Personal Bankruptcy

Personal bankruptcy in Canada is a legal process under the Bankruptcy and Insolvency Act that eliminates most unsecured debts. Filed through a Licensed Insolvency Trustee, a first-time bankruptcy with no surplus income can be completed in as few as 9 months. Your credit report will show an R9 rating for 6 to 7 years after discharge.

Last updated: March 2026

Overview

Personal bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act (BIA) that provides relief to individuals who cannot repay their debts. It is administered by a Licensed Insolvency Trustee (LIT) and supervised by the Office of the Superintendent of Bankruptcy (OSB). While bankruptcy eliminates most unsecured debts, it is generally considered a last resort after other options have been explored.

When you file for bankruptcy, most of your assets (except those protected by provincial exemptions) are surrendered to the LIT, who sells them and distributes the proceeds to your creditors. In practice, many people who file for bankruptcy have few non-exempt assets and keep most of their belongings. The main cost of bankruptcy for most Canadians is the surplus income payments they are required to make if their income exceeds a threshold set by the OSB.

According to OSB data, the number of personal bankruptcies in Canada has declined in recent years as more people choose consumer proposals. However, bankruptcy remains an important option for individuals with limited income, few assets, and significant debt who need a fresh start.

Eligibility Requirements

You may qualify if:

+You are insolvent — unable to pay your debts as they come due
+You owe at least $1,000 in unsecured debt
+You are a person (individual), not a corporation (different process applies)
+You are a Canadian resident, or have assets or carry on business in Canada
+You are willing to surrender non-exempt assets to the LIT
+You are willing to make surplus income payments if your income exceeds the OSB threshold
+You are willing to attend two mandatory financial counselling sessions
+You are willing to provide monthly income and expense reports to the LIT
+You have considered alternatives such as a consumer proposal, debt consolidation, or credit counselling
+You are prepared to disclose your complete financial situation to the LIT and creditors

This may not be right if:

-You have sufficient income to fund a consumer proposal that would give creditors more than bankruptcy
-Your debts are primarily secured — bankruptcy does not eliminate mortgage or car loan obligations unless you surrender the asset
-You are unwilling to surrender non-exempt assets or make surplus income payments
-You are primarily trying to discharge student loans less than 7 years old (they are not automatically released)
-You are facing debts arising from fraud, fines, or family support obligations — these survive bankruptcy

How the Process Works

Free consultation with a Licensed Insolvency Trustee

An LIT will assess your financial situation at no charge. They are required by law to explain all available options before you decide on bankruptcy. This consultation is confidential.

Complete financial disclosure

You provide the LIT with a full accounting of your income, expenses, assets, and debts. The LIT uses this information to prepare the bankruptcy documents and determine whether surplus income payments will apply.

Filing the assignment in bankruptcy

The LIT files the assignment with the OSB. An automatic stay of proceedings takes effect immediately, stopping wage garnishments, collection calls, and most legal actions against you.

Surrender non-exempt assets

You surrender assets that are not protected by provincial exemptions to the LIT. Exempt assets vary by province — for example, Ontario allows you to keep up to $7,117 in equity in a motor vehicle, while Alberta exempts household furnishings up to $4,000. RRSPs (except contributions made in the 12 months before bankruptcy) are exempt across Canada.

Monthly income reporting and surplus income payments

Each month during your bankruptcy, you report your income and expenses to the LIT. If your household income exceeds the surplus income threshold set by the OSB (based on Superintendent's Standards), you must pay 50% of the amount over the threshold to the LIT for distribution to creditors.

Two mandatory financial counselling sessions

You attend two counselling sessions covering budgeting, credit rebuilding, and money management. The first session must occur within 60 days of filing, and the second between 210 and 270 days after filing (for a first bankruptcy without surplus income).

Discharge from bankruptcy

For a first-time bankruptcy without surplus income, you are eligible for an automatic discharge after 9 months. If surplus income applies, the period extends to 21 months. A second bankruptcy extends these timelines to 24 months (no surplus) or 36 months (with surplus). The discharge releases you from most unsecured debts.

Costs and Fees

The cost of bankruptcy depends primarily on whether you have surplus income and non-exempt assets. The LIT's base fees are set by the BIA tariff. If you have no surplus income and no non-exempt assets, the cost is the base contribution set by the OSB.

Item	Estimated Amount
Base contribution (no surplus income, no assets)	$1,800 paid over 9 months ($200/month)
Surplus income payments (if applicable)	50% of income over the OSB threshold, monthly
Counselling sessions (2 required)	Included — no separate charge
OSB filing levy	Included in the base contribution

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Timeline

The length of your bankruptcy depends on whether it is a first or subsequent filing, and whether you have surplus income. Surplus income is calculated against thresholds published by the OSB (Superintendent's Standards).

First bankruptcy, no surplus income

9 months

First bankruptcy, surplus income

21 months

Second bankruptcy, no surplus income

24 months

Second bankruptcy, surplus income

36 months

Credit Impact

Credit Rating

Duration on Report

6 years after discharge (first bankruptcy) or 14 years (second bankruptcy)

A first bankruptcy appears on your credit report as an R9 rating (the lowest) for 6 years after your date of discharge (7 years in some provinces). A second bankruptcy remains for 14 years. While this is the most severe credit impact of any debt relief option, many people are able to begin rebuilding their credit within 2-3 years of discharge using secured credit products.

Pros and Cons

Advantages

+Eliminates most unsecured debts, giving you a genuine fresh start
+An automatic stay of proceedings immediately stops wage garnishments, collection calls, and most lawsuits
+The process can be completed in as few as 9 months (first bankruptcy, no surplus income)
+RRSPs and RRIFs are protected (except contributions made in the 12 months before filing)
+Provincial exemptions protect essential assets like basic household furnishings and tools of the trade
+No ongoing obligation once discharged — unlike a consumer proposal, there are no multi-year payment plans

Disadvantages

-Most severe credit impact — R9 rating for 6 to 7 years after discharge
-Non-exempt assets must be surrendered (though many people have few or no non-exempt assets)
-Surplus income payments can make bankruptcy more expensive than expected if your income is above the threshold
-Some debts survive bankruptcy: student loans less than 7 years old, child and spousal support, court fines, and debts arising from fraud
-Your bankruptcy is a matter of public record
-A second bankruptcy has significantly longer timelines and credit impacts (14 years on credit report)

Frequently Asked Questions

Will I lose my home if I file for bankruptcy?

It depends on the equity in your home and your provincial exemptions. If the equity in your home exceeds the provincial exemption amount, the LIT may need to sell the home or you may need to pay the non-exempt equity into the bankruptcy estate. In some provinces (such as Saskatchewan and Alberta), the homestead exemption can be substantial, while Ontario does not provide a homestead exemption under bankruptcy.

What is surplus income and how is it calculated?

Surplus income is calculated based on thresholds published by the OSB, known as the Superintendent's Standards. These thresholds are updated periodically and are based on family size. If your net household income exceeds the threshold by more than $200, you must pay 50% of the excess to the LIT each month. For example, the 2024 threshold for a single-person household was approximately $2,543 per month.

Can I keep my RRSP if I file for bankruptcy?

Yes. Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Deferred Profit Sharing Plans (DPSPs) are protected in bankruptcy under federal law — with one exception. Any contributions made to your RRSP in the 12 months before filing for bankruptcy are not protected and must be surrendered to the LIT.

How long does a bankruptcy stay on my credit report?

A first bankruptcy remains on your credit report for 6 years after your date of discharge (7 years in some provinces, per credit bureau policies). A second bankruptcy remains for 14 years after discharge. Equifax and TransUnion, the two major Canadian credit bureaus, may have slightly different retention periods.

Can I file for bankruptcy if I am self-employed?

Yes. Self-employed individuals can file for personal bankruptcy. Your business income is included in the surplus income calculation. If you operate as a sole proprietorship, the business debts are your personal debts. If you operate through an incorporated company, the company's debts are generally separate from your personal debts unless you have provided personal guarantees.

What debts are not eliminated by bankruptcy?

Several types of debt survive bankruptcy: student loans if you have been a student within the past 7 years, child and spousal support obligations, court-imposed fines and penalties, debts arising from fraud or misrepresentation, and debts for damages caused by assault or certain intentional torts. Secured debts also survive — if you want to keep a secured asset, you must continue payments.

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