What Is Personal Bankruptcy?

The last resort for debt relief is personal bankruptcy in Canada. It should only be pursued when you cannot cover the amount of debt owed, and all other debt relief options have been considered. Bankruptcy erases debt, but severely damages your credit rating. Other options that may be better include consumer credit counselling, debt consolidation, debt settlement or consumer proposal.

What Is The Bankruptcy Process?

The Bankruptcy and Insolvency Act of 1985 states that those who qualify for bankruptcy are under legal protection for some of the assets they own, while other assets must be surrendered to the trustee so creditors will receive part of what is owed. There are protections in place for both creditors and debtors when filing for personal bankruptcy.

After coming to the conclusion to file bankruptcy it will be necessary to get in touch with a licensed bankruptcy trustee located in the territory or province where you live. The Trustee will set up the bankruptcy trust for assets, with certain exemptions. The creditors will get paid out of this trust by the trustee and there will be specific requirements due to the bankruptcy that you must abide by until it is completely discharged. After a particular waiting period your debts will be legally discharged as long as you have met with the requirements, once discharged, your debt will be erased.

Personal Bankruptcy Qualifications

Because bankruptcy is the last resort for a debt soluction, there are requirements to qualify for a personal bankruptcy, including:

  • Owe $1,000 or more on unsecured debt(s).
  • The individual does not have any way for making the minimum monthly payments due each month.


What Debts Will Bankruptcy Not Erase?

Bankrupcty may give you a clean start, you should understand that not all debt is covered in a bankruptcy. It is only your unsecured debts that can be erased with bankruptcy, and it does not always erase all of those. The following debts are not included under personal bankruptcy:

  • Student loans if debtor was a full-time student less than seven years ago
  • Child support payments
  • Secured debts are not included, such as car loans or mortgages
  • Alimony payments

Are All Bankruptcies The Same?


The basic process of bankruptcy is established by federal law, but each Canadian territory and province can establish additional procedures and exemption amounts that are within federal laws. For more information on bankruptcies in different territories or provinces, check out this provincial bankruptcy exemption guide.

The bankruptcy process has some common factors across all territories and provinces, including:

  • Time period between the filing of bankruptcy and the actual bankruptcy discharge is on the average of nine months.
  • All credit cards must be surrendered to the trustee.
  • Usually, a Retirement Savings Plan that has been registered can be exempt throughout all territories and provinces, excluding the contributions made in the previous year towards the bankruptcy.

Does Bankruptcy Have Disadvantages?

Bankruptcy is attractive to a lot of people because it provides a clean start with your finances. It is thought to be a plus to be debt free and no more calls from collectors. Although, there are two disadvantages to bankruptcy which are significant. First, you are required to let go of some assets, unlike with a consumer proposal. The second is that a bankruptcy will show that you have bad credit for a period of seven years. It will be hard to find creditors to approve you for any type of loan, and even then, you will only be offered a very high interest rate.

Bankruptcy is something an individual should never take lightly, especially since there are so many who are qualifying for other solutions to debt. If you are interested in learning more about bankruptcy or other debt relief options, fill out our debt relief form.


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