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
Bankruptcy in Canada has a regulated minimum cost structure. If your income stays below the surplus income threshold, you’ll pay a base fee of $1,800 spread over monthly installments. However, if you earn above $2,543 per month (for a single person), you must pay 50% of the excess to your creditors — and your bankruptcy period extends from 9 months to 21 months.
| 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
Bankruptcy doesn’t mean losing everything. Canadian bankruptcy law provides exemptions that protect essential assets like basic furniture, a vehicle (up to a provincial limit), and most retirement savings. What you may lose depends heavily on your province — Alberta and Saskatchewan offer more generous exemptions than Ontario.
| 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
Not all debts are wiped clean by bankruptcy. Student loans less than seven years old, child and spousal support, and court-imposed fines survive the process. Secured debts like mortgages and car loans also remain unless you voluntarily surrender the asset.
| 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
For most Canadians, a consumer proposal is the better option. It lets you keep all your assets, avoid surplus income payments, and carries a less severe credit rating (R7 vs. R9). Bankruptcy is faster and eliminates 100% of unsecured debt, but the trade-offs — potential asset loss and longer credit damage — make it a true last resort.
| 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
Rebuilding credit after bankruptcy is a marathon, not a sprint. The R9 rating stays on your credit report for six years after discharge, but you can start rebuilding immediately with a secured credit card. Most people see meaningful improvement within two years if they maintain perfect payment habits.
| 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.
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