Lawsuits and other legal action from unsecured creditors have to stop.
Your creditors are notified directly by the trustee, so you don’t have to deal with them yourself. That’s often the first real breathing room people get in months.
3. Your duties during bankruptcy
You have duties to complete before you can be discharged from bankruptcy, and failing to do so delays your discharge.
Each month, you report your household income to the trustee, and attend two credit counselling sessions. The trustee deals with your creditors and manages any assets that aren’t protected.
You will be required to make payments based on your income.
The typical first time bankruptcy for someone with low income is about $200 per month.
If you earn above the government’s threshold for your family size, your bankruptcy will be extended by 12 months, and you will also be required to make surplus income payments. You pay half of any income exceeding the threshold by more than $200.
Source: Office of the Superintendent of Bankruptcy Canada – Directive No. 11R2-2026, Surplus Income
4. Discharge
Discharge is the finish line. It’s the point at which your unsecured debts are wiped out, and you’re legally released from them.
If you complete your duties, a first-time bankruptcy with no surplus income ends in nine months. Surplus income extends it to 21 months. A second bankruptcy takes longer, beginning at 24 months and extending to 36 months if you have surplus income.
After discharge, you’re free of the debts included in the bankruptcy, and you can start rebuilding your credit.
How long does bankruptcy take?
Most people are surprised by how quickly it can be completed. A first-time bankruptcy with no surplus income is discharged in nine months.
| Your situation | Time to discharge |
|---|---|
| First time with no surplus income | 9 months |
| First time with surplus income | 21 months |
| Second time with no surplus income | 24 months |
| Second time with surplus income | 36 months |
Source: Office of the Superintendent of Bankruptcy Canada – Directive No. 11R2-2026, Surplus Income
How long it takes depends on your income and whether you’ve filed before. For more, see our guide on how long bankruptcy lasts.
Who can file for bankruptcy in Canada?
You can file for bankruptcy in Canada if you owe at least $1,000 in unsecured debt and can’t pay it. You also have to meet the definition of being insolvent.
There’s no maximum debt limit and no minimum income requirement. You don’t need a job to file.
You don’t have to be a Canadian citizen either. If you live in Canada or own most of your property here, you qualify.
What debts does bankruptcy eliminate?
Bankruptcy clears most unsecured debts, including credit cards, unsecured lines of credit, personal loans, payday loans, and bank overdrafts.
It also clears CERB overpayments and other government debts, 407 tolls, utility arrears, and money owed to family or friends. All debts you have must be included – we can’t leave any particular creditor or person you owe money to out of the bankruptcy.
Tax debt is included, unless the CRA registered a lien on your property before you filed your bankruptcy. Student loans can be discharged, too, but only if you have been out of school for more than 7 years.
What debts survive bankruptcy?
Some debts stay with you. Secured debts like your mortgage and car loan don’t go away unless you wish to give up the asset, so you keep paying if you want to keep the asset.
Child and spousal support, court fines, and any debt from fraud or misrepresentation can’t be discharged. Student loans also survive if you have been in school within the last 7 years.
If the CRA registered a lien on your property before you filed for bankruptcy, that lien remains attached to the property even after your bankruptcy ends.
What will bankruptcy cost?
It costs money to file bankruptcy, but it’s usually the least expensive way to deal with serious debt. As of 2026, the base cost for a first-time bankruptcy with no surplus income or assets starts around $1,800, paid in monthly instalments.
If you have a higher income or assets to protect, you’ll pay more, and a consumer proposal might work out better.
Trustee fees are set by federal law and deducted from what you pay. There are no hidden charges. For the full cost breakdown, see our guide on the cost of bankruptcy.
Will you lose your house or your assets?
You won’t lose everything. The law protects certain assets so you’re not left with nothing, and what’s protected depends on your province.
People commonly keep household furniture and clothing, a vehicle up to a set equity limit, some home equity, tools of their trade, and RRSPs, apart from contributions made in the last 12 months.
In Alberta, for example, up to $40,000 of equity in your principal residence is protected.
You will lose your tax refund for the year that you filed bankruptcy, and the refunds for any years prior to the bankruptcy that you haven’t already received.
If an asset isn’t exempt, you can often keep it by paying the trustee its value. To learn more, see our guides on bankruptcy exemptions and keeping your house in bankruptcy.
How bankruptcy affects your credit
Bankruptcy lowers your credit score, and a first bankruptcy stays on your credit report for six or seven years after discharge, depending on the credit bureau and your province.
That sounds harsh, but if your score’s already low due to missed payments, bankruptcy can stop the damage from getting worse and let you start again.
And that is simply how long it remains on your credit report. You can work up to a decent credit score well within that timeframe, as long as you show good financial habits, which you should learn about during your required counselling sessions.
A second bankruptcy stays on your report much longer. For more, see our guides on how long bankruptcy stays on your credit report and getting a credit card after bankruptcy.
Is bankruptcy worth it?
Bankruptcy is simple. You eliminate debt you can’t repay, collection calls stop, wage garnishments end, and interest freezes the day you file.
The trade-off is your credit. It takes a hit and stays on your report for years. For most people already behind on payments with little chance of catching up, it’s still worth doing.
Weigh up the pros and cons of bankruptcy so you can decide.
Bankruptcy vs a consumer proposal
Bankruptcy is a last-resort option. The main alternative is a consumer proposal, and for many people, it’s the better option.
A consumer proposal is a legal agreement to repay part of what you owe, with the rest forgiven. You make fixed, interest-free monthly payments for up to 60 months, and you keep your assets.
| Bankruptcy | Consumer proposal | |
|---|---|---|
| Debt cleared | Most unsecured debt | Part of your debt is forgiven |
| Payments | Based on income, can change | Fixed for the whole term |
| Assets | Non-exempt assets at risk | You keep your assets |
| Typical length | 9 to 21 months (first-time) | Up to 60 months |
The big difference is your assets. In a consumer proposal, you keep them, which is why many Canadians choose it over bankruptcy. Compare the two side by side on our consumer proposal vs bankruptcy page.
What is a Licensed Insolvency Trustee?
A Licensed Insolvency Trustee is a federally regulated professional, and the only one allowed to file and manage a bankruptcy or consumer proposal in Canada. They’re licensed and overseen by the Office of the Superintendent of Bankruptcy.
The trustee protects your interests and those of your creditors. They handle the paperwork, deal with creditors, arrange the counselling sessions, and take you through to discharge.
Watch out for unlicensed “debt consultants.” Only a Licensed Insolvency Trustee can legally file a bankruptcy or proposal. You can check any trustee’s licence on the OSB’s public registry.
When should you consider bankruptcy?
Bankruptcy is worth considering if you can’t keep up with your payments, you’re stuck making only the minimum payments while balances never drop, or you’re facing wage garnishment, a lawsuit, or constant collection calls.
If you’ve got assets to protect and a reliable income, a consumer proposal is often the better choice. Talk to a Licensed Insolvency Trustee to find out which debt relief option is right for you.
Frequently asked questions
Does bankruptcy clear all debt?
No. Bankruptcy doesn’t clear all debt. It clears most unsecured debts, such as credit card debt, loans, overdrafts, utility arrears, tax debt, and student loans if you haven’t been a student for seven years. It doesn’t cover secured loans, support payments or court fines.
Does bankruptcy clear CRA tax debt?
Yes. Bankruptcy eliminates tax debt in most cases, as long as the CRA hasn’t registered a lien on your property before you file. If a lien is already in place, it stays attached to that property even after discharge.
Can student loans be included in bankruptcy?
Yes. Student loans can be included in bankruptcy, but only once you’ve been a student for at least seven years. Before that, student loans survive bankruptcy, and you keep paying them.
Can bankruptcy stop wage garnishment?
Yes. Bankruptcy can stop a wage garnishment. The stay of proceedings that starts when you file bankruptcy stops wage garnishments, lawsuits, and collection calls from unsecured creditors.
Do you lose your house if you file for bankruptcy?
Not automatically. Depending on your province, you can keep some or all of your home equity if you file bankruptcy, and you keep paying the mortgage if you want to stay.
Do you lose your car in bankruptcy?
You can keep your car in bankruptcy by continuing your loan payments, as long as your equity is within the vehicle exemption limit in your province.
Will bankruptcy affect your spouse?
Not on its own. Your spouse’s credit and finances aren’t affected by your bankruptcy unless you share joint debts, in which case creditors can still pursue them for the joint balance.
Is a consumer proposal better than bankruptcy?
It depends. A consumer proposal lets you keep your assets and make fixed payments, which suits people with steady income. Bankruptcy is usually faster and cheaper if you have little income and few assets. Compare a consumer proposal vs bankruptcy.
Get free debt advice
Get free, honest debt advice from a Licensed Insolvency Trustee by video, phone, or in person. The first consultation is completely free.
You don’t pay to meet a trustee or to have any paperwork prepared. Book a free assessment and find out whether bankruptcy or a consumer proposal is the right move for you.
