Personal Bankruptcy in Canada
Filing bankruptcy is not necessarily something anyone wants to do, but in many cases it is an essential means of gaining a much-needed fresh financial start. If you are struggling with overwhelming debts and bills you cannot afford to pay, bankruptcy can eliminate your unsecured debts. On this page, we explain exactly what bankruptcy is, what happens when you file bankruptcy, and why it may be a good debt relief option for you. Spergel is a trusted Canadian bankruptcy firm with over thirty years’ experience, helping over 100,000 individuals gain debt relief. Our experienced Licensed Insolvency Trustees handle bankruptcy with compassion and expertise, and all meetings are confidential.
What is bankruptcy?
Personal bankruptcy is the legal process of clearing any overwhelming unsecured debts that cannot be paid. It is designed to help individuals who have found themselves in challenging financial situations to begin a fresh financial future. You assign any non-exempt assets you may have to your Licensed Insolvency Trustee for sale, with the proceeds going to your creditors in exchange for debt relief. When you complete your bankruptcy, you are legally discharged of your unsecured debts and officially gain debt relief. Many Canadians realize they need to file bankruptcy when they are triggered by an activity like a threat of a wage garnishment, or persistent collection calls from creditors. Filing bankruptcy prevents creditors from making collection calls or pursuing legal action, like a wage garnishment or bank account freezes.
While many Canadians think that bankruptcy means you lose all your assets, this is far from the reality. In fact, you can keep some essential items like your home and car, depending on your province of residence. Although bankruptcy may seem like an intimidating process, our experienced Licensed Insolvency Trustees at Spergel will approach your situation with compassion and understanding, and help you to find the right debt relief solution for you Unlike other bankruptcy firms, you will receive your own dedicated trustee at Spergel to walk you through each step of the bankruptcy process, instead of being passed from person to person.
What are the advantages of filing bankruptcy?
You may be wondering if filing bankruptcy is the right form of debt relief for you, and our Licensed Insolvency Trustees can help you to make this decision. There are a number of key advantages of filing bankruptcy over other forms of debt relief:
- All unsecured debts are eliminated
- A fresh financial future
- Most first time bankruptcies are discharged within nine months, allowing you to enjoy life after bankruptcy
- Peace of mind, and often relief from mental health problems caused by financial circumstances
- The cheapest form of debt relief (especially so for those with no non-exempt assets or surplus income) as the cost of bankruptcy is not associated with the amount of debt owed
- Keep essential assets – contrary to popular belief, you do not lose everything when filing bankruptcy. You can keep your home, car, and clothing up to a value threshold – see Ontario bankruptcy exemptions, for example.
- A stay of proceedings – a legal end to collection calls from your creditors and any legal action including wage garnishments, placement of liens, and bank account freezes
- You can begin to save money once you no longer have high-interest debts to repay
What happens when you file bankruptcy in Canada?
Many Canadians considering bankruptcy are understandably concerned about a few aspects of the process – what happens to their assets, their debts, and their credit score.
What happens to your assets when you file bankruptcy?
Contrary to popular belief, bankruptcy does not mean that you lose everything. As a debt relief solution that is meant to set you up for a fresh financial future, it would be counterproductive to take away all of your assets. For this reason, each province allows you to keep essential assets up to a certain value threshold. This includes items like your home, a vehicle, and clothing. See, for example, Ontario bankruptcy exemptions. Any secured debts you have – like a mortgage or a car loan – are kept separate from consumer proposals. Provided you can stay current on your monthly payments, you can keep your associated assets. If you have a lot of equity in your home, you may want to consider a consumer proposal instead.
What happens to your debts when you file bankruptcy?
Bankruptcy can clear the vast majority of your unsecured debts. This includes the following:
- Credit card debt
- Unsecured lines of credit
- Bank loans
- Personal loans
- Payday loans
- Unpaid bills
- Accounts in collection
- Tax debts
- Some types of student loan debt (when you have been out of school for at least seven years)
Secured debts (like mortgages and car loans) cannot be included in a bankruptcy. Despite this, by eliminating all your unsecured debts in a bankruptcy, paying off your secured debts each month can become much more affordable. Provided you continue to make your payments on your secured debts, you can keep your assets, including your home and car.
What happens to your credit when you file bankruptcy?
There is no getting around the fact that bankruptcy will have a negative impact on your credit score. That said, it is temporary and it is likely that you already have a damaged credit score due to your debts and potentially missed or late payments. A bankruptcy remains on your credit report for six to seven years, although some lenders will offer credit before this time period – a secured credit card, for example. Getting new credit can help you to build a credit history, and at Spergel we can help you to rebuild your credit score.
Eligibility: who can file bankruptcy?
In line with the Bankruptcy and Insolvency Act, you are eligible to file bankruptcy in Canada if you are insolvent, which means:
- You owe at least $1,000; and
- You are unable to pay your debts as they come due; or
- You owe more in debts than the value of the assets you owe; and
- You either reside, do business, or have property in Canada
If you meet the eligibility criteria for bankruptcy, one of Spergel’s Licensed Insolvency Trustees can walk you through the process of filing bankruptcy.
Bankruptcy vs consumer proposal: why choose bankruptcy over a consumer proposal?
There are a number of reasons why Canadians struggling with unmanageable debts choose to file bankruptcy over other forms of debt relief like a consumer proposal. For many, it is the best pathway to a fresh financial future. Here are the key reasons many Canadians choose to file bankruptcy over a consumer proposal to clear their debts:
- Unsecured debts are completely eliminated. Consumer proposals can only reduce debts by up to 80% – provided creditors agree to the proposal.
- Most first time bankruptcies are discharged within as little as nine months, while consumer proposals can take up to five years to be completed.
- Creditors have to comply with a bankruptcy, while they can choose to decline a consumer proposal.
Ultimately, if you do not have a significant income or many valuable assets that could be seized, bankruptcy may be the best option. If in doubt, you should speak to an impartial Licensed Insolvency Trustee about your available options and what they recommend for you.
How long does bankruptcy last?
How long a bankruptcy lasts depends on a couple of factors – whether or not you have filed bankruptcy previously, and your income. You can expect to be discharged from bankruptcy in as little as nine months if you meet the following criteria:
- This is your first time filing bankruptcy
- You do not have any surplus income
- You complete your bankruptcy duties, including attending credit counselling sessions and reporting your income each month
If you have surplus income – for example, you receive a pay rise – your bankruptcy will be extended by up to 21 months. This is essentially additional income which you will need to pay more for. If you are filing bankruptcy for a second or third time, you can also expect your bankruptcy to last longer.
What do you have to do during your bankruptcy?
The conditions of filing bankruptcy successfully include fulfilling a number of bankruptcy duties, and working with your Licensed Insolvency Trustee to stay on track. Here are the bankruptcy duties you need to fulfil:
- Sending your Licensed Insolvency Trustee proof of your income each month
- Making any surplus income payments to your Licensed Insolvency Trustee
- Attending two credit counselling sessions
- Attending a creditor meeting, or bankruptcy court if required
If you do not fulfil these bankruptcy duties, you risk your bankruptcy discharge being opposed by your Licensed Insolvency Trustee. This could mean your debts are not eliminated, and you are back to square one so it is important to comply with the terms of your bankruptcy.
What happens after bankruptcy?
Provided you fulfil your bankruptcy duties, once your bankruptcy is finished, you will be officially discharged and receive your certificate. From this point, you are no longer compelled to pay the unsecured debts you filed – they are officially eliminated which can be a huge weight off your shoulders. Many Canadians filing bankruptcy are concerned about their credit, but the situation is likely not as bad as you think. You can secure credit almost immediately after filing bankruptcy, and secured credit cards are a great way to begin rebuilding your credit. You can even secure a car loan after filing bankruptcy – most lenders will look at your income and payment history when making a decision on whether or not to lend. Your interest rate may be higher than before, but at Spergel we will walk you through the steps to rebuilding your credit.
How to find a Licensed Insolvency Trustee in Canada
At Spergel, we understand that bankruptcy is likely not your first option, and your Licensed Insolvency Trustee will first work with you to assess the best debt relief option for you and your financial circumstances. Not everyone will need to file bankruptcy – we will first run through bankruptcy alternatives including debt management plans, debt consolidation loans, and a consumer proposal. As one of Canada’s most trusted bankruptcy firms, at Spergel we are here to support you and help you choose between filing bankruptcy or a consumer proposal. We have been helping Canadians gain debt relief for over thirty years, and we will use our expertise and experience to help you too. Use our debt repayment calculator to see your options.
In order to gain debt relief, you will first need to find a suitable Licensed Insolvency Trustee to help you. At Spergel, we offer a free consultation to review your finances and assess the most suitable debt relief options for you. One of our Licensed Insolvency Trustees will explain the process to you, and answer any questions you might have.
Book your free phone consultation with our caring team to discuss your options and start your journey towards financial freedom.
Find debt help near you
Spergel offers bankruptcy services in the following locations, as well as offering phone and video conferencing services in other areas too. Use the map below to find your closest Spergel office:
Book a free consultation
For easy to understand debt solutions, contact Spergel to begin rebuilding your financial future. With locations across Canada, our experienced trustees will help you to choose the best form of debt relief for you, and walk you through the process each step of the way.
Frequently Asked Questions
What happens to your income during bankruptcy?
Your Licensed Insolvency Trustee will not seize your paycheque during bankruptcy. Instead, the amount that is calculated for you to pay is based on the concept of the more you make, the more you pay. This is also referred to as surplus income, which is based on your total household income and the amount of people in your household. Surplus income affects the overall cost of your bankruptcy. It is only possible to avoid surplus income when you file a consumer proposal instead. Throughout bankruptcy, you will need to share proof of your monthly income so that your Licensed Insolvency Trustee can confirm the right amount for you to pay.
Will filing a bankruptcy affect my spouse or common-law partner and their assets?
Often people are apprehensive that filing a bankruptcy will have a negative affect on their spouse or common-law partner. In most cases, there is no effect at all, and your debt will not appear on their credit report. When you take on debt, that debt is yours and yours only unless you co-sign any debt with a spouse, common-law partner, or anyone else. When you file a bankruptcy, any co-signed debt is the full responsibility of other co-signer. They will also be pursued for collections, and he or she now must pay 100% of the debt. If you have joint debt, you may want to consider a joint bankruptcy.