What Happens When You File for Bankruptcy in Ontario

TL;DR

When you file for personal bankruptcy in Ontario, a Licensed Insolvency Trustee handles the process under the Bankruptcy and Insolvency Act. An automatic stay immediately stops most creditor actions, including wage garnishments. Ontario's Execution Act sets the exemption limits for assets you can keep. A first-time bankruptcy with no surplus income takes 9 months; with surplus income, it extends to 21 months.

The Filing Process Step by Step

Filing for bankruptcy in Ontario follows a structured process governed by the BIA. Here is what happens at each stage.

Step 1: Initial consultation. You meet with a Licensed Insolvency Trustee for a free assessment. The LIT reviews your income, debts, assets, and monthly expenses. They are legally required to explain all options — including consumer proposals, debt consolidation, and informal repayment arrangements — not just bankruptcy.

Step 2: Filing the paperwork. If bankruptcy is the best option, the LIT prepares and files the assignment in bankruptcy with the Office of the Superintendent of Bankruptcy. This includes a Statement of Affairs listing all your assets, debts, income, and expenses.

Step 3: Automatic stay of proceedings. The moment the assignment is filed, an automatic stay takes effect. This legally prevents most unsecured creditors from continuing collection activities, including phone calls, letters, lawsuits, and wage garnishments.

Step 4: Duties during bankruptcy. You must complete several duties: attend two financial counselling sessions, submit monthly income and expense reports, surrender your tax refunds for the filing year, and turn over any non-exempt assets.

Step 5: Discharge. After the required period, you receive a discharge order that releases you from most unsecured debts.

Ontario Exemption Limits

Ontario's exemption limits, set under the Execution Act (R.S.O. 1990) and its regulations, determine which assets you can keep during bankruptcy. These limits were last updated and are among the more modest in Canada.

Assets you can keep in an Ontario bankruptcy:

• Clothing: Necessary clothing for you and your dependants (no dollar cap)
• Household furnishings: Up to $14,180
• Tools of the trade: Up to $14,405 in tools, equipment, or other items used to earn a living
• Motor vehicle: One vehicle with equity up to $7,117
• RRSPs and RRIFs: All funds except contributions made within the 12 months prior to filing
• Pension plans: Generally protected under provincial pension legislation

Assets that are typically surrendered include: equity in your home above the exemption limits, investments (non-registered), second vehicles, tax refunds for the year of filing, and any cash or bank account balances above what is needed for basic living expenses.

If you have significant assets — particularly home equity — a consumer proposal may be a better option because it lets you keep all your property.

Surplus Income Rules

The OSB sets surplus income thresholds that are updated periodically. If your household income exceeds the threshold by more than $200 per month, you are required to pay 50% of the excess into the bankruptcy estate.

For example, the 2025 threshold for a single person is approximately $2,543/month. If you earn $3,543/month (net), your surplus income is $1,000, and you would pay $500/month into the estate.

Key points about surplus income in Ontario:

• The threshold varies by family size (larger families have higher thresholds)
• It is based on net household income, not gross
• If surplus income exists, a first-time bankruptcy extends from 9 months to 21 months
• Your LIT monitors your income monthly and adjusts payments if your income changes

Use our bankruptcy cost calculator to estimate your surplus income obligations.

What Debts Are Not Discharged

Not all debts are eliminated by bankruptcy. Under the BIA, the following debts survive a bankruptcy discharge:

• Student loans if you have been a student within the past 7 years (this can be reduced to 5 years with a court application showing hardship)
• Child and spousal support obligations
• Court-ordered fines and restitution (including traffic fines)
• Debts arising from fraud or misrepresentation
• Claims for bodily harm intentionally inflicted

Income tax debt, credit card debt, lines of credit, medical debts, and payday loans are all dischargeable in bankruptcy.

Credit Report Impact in Ontario

A first-time bankruptcy in Ontario remains on your Equifax credit report for 7 years after discharge and on your TransUnion report for 6 years after discharge. A second bankruptcy remains for 14 years.

During this period, your credit rating will show as R9 (the lowest rating). Rebuilding credit is possible and advisable — many people begin with a secured credit card shortly after their discharge.

FAQ

Can I file for bankruptcy if I own a home in Ontario? Yes, but you may lose equity in your home. If you have significant equity above the exemption limits, the trustee may require the home to be sold or for you to buy back the equity from the estate. For many homeowners, a consumer proposal is a better option because it allows you to keep your property.

Does bankruptcy affect my spouse in Ontario? Your bankruptcy does not directly affect your spouse's credit or debts. However, if you have joint debts, your spouse remains liable for the full amount. Creditors can pursue your spouse for joint debts even after your bankruptcy discharge.

Can my employer fire me for filing bankruptcy? Ontario law does not specifically prohibit termination based on bankruptcy, but the Human Rights Code protections and employment law principles generally make it difficult for employers to do so. Most employers are not even notified of your bankruptcy unless a wage garnishment was in place.

What about my car loan? If you have a car loan, the vehicle is secured debt. You have the option to continue making payments and keep the vehicle (if the equity is within the $7,117 exemption) or surrender the vehicle and include any shortfall as an unsecured debt in the bankruptcy.

Sources

• Office of the Superintendent of Bankruptcy Canada (OSB)
• Ontario Execution Act, R.S.O. 1990, c. E.24
• Bankruptcy and Insolvency Act (BIA), R.S.C., 1985, c. B-3
• Canadian Association of Insolvency and Restructuring Professionals (CAIRP)