Bankruptcy shouldn’t be a scary experience. In fact, it should be the exact opposite. Imagine having no debts in nine months and the chance to hit the reset button?

Only someone who has suffered from debilitating anxiety from rising debt will understand quite how exhilarating this can feel.

Most people go through financial hardship at some point in their lives, and some of us need help to fix things from time to time.

Bankruptcy brings financial relief to many Canadians when they need it most.

This step-by-step guide will show you how to file for bankruptcy in Canada.

What happens when you file for bankruptcy?

Bankruptcy is a relatively straightforward process where you give up some of your assets for help with your debts.

You receive legal protection from your creditors, and you no longer need to pay your unsecured debts after the bankruptcy is finished.

Typically, you can eliminate most of your unsecured debts in as little as nine months.

Sounds relatively simple, right?

Well, that’s just one side of the story. There are some disadvantages too.

You could lose assets if they are deemed non-exempt, and your income determines the cost and length of your bankruptcy. It will also damage your credit score.

The good news is that you’ll receive the best possible advice when you have a knowledgeable and experienced Licensed Insolvency Trustee who understands the bankruptcy process.

Trustees have the knowledge and expertise to work with you to resolve your debt problems, and they are the only ones that can legally administer bankruptcy or a consumer proposal.

But crucially, only a trustee can offer creditor protection to stop wage garnishments and legal action.

If bankruptcy isn’t the best solution, your trustee will give you honest, impartial advice based on your circumstances, providing you with the means to make the best decision possible.

How to file for bankruptcy

Here are the steps you will take if you want to file for bankruptcy:

1. Check that bankruptcy is right for you

1. Check if bankruptcy is right for you

The first step is to acknowledge that you need help with your finances.

Ask yourself some questions:

  • Are you behind on your bills, over the limit on credit cards, or behind your mortgage?
  • Are you living month to month using payday loans or using credit cards to survive?
  • Are collection agencies harassing you daily?

If you answer yes to most of these questions, you are most likely insolvent, meaning you cannot pay your debts to lenders on time.

Bankruptcy could be right for you if you have low or no income and your assets are worth less than your debts. If this isn’t you, you may benefit from another debt relief solution, such as a consumer proposal, debt consolidation or non-profit credit counselling.

The bottom line: instead of burying your head in the sand, talk to someone who can help you halt the snowball effect of debt.

2. Gather your information

2. Gather your information

Before you speak to a Licensed Insolvency Trustee, gather all your financial information. Make a list of all your debts, and then collect evidence of the amounts you owe.

The best way to do this is to find paperwork or statements from each creditor. If you don’t have paper copies, download them from the creditor’s website.

If you cannot find this information, you can check your credit report to see the creditors you owe money to and the amount owed.

You’ll be asked to supply evidence of your debts, income, expenses and assets. This allows the trustee to compare your debts with your assets and plan for bankruptcy.

3. Find a Licensed Insolvency Trustee

3. Find a Licensed Insolvency Trustee

The next step is to find a Licensed Insolvency Trustee.

When you want to file for bankruptcy or enter into a consumer proposal in Canada, you must appoint a licensed professional called a Licensed Insolvency Trustee. Only trustees can administer and discharge you from your bankruptcy.

What’s more, trustees can offer creditor protection that can freeze interest on your debts, stop legal action from debt collectors, stop wage garnishments and even reduce your debt under certain circumstances.

All trustees are licensed and regulated by the Office of the Superintendent of Bankruptcy (OSB).

They will explain all of your debt relief options and ensure you have all the information you need to decide.

For your convenience and because bankruptcy rules differ based on where you live, you should find a local trustee.

Using our network of knowledgeable and experienced trustee firms, we can connect you to local Licensed Insolvency Trustees throughout Canada.

This is a free and confidential consultation with no obligation to proceed.

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Another way is to use the trustee registry if you want to browse yourself.

When it comes to declaring bankruptcy or filing a consumer proposal, don’t use debt settlement companies, which will just charge an upfront fee to refer you to a trustee. Never pay for trustee advice or for someone to prepare documents beforehand.

Remember: your initial consultation with a trustee is free.

4. Meet with a Licensed Insolvency Trustee

4. Meet with a Licensed Insolvency Trustee

So, your debts have become unmanageable, and you are interested in filing for bankruptcy.

When you have found a Licensed Insolvency Trustee in your area, schedule a free consultation and bring the information discussed in step one.

Trustees have the knowledge, experience and expertise to get you out of debt. A trustee will review your financial situation during your initial consultation and discuss the various solutions that could fix your debts.

Bankruptcy is not your only option: debt consolidation, non-profit credit counselling and a consumer proposal are some of the alternatives available to you.

If an alternative is less costly and far simpler, the trustee will advise. For example, if you have equity in your home, your trustee might recommend a consumer proposal, so you don’t lose it.

Depending on where you live, the rules for assets are different. Your trustee will outline what applies to you, and if bankruptcy is your best course of action, the trustee will recommend it. They aim to provide you with sound advice to make an informed decision.

All advice is impartial, and a trustee will never pressure you into a particular solution. The trustee’s job is to advise on the best possible solution to your problems.

If you decide to proceed with bankruptcy, a trustee will:

  • Guide you through the bankruptcy process from filing to completion.
  • Help you complete the necessary forms.
  • File your paperwork with the OSB.
  • Liaise with your creditors.
  • Manage and distribute payments to your creditors.
  • Handle your non-exempt assets.
  • Attend creditor meetings and any necessary hearings.
  • Guide you through your financial counselling sessions.
  • Ensure you are discharged from your debts promptly.

5. Paperwork, taxes, assets and filing

5. Paperwork, taxes, assets and filing

Paperwork

When filing for bankruptcy, your Licensed Insolvency Trustee will present you with legal documents to complete and sign. These forms will ask you about your debts, income and expenses, employment, property and assets.

Before you sign, the trustee will have explained these in detail to ensure you understand what you are signing. You must check the information is correct, so read these documents carefully.

Here’s a tip: always keep a copy of all the documents relating to your bankruptcy in case you need to provide them to a credit bureau or lender.

Taxes

Before filing, the trustee will file any outstanding tax returns up to the date of your bankruptcy. Any due taxes and penalties owed to the CRA will be included in your bankruptcy.

Assets

As part of your bankruptcy, your trustee will be responsible for seizing any assets that you aren’t allowed to keep under the federal and provincial exemption rules.

You must also let your trustee know if you have sold any assets before filing for bankruptcy and make them aware of any new assets you receive while you are bankrupt, such as an inheritance or windfall.

Each province and territory has bankruptcy exemptions that allow you to keep some assets, so you won’t lose everything if you file for bankruptcy. For example, you can protect your vehicle from seizure up to a certain dollar value. There are also provisions that may help you to keep your home.

Your trustee will advise which assets you are allowed to keep if you file. Your trustee will also help you calculate the equity in your home to determine the best way to protect it.

Filing

Your Licensed Insolvency Trustee will file your bankruptcy with the Office of the Superintendent of Bankruptcy (OSB).

The OSB will issue a Certificate of Appointment, confirming your bankruptcy.

A Stay of Proceedings is initiated, and your creditors are notified. At this stage, you’ll receive immediate protection from your creditors from now until the end of your bankruptcy.

Under the Bankruptcy and Insolvency Act, a Stay of Proceedings is written into law:

69.3 (1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.

Source: Justice Laws Website: Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)

Because of this legislation, bankruptcy stops all creditor action. Collection calls and legal action from creditors will stop. Wage garnishments are also lifted.

As this is the law, creditors must conform to these rules, and they can only have it lifted by applying to the court. This is rare because the creditor has to prove that court action is necessary or has valid grounds to do so.

If this happens, you can defend yourself in court to ensure the Stay of Proceedings remains in place.

After filing, you will stop making payments to your unsecured creditors and start to make payments towards your bankruptcy.

Get debt relief

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Creditor meeting

On rare occasions, a creditor meeting can be called by creditors who hold at least a 25% share of your debts or if the representative of the Office of the Superintendent of Bankruptcy (the Official Receiver) requests one.

A meeting also occurs if your realizable assets are more than $15,000. This is called an ordinary administration bankruptcy. However, most bankruptcies are classed as a summary administration because the assets are less than $15,000.

Creditor meetings are often held so creditors can find out more about the bankruptcy.

If a meeting goes ahead, you will be required to attend along with your Licensed Insolvency Trustee, who will prepare the necessary documents for your meeting.

You may also have to answer several questions about the causes of your bankruptcy under oath from the OSB, but this is rare.

They may want to know more about why you became bankrupt or find out more information about your specific situation.

A creditor meeting isn’t anything to be worried about; just answer any questions that the creditors ask.

Joint bankruptcy

Joint bankruptcy is when two people file for bankruptcy together as one file because they share the same debts.

To qualify, both debtors should share equal responsibility for most of the debts in question.

See also: Joint bankruptcy

6. Bankruptcy duties

6. Bankruptcy duties

In bankruptcy, you must carry out bankruptcy duties before you can be discharged. Your trustee will explain these duties to you.

Such bankruptcy duties include:

  • Cooperate with the trustee.
  • Disclose all of your assets and debts before and during bankruptcy.
  • Disclose any assets that were sold or given away before bankruptcy.
  • Surrender your non-exempt assets and credit cards.
  • Submit proof of income, income tax return information, and other necessary documents.
  • Attend a creditor meeting or examination if required.
  • Make your payments on time.
  • Tell lenders that you are bankrupt when applying for credit.
  • Attend two financial counselling sessions.

Under the Bankruptcy and Insolvency Act, it is an offence if you do not tell a lender that you are bankrupt when borrowing more than $1000. If you fail to do so, you could be fined, imprisoned or both.

You might also have to pay surplus income if your income is over the limit set by the OSB. This is calculated when you provide evidence of your income and expenses.

All this is relatively straightforward, and your trustee will guide you through your duties.

Source: The OSB: When Bankrupts Fail to Respect their Obligations

7. Payments

Bankruptcy payment

When you file for bankruptcy in Canada, your income determines how much you pay.

If you earn more than the income threshold set by the Office of the Superintendent of Bankruptcy, you will be liable for surplus income payments, and it will extend your bankruptcy.

If your income goes up, so does the cost of your bankruptcy, along with the time it takes to be discharged.

You will be required to submit proof of your income each month to determine if you need to pay surplus income payments or not.

In a solution such as a consumer proposal, the payment is fixed and will never change.

See also: Consumer proposal vs bankruptcy.

Find out more: let us put you in touch with a Licensed Insolvency Trustee in your area.

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8. Financial counselling

Financial counselling sessions

To be discharged from bankruptcy, you must attend two financial counselling sessions.

There, you will learn how to manage your finances better. These sessions will be explained to you by your trustee.

  • You must complete the first financial counselling session within 60 days of the date you went bankrupt.
  • You must complete the second financial counselling session within 210 days of the date you went bankrupt.

9. Discharge and life after bankruptcy

Discharge and life after bankruptcy

Once you have completed your bankruptcy duties, you are eligible for discharge.

A discharge means that you are released from the legal obligation to repay debts that existed when you filed your bankruptcy.

Some debts are excluded from your discharge and will still have to be paid:

  • Support payments to a former spouse or children.
  • Fines or penalties imposed by the court.
  • Debts from fraudulent activity.
  • Student loans if less than seven years have passed since you stopped being a student.
  • Secured debts such as a mortgage or car loan.
  • Property taxes.
  • An award by a civil court for damages arising from personal or sexual assault.

Your bankruptcy period can be extended if you have been bankrupt before, or you are required to pay a surplus income, which would also increase the cost of your bankruptcy.

  • If this is your first bankruptcy and you have no surplus income, you will be eligible for discharge after nine months.
  • If this is your first bankruptcy and you have surplus income, you will be eligible for discharge after 21 months.
  • If this is your second bankruptcy and you have no surplus income, you will be eligible for discharge after 24 months.
  • If this is your second bankruptcy and you have surplus income, you will be eligible for discharge after 36 months.
  • third bankruptcy requires a discharge hearing in bankruptcy court. The court will decide if you should be discharged and when.

A discharge will release you from the debts included in your bankruptcy filing.

You will be automatically discharged in nine months if you meet the following criteria:

  • This is your first bankruptcy.
  • Your creditors, your Licensed Insolvency Trustee, or the OSB do not oppose your discharge.
  • You were not required to pay any surplus income.
  • You have completed your financial counselling sessions.

This is known as an absolute discharge. If you receive an absolute discharge, you will not be required to attend court. If you do not receive an automatic discharge, you will have to go to court to discharge your bankruptcy.

Your discharge can be opposed by your creditors, your Licensed Insolvency Trustee or the OSB.

If someone opposes, the court will review your case and make one of the following decisions:

Absolute discharge: you are released from your debts included in the bankruptcy.

Conditional discharge: an absolute discharge will be granted when you meet some conditions, e.g. pay money.

Suspended discharge: your absolute discharge will be granted at a future date.

Refused discharge: the court has refused your discharge.

Source: The OSB: Bankruptcy Discharge and its Consequences for the Bankrupt

Discharge certificate

Once you are discharged, your debts are eliminated, and you can look forward to your financial future with a clean slate.

At this stage, your trustee sends you a discharge certificate to confirm the completion of your bankruptcy. Keep this discharge certificate in case you ever need to prove that you were successfully discharged.

Important: If you don’t think you have been discharged from bankruptcy, you must contact the Licensed Insolvency Trustee, who managed your bankruptcy.

They will explain why you have not been discharged and what you need to do. You will be bankrupt until you receive a discharge, so it is vital to resolve this.

If you cannot remember your Licensed Insolvency Trustee, contact the Office of the Superintendent of Bankruptcy.

Credit score

Bankruptcy damages your credit score.

Filing for bankruptcy will result in the lowest possible credit rating (9) for your credit accounts, and your credit score will be severely affected.

If you are a first-time bankrupt, it will appear on your credit report for six years after discharge. Subsequent bankruptcies will appear on your credit report for 14 years.

If your credit score is already suffering due to missed or late payments, filing bankruptcy could be the first step towards repairing your finances.

After bankruptcy

Once your bankruptcy is discharged, your debts will be eradicated.

While bankruptcy lowers your credit score, you can start rebuilding your credit.

During your financial counselling sessions, you will learn better spending habits and the use of credit, but it won’t make you an expert overnight. You can learn more about credit scores and how to improve yours through our credit score hub.

It’s vital to check your credit report regularly after bankruptcy so you can keep an eye on any changes and ensure that your debts are correctly marked as resolved.

If you spot any errors, you should let the credit bureaus know and request a correction.

See also: How to read a credit report

Public record

Each bankruptcy is recorded by the Office of the Superintendent of Bankruptcy.

They are public records, meaning that anyone can access them through the OSB website, although you must pay a fee to access this information so most people won’t look.

See also: Who will know about my bankruptcy?

Conclusion

By reading this guide, you’ll understand the bankruptcy process better. We hope it gives you the confidence to take the first positive step towards financial freedom, whether you file for bankruptcy or find another way.

Let’s recap briefly. Bankruptcy can provide significant financial relief. By giving up some assets, your debts are discharged at the end of the bankruptcy term, and you are free from your debts.

You will be guided every step of the way by a financial expert called a Licensed Insolvency Trustee. If you decide to file for bankruptcy, your trustee will help you complete and sign the necessary forms.

Once your paperwork has been filed, your Licensed Insolvency Trustee will act as an intermediary between you and your creditors to ensure everyone is treated fairly.

Because bankruptcy is a legal process regulated by the Bankruptcy and Insolvency Act, there are rules to ensure you are looked after.

Once you are declared bankrupt, you no longer need to pay your unsecured creditors. Legal action, collections, wage garnishments, and communication with creditors will stop.

Creditors cannot take any further legal steps to recover the money owed.

This is only one of the many options available to you.

It is important to remember that bankruptcy is not the only option.

While there are many advantages, ensure that you’ve explored other solutions such as debt consolidation, non-profit credit counselling and a consumer proposal. You could also look into the possibility of arranging an informal repayment plan with your creditors.

So, that’s how to file for bankruptcy in Canada.

If your debts have become unmanageable and you want to file for bankruptcy, or you just need advice on dealing with your debts, connect with a local trustee today for a free consultation.

Get debt relief

Free consultation with a Licensed Insolvency Trustee by video, phone or in person.

  • Experienced trustees
  • Local offices
  • Personalized plan
  • No fees
Get started

It only takes 30 seconds.

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