Personal bankruptcy in Canada: a complete guide to how it works, what you keep and how it ends

Personal bankruptcy in Canada is a legal process under the federal Bankruptcy and Insolvency Act (BIA). You hand over the property the law doesn’t protect to a Licensed Insolvency Trustee, and in exchange most of your unsecured debts are wiped out when you are discharged. For most people filing for the first time, that discharge comes 9 months after filing, or 21 months if their income is high enough to require extra payments.

Bankruptcy is now the less common of the two formal options. In 2025, Canadians filed 30,289 consumer bankruptcies and 110,168 consumer proposals, so proposals made up 78.4% of consumer filings.¹ Filings have also climbed back from the pandemic lull: total insolvencies under the BIA fell to 92,572 in 2021, then rose to 145,297 in 2025, above the pre-pandemic 2019 level of 140,858.¹ You can see who files, and why, in what the OSB’s debtor profile shows. Bankruptcy still has its place, and this guide explains how it works from start to finish.

What is personal bankruptcy, and who can file?

To file, you must be an “insolvent person” under the BIA. In plain terms, you must live, do business or own property in Canada, owe at least $1,000, and meet one of three tests: you can’t pay your debts as they come due, you have stopped paying them, or everything you own would not cover what you owe if it were sold.²

You can go bankrupt voluntarily by making an assignment: you sign the paperwork with a trustee, who files it with the Office of the Superintendent of Bankruptcy (OSB).³ A creditor owed at least $1,000 can also ask a court to put you into bankruptcy, but that is a separate court process.

Unlike a consumer proposal, bankruptcy has no upper debt limit.

What does a Licensed Insolvency Trustee do?

Licensed Insolvency Trustees (LITs) are the only professionals authorized to administer bankruptcies and consumer proposals. They are licensed and supervised by the OSB, follow a federal code of ethics, and charge fees for consumer files that are regulated by the federal government. The OSB notes that trustees typically do not charge for a first consultation.⁴

Once you file, the trustee takes over communication with your creditors, sells assets that aren’t protected, collects any required payments and distributes the money. You can look up licensed trustees near you in the OSB’s federal directory of Licensed Insolvency Trustees. If you can’t find a trustee willing to take your file, or can’t afford one, the OSB’s Bankruptcy Assistance Program may help, provided you meet its conditions.⁵ Harris & Partners also sets out the steps from first consultation to discharge if you want to see how a file moves in practice.

The stay of proceedings: what stops when you file

A stay of proceedings is a legal freeze on collection. Under section 69.3 of the BIA, once you are bankrupt “no creditor has any remedy against the debtor or the debtor’s property” for a debt provable in the bankruptcy.⁶ In practice:

• you stop paying your unsecured creditors directly;
• wage garnishments end; and
• creditor lawsuits are halted.⁵

The stay has limits. It doesn’t stop a secured creditor, such as your mortgage lender or car-loan company, from enforcing its security.⁶ If you want to keep a house or vehicle with a loan against it, you generally need to keep up the payments.

What you give up, and what you keep

The trustee sells your non-exempt assets for the benefit of creditors. That includes property you acquire before your discharge, such as an inheritance, as well as your income tax refund for the year you went bankrupt.⁷

Several kinds of property are protected:

• Provincial exemptions. Anything exempt from seizure under the laws of your province stays with you.⁷ Each province sets its own list and limits. In Ontario, for example, the exemptions cover necessary clothing, household furnishings and appliances up to $17,091, tools used to earn a living up to $17,362, one vehicle worth up to $8,578, and medical and disability aids.⁸⁹ See our provincial guides for Ontario, British Columbia, Alberta and Nova Scotia.
• Registered plans. Money in an RRSP, RRIF or RDSP is protected, except for contributions made in the 12 months before the bankruptcy.⁷
• GST credit payments and some other prescribed payments for basic needs.⁷
• Property you hold in trust for someone else.⁷

For homeowners, equity is the key question. Equity above your province’s exemption belongs to the bankruptcy estate, which is one reason homeowners with significant equity often look at a consumer proposal instead. If you own something jointly with a spouse, only your share is part of the bankruptcy.⁵

Surplus income: when bankruptcy takes part of your pay

Each year the OSB sets a “Superintendent’s standard”: the monthly amount a household of a given size is considered to need. The standards come from Statistics Canada’s low-income cut-offs for large cities, adjusted for expected inflation.¹⁰ For 2026 they are:

People in household	Monthly standard (2026)
1	$2,716
2	$3,381
3	$4,157
4	$5,047
5	$5,724
6	$6,456
7 or more	$7,188

Source: OSB, Directive No. 11R2-2026, Appendix A.¹⁰

Your trustee starts from your household’s net monthly income, after income tax, CPP and EI. Certain unavoidable costs are then subtracted, such as child or spousal support you pay, child care and medical expenses. Whatever remains above the standard is surplus income. Under $200 a month, you owe nothing extra. At $200 or more, you pay 50% of the surplus to the estate.¹⁰ As the OSB summarizes it, “The larger your family, the more you are allowed to keep; the more you earn, the more you are required to contribute.”⁵

To use the directive’s own example, a single person with $3,500 a month of available income is $784 over the standard and would pay $392 a month.¹⁰ When other people in the household also earn money, your share of the payment is scaled to your share of the household’s income. Trustees check income at the start and again near the end of the basic period, using an average, so a raise or a job loss during the bankruptcy can change the result.¹⁰

Having to make surplus payments also lengthens the bankruptcy (see below).

Your duties during bankruptcy

The BIA puts real obligations on the person who files.¹¹⁵ You must:

• list all your assets and debts truthfully;
• disclose property you sold or gave away before filing, generally going back one year, and five years for transfers made for less than fair value;
• hand over your credit cards;
• send the trustee your pay stubs and household income and expense information each month;
• attend a meeting of creditors if one is called, and an examination by the OSB if asked;
• tell the trustee about address changes and any significant change in your finances; and
• complete two financial counselling sessions.

The two counselling sessions

The sessions are meant to help you understand what led to the bankruptcy and how to manage money afterwards. Their cost is paid by the bankruptcy estate. Skipping them has consequences: you lose your right to an automatic discharge.¹²

How long does bankruptcy last in Canada?

Bankruptcy	No surplus income	With surplus income
First bankruptcy	9 months	21 months
Second bankruptcy	24 months	36 months

Source: Bankruptcy and Insolvency Act, s. 168.1; OSB.¹³⁵

These timelines assume an automatic discharge. Two groups don’t qualify for one. People on their third or later bankruptcy must go to a court hearing. So must people who owe at least $200,000 in personal income tax, where that tax makes up 75% or more of their unsecured debts.¹⁴

How bankruptcy ends: the types of discharge

A discharge is the legal release from your debts. There are several ways it can happen:

• Automatic (absolute) discharge. If no one opposes it and you have completed counselling, the discharge happens on schedule. The trustee then issues a certificate of discharge and sends a copy to the OSB.¹³ Keep that certificate permanently.
• Opposed discharge. The trustee, a creditor or the OSB can oppose your discharge. If the only issues are unpaid surplus income, or a claim that you could have made a workable proposal instead, the matter goes to mediation first. If you then meet the agreed conditions, the trustee issues a certificate of discharge.¹⁴
• Court decisions. If the matter goes to a hearing, the trustee reports on your finances and conduct, and the judge decides the outcome. The court may release you outright, attach conditions (often a set amount to pay first), suspend the release until a later date, or refuse it altogether.¹⁴⁵

What debts are not wiped out by bankruptcy?

A discharge releases you from most debts you had on the day you filed. That includes credit cards, unsecured loans and lines of credit, payday loans and income tax owed to the Canada Revenue Agency. Section 178 of the BIA lists the exceptions.¹⁵ These debts survive:

• court fines, penalties and restitution orders, and debts from bail;
• court awards for intentionally inflicted bodily harm, sexual assault or wrongful death;
• child and spousal support, whether under a court order or an agreement;
• debts from fraud, embezzlement or misuse of money held for someone else;
• debts from getting property or services by false pretences;
• government student loans and apprentice loans, if you file while still in school or within seven years after you stop being a student (a court can shorten this to five years in cases of hardship);
• a creditor’s share of the estate if you failed to list that creditor and they didn’t know about the bankruptcy; and
• interest on any of the above.

How bankruptcy affects your credit

When you file, you are assigned the lowest credit rating.⁵ According to the Financial Consumer Agency of Canada, both Equifax and TransUnion usually remove a first bankruptcy six years after the discharge. TransUnion keeps it for seven years in Newfoundland and Labrador, Ontario, Prince Edward Island and Quebec. More than one bankruptcy stays on your report for 14 years.¹⁶ For comparison, a consumer proposal is removed three years after it is paid off, or six years after you sign it, whichever is sooner.¹⁶

Rebuilding credit after a discharge is possible, but lenders decide case by case and none is obliged to lend to you.⁵

What happens to your spouse and co-signers?

Your debts are your own. A spouse is responsible only for debts they co-signed or hold jointly with you, and creditors can pursue them for those. Anyone who co-signed a loan for you stays responsible for it.⁵

A spouse’s income does matter for surplus income, because the calculation looks at the whole household. If a non-bankrupt spouse refuses to share their income, the trustee uses half the standard for the household’s size, which usually means a larger payment.¹⁰

Bankruptcy or a consumer proposal?

A consumer proposal is available if your debts, not counting the mortgage on your home, are $250,000 or less. You generally keep your assets and repay part of what you owe over up to five years, subject to a creditor vote.¹⁷

In general terms, bankruptcy may make more sense when you own little beyond what your province protects, your income is close to or below the OSB standard, or you can’t realistically afford proposal payments. A proposal is often the better fit when you have home equity or other assets you would lose, or income well above the standard. The law also allows a creditor or trustee to oppose a discharge if you chose bankruptcy when you could have made a viable proposal.¹⁴ Our complete guide to consumer proposals covers that option in detail, and a trustee can compare the real cost of both for your situation.

Frequently asked questions

Can I keep my house if I declare bankruptcy?

Possibly, if your equity is within what your province protects and you keep up the mortgage payments. Equity above the exemption is an asset of the estate, which is why many homeowners consider a proposal instead.⁷

Can I keep my car?

If the vehicle’s value is within your provincial exemption and you keep paying any loan on it, usually yes. A secured lender keeps its rights to the vehicle if you stop paying.⁶⁹

Does bankruptcy clear CRA tax debt?

Income tax owed to the Canada Revenue Agency is generally released at discharge. If you owe at least $200,000 in personal income tax and it makes up 75% or more of your unsecured debts, you cannot get an automatic discharge and must go before a court.¹⁴

What if I receive an inheritance during my bankruptcy?

Property you receive before your discharge, including an inheritance, goes to the estate for your creditors.⁷

Can I file for bankruptcy more than once?

Yes, but each one is harder. A second bankruptcy lasts at least 24 months, a third or later requires a court hearing, and more than one bankruptcy stays on your credit report for 14 years.¹³¹⁶

Footnotes

1. Office of the Superintendent of Bankruptcy, Insolvency Statistics in Canada—2025, Table 2. https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/statistics-and-research/insolvency-statistics/annual-reports/annual-2025 ↩ ↩²

2. Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 2, “insolvent person.” https://laws-lois.justice.gc.ca/eng/acts/B-3/page-1.html ↩

3. Bankruptcy and Insolvency Act, ss. 43 and 49. https://laws-lois.justice.gc.ca/eng/acts/B-3/page-7.html ↩

4. Office of the Superintendent of Bankruptcy, “What is a Licensed Insolvency Trustee?” https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/you-owe-money/what-licensed-insolvency-trustee ↩

5. Office of the Superintendent of Bankruptcy, “Considering bankruptcy.” https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/you-owe-money/you-owe-money-considering-bankruptcy ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰

6. Bankruptcy and Insolvency Act, s. 69.3. https://laws-lois.justice.gc.ca/eng/acts/B-3/page-16.html ↩ ↩² ↩³

7. Bankruptcy and Insolvency Act, s. 67(1). https://laws-lois.justice.gc.ca/eng/acts/B-3/page-14.html ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷

8. Ontario, Execution Act, R.S.O. 1990, c. E.24, s. 2. https://www.ontario.ca/laws/statute/90e24 ↩

9. Ontario, O. Reg. 657/05, Exemptions, s. 1 (amounts as amended by O. Reg. 393/25). https://www.ontario.ca/laws/regulation/050657 ↩ ↩²

10. Office of the Superintendent of Bankruptcy, Directive No. 11R2-2026, Surplus Income, March 27, 2026, paras. 5–7 and Appendices A and B. https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/directive-no-11r2-2026-surplus-income ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶

11. Bankruptcy and Insolvency Act, s. 158. https://laws-lois.justice.gc.ca/eng/acts/B-3/page-25.html ↩

12. Bankruptcy and Insolvency Act, s. 157.1. https://laws-lois.justice.gc.ca/eng/acts/B-3/page-25.html ↩

13. Bankruptcy and Insolvency Act, s. 168.1. https://laws-lois.justice.gc.ca/eng/acts/B-3/page-26.html ↩ ↩² ↩³

14. Bankruptcy and Insolvency Act, ss. 170.1, 172, 172.1 and 173(1)(m)–(n). https://laws-lois.justice.gc.ca/eng/acts/B-3/page-27.html ↩ ↩² ↩³ ↩⁴ ↩⁵

15. Bankruptcy and Insolvency Act, s. 178. https://laws-lois.justice.gc.ca/eng/acts/B-3/page-28.html ↩

16. Financial Consumer Agency of Canada, “How long information stays on your credit report.” https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/information-credit-report.html ↩ ↩² ↩³

17. Office of the Superintendent of Bankruptcy, “You owe money: consumer proposals.” https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/you-owe-money/you-owe-money-consumer-proposals ↩