Bankruptcy in Canada eliminates most unsecured debts but comes with significant consequences. About 40,000 Canadians file for bankruptcy each year — though consumer proposals have become more popular. Here’s everything you need to know.
How Bankruptcy Works in Canada
- Free consultation with a Licensed Insolvency Trustee (LIT)
- Filing — LIT files paperwork with the Office of the Superintendent of Bankruptcy
- Stay of proceedings — creditors must stop collections, calls, and garnishments
- Duties — attend two financial counselling sessions, report monthly income
- Surplus income payments — if income exceeds threshold ($2,543/month single person, 2025)
- Discharge — debt eliminated after 9–21 months (first bankruptcy)
What Bankruptcy Costs
| Scenario | Duration | Minimum Cost |
|---|---|---|
| First bankruptcy, no surplus income | 9 months | $1,800 |
| First bankruptcy, surplus income | 21 months | $1,800 + surplus payments |
| Second bankruptcy, no surplus income | 24 months | Higher fees |
| Second bankruptcy, surplus income | 36 months | Significantly higher |
Surplus income threshold (2025): $2,543/month for a single person. You pay 50% of income above this threshold.
What You Keep vs. Lose
| You Keep (Exempt) | You May Lose |
|---|---|
| Basic household furnishings | Non-exempt home equity |
| Tools of your trade (varies by province) | Second vehicles |
| One vehicle (up to provincial limit) | Investments (non-RRSP) |
| RRSPs (except last 12 months’ contributions) | Tax refunds |
| Most pensions | Bonuses and windfalls |
| Necessary clothing | Recreational assets |
Provincial exemptions vary significantly — Alberta and Saskatchewan are more generous than Ontario.
Debts NOT Discharged by Bankruptcy
| Debt Type | Still Owed? |
|---|---|
| Student loans (less than 7 years old) | Yes |
| Child/spousal support | Yes |
| Court fines and penalties | Yes |
| Fraud-related debts | Yes |
| Secured debts (mortgage, car loan) | Yes (unless surrendered) |
Bankruptcy vs. Consumer Proposal
| Factor | Bankruptcy | Consumer Proposal |
|---|---|---|
| Debt eliminated | 100% (unsecured) | 50–80% typically |
| Duration | 9–21 months | Up to 5 years |
| Assets | May lose some | Keep all |
| Credit rating | R9 (6+ years) | R7 (3 years after completion) |
| Surplus income | Required | Not applicable |
| Monthly cost | $200+ | Fixed negotiated amount |
| Best for | Overwhelming debt, few assets | Want to keep assets, can afford partial |
Credit Recovery Timeline
| Milestone | Timeframe |
|---|---|
| Bankruptcy discharge | 9–21 months |
| Get a secured credit card | Immediately after discharge |
| Credit score improving | 1–2 years post-discharge |
| R9 removed from credit report | 6 years after discharge |
| Qualify for mortgage (some lenders) | 2–3 years post-discharge |
| Fully rebuilt credit | 6–7 years |
Bottom Line
Bankruptcy is a legal last resort that eliminates most unsecured debt in 9–21 months. Before filing, always explore a consumer proposal — it’s less damaging to your credit, lets you keep all assets, and is now the more popular option in Canada. Consult a Licensed Insolvency Trustee (free initial consultation) to compare your options.
See our consumer proposal guide or how to get out of debt in Canada for alternatives.