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Bankruptcy FAQ

Learning about bankruptcy can be a little confusing. There’s an overwhelming amount of information out there that can leave people uncertain of how to decipher it all. To help demystify the bankruptcy process, we’ve gathered up all the Bankruptcy FAQ and answered them here.

What exactly is bankruptcy?

Bankruptcy is a debt relief solution in which you turn in some of your assets to a Licensed Insolvency trustee (LIT). The trustee then sells those assets to help pay for your debts. With that done, you are discharged from the rest of your debt. This financial reset helps you concentrate on securing your financial future.

Will bankruptcy eliminate all my debts?

For the most part, bankruptcy will eliminate most of your debts. However, some debts will remain even if you file for bankruptcy.

Here is a list of debts that can’t be eliminated because of bankruptcy: 

  • Parking and speeding tickets
  • Bail debts
  • Lawsuits 
  • Criminal fines
  • Child support 
  • Spousal support
  • Student loans (they are not exempt until 7 years after repayment starts) 

How much does it cost to go bankrupt?

If you decide to file for bankruptcy, your fees will be determined by your income, expenses, assets, and the size of your family. If your income is higher than the allowable amount for your family, you may have to pay 50% of your additional income to your trustee and your creditors. 

The Bankruptcy and Insolvency Act sets the amount you must pay.

Bankruptcy filing costs at least $2,250 for the first time. This is paid by way of the monthly payments made for the duration of the Bankruptcy. This covers the cost of government fees, financial counselling sessions, and your bankruptcy trustee.

Will I lose everything?

Contrary to popular belief, you won’t lose all your belongings when you file for bankruptcy. Here is an interesting fact: what you can keep is determined by what province you live in. In Ontario, you can keep a car that is less than $7,117 in PEI you can keep a car that is less than $6,500.

Depending on certain factors, such as value and province/territory of residence, assets that may need to be surrendered include;

  • Household furniture
  • Appliances
  • Clothing
  • Registered Retirement Income Funds
  • Tax refunds and benefits
  • Home equity

How long will I be bankrupt?

Typically, the court will discharge a first bankruptcy after nine months. However, certain factors, such as surplus income, can lengthen the time. While the actual duration of a bankruptcy is relatively short the impact lasts longer. For example, a first bankruptcy is reported on a credit report for 7 years, and a second for 14 years.

Who will know I have filed for bankruptcy?

Bankruptcies are a part of the public record. Essentially, this information is available publicly for a lifetime. That being said, it’s really only the first 7 years, when it’s reported on a credit report, that anyone else can accesses it fairly easily. Even then it’s only landlords, lenders and the occasional employer that may take the effort to look at it. After it’s dropped off a credit report it’s extremely rare for anyone to access it. In fact, anyone who wants to access that information will need to pay for it.

How long will bankruptcy remain on my credit report?

The first bankruptcy filing will be on your credit report for around 6 to 7 years after it is discharged. If you file for bankruptcy a second time, it can stay on your credit report for about 14 years. 

Can my wages be garnished in bankruptcy?

Your wages will stay safe during a bankruptcy settlement. Once you file for bankruptcy, all collections activity stops. This means creditors won’t call or email you. They also won’t attempt to garnish your wages. However, if your income exceeds the allowed limit during the bankruptcy, you will be required to surrender surplus money to your trustee to be disbursed to creditors.

Will bankruptcy affect my spouse?

Generally, your bankruptcy will not affect your spouse. The only exception is if they’ve cosigned a loan or have joint accounts with you that are a part of the bankruptcy.

Do I qualify for bankruptcy?

For the most part, your LIT will decide if you are personally eligible for bankruptcy. However, here are some basic criteria: 

  • You must have 1000 dollars or more of unsecured debt
  • You must be a Canadian resident 
  • You must have insufficient income to pay off all your debts in full
  • You must not have more assets than you have debts. 

How long does bankruptcy take?

Typically, most people complete bankruptcy for the first time between nine to 12 months. For a second bankruptcy, it may take some people between 24 months to 36 months.

What are the steps to filing for bankruptcy?

To help you learn about the process of filing for bankruptcy, we have outlined below some steps to the bankruptcy process.

Step 1: Contact your LIT

The first thing you will need to do if you think bankruptcy is the right debt solution for you is to consult with a LIT. A LIT can look at your assets, expenses, and financial situation and determine if this debt solution is right for you. Here are some reasons that a LIT may consider if they think bankruptcy is the right choice for you:

  • You are under financial stress and don’t make enough money to pay off all your debts.
  • You have been getting harassing emails and phone calls from creditors to pay off your debt. 
  • You don’t qualify for other debt relief solutions such as a consumer proposal, debt consolidation, or a debt management plan. 

After carefully examining your financial situation, your LIT will determine if you are eligible for bankruptcy or if another debt relief solution is more appropriate.

Step 2: Your LIT files the necessary paperwork

After determining that you are eligible for bankruptcy, your LIT will file the necessary paperwork with the Office of the Superintendent of Bankruptcy. Your LIT will submit two documents: 

  1. Assignment document declaring the transfer of property control to the bankruptcy trustee for your creditors’ benefit. 
  2. Statement of Affairs document outlining your assets, liabilities, income, and expenses.

These forms will help you sign off some of your assets to your trustee, except the ones that are exempt from the bankruptcy process. To learn about which ones are exempt from the process, it is best to ask your LIT about your province’s exemptions.

You may also be responsible for handing over tax forms to your LIT and showing proof of income. You may also need to give your trustee evidence of your expenses and your family’s financial situation.  

Step 3:  Your LIT notifies creditors

Your LIT will let your creditors know that you have filed for bankruptcy. If need be, the LIT will meet with the creditors. During the meeting, they will:

  • Provide your bankruptcy details to creditors.
  • Confirm the trustee’s appointment
  • Choose up to five inspectors to oversee the administration of your bankruptcy.
  • Grant the ability for creditors to provide instructions to the trustee.

Step 4:  You will need to make payments

You will make payments to your trustee, who will then distribute them to your creditors. Your trustee will decide the amount you need to pay based on your income and lifestyle. You will need to sign off some of your assets to your trustee, and they will use these assets to help pay off your debts. 

Step 5: Bankruptcy Timeline

Completing certain tasks will be vital as you go through the nine-month bankruptcy process. Here is a list of duties that you will need to complete while you are going through bankruptcy: 

  • You are required to go to two financial counselling sessions. The first one should be done within 3 months. The second one may be done before the end of your bankruptcy process. In these sessions, you will talk about the reasons behind your financial troubles, how to budget effectively, ways to improve your credit score, and how to set financial goals. 
  • You must give your LIT the needed documents and information to complete your tax returns for the year you file for bankruptcy. 
  • You must complete monthly income reports with your LIT. These reports will assist you in tracking and controlling your expenses, as well as creating a budget.
  • Your LIT requires you to pay any necessary amounts. These payments include both administration costs, as well as, any surplus income payments.

Step 6: Bankruptcy discharge 

Bankruptcy discharge happens within approximately 9 to 21 months. This occurs after you have completed all the necessary steps as mentioned earlier, and if a creditor does not object to your discharge.

You will not be released from bankruptcy until you complete all the required steps. Any steps outlined in a court order must be completed before discharge will be granted.

Step 7: Debt-free life

During your bankruptcy financial counselling sessions, your trustee will discuss how to rebuild your credit score. Also, they will advise you about some steps that you can take to get your overall finances back on track. If you follow the steps outlined by your trustee, you will be on your way to boosting your financial health.

Pros and Cons of Bankruptcy

Bankruptcy is a great debt relief solution, however, it does have some drawbacks to it. If you’re considering bankruptcy, it’s wise to know about its pros and cons. 


  1. Provides relief from overwhelming debt burdens and allows for a fresh financial start.
  2. Stops creditors from taking legal action, garnishing wages, or contacting you for payment.
  3. Can waive or reduce certain types of debts, such as credit card debt or personal loans.
  4. Bankruptcy protects exempt assets.
  5. Offers access to financial counselling and resources to improve money management skills.


  1. Bankruptcy remains on your credit report for a significant period, making it harder to access credit in the future.
  2. The sale of non-exempt assets, including certain vehicles or non-exempt property, fund creditor repayment.
  3. It can affect your professional life, as some professions have specific rules regarding bankruptcy status.
  4. Doesn’t eliminate all debts – obligations like child support payments, court-ordered fines, and student loans are generally not discharged through bankruptcy.
  5. Doesn’t solve underlying financial issues that may have contributed to needing to go bankrupt.

What are some great alternatives to bankruptcy?

Two of the best alternatives to bankruptcy are consumer proposals and debt management plans. 

A consumer proposal is an effective debt relief solution. It involves consolidating your debts and negotiating with your creditors to pay a reduced amount. Generally, you’ll pay as little as 50% or 80% of what you owe your creditors.
Credit counselling agencies offer a debt reduction service called debt management plans. Specifically, these programs help you pay off your debts over time by combining them into a single monthly payment. This program often offers lower interest rates and waived fees, making it simpler to reduce the amount you owe by as much as 20% – 30%.

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