Which Debts are Covered by Bankruptcy in Canada?

Bankruptcy is the most obvious method of clearing debts that have become unmanageable, enabling debtors to begin a fresh start financially.

Typically, bankruptcy will clear all unsecured debts at the time of filing, although there are some exceptions. Most often, bankruptcy also covers any interest or penalties pertaining to your debts. Find out more about who can file for bankruptcy, or speak to a Licensed Insolvency Trustee to learn about which debts are covered by bankruptcy in Canada.

Debts covered by bankruptcy

The following list includes most debts that are covered by bankruptcy in Canada:

  • Credit card debts
  • Retail store cards and accounts
  • Unsecured lines of credit
  • Payday loans
  • Personal loans
  • Unsecured bank loans
  • Finance company loans
  • Loans from individuals
  • Outstanding bill payments
  • Instalment loans
  • Tax debts
  • Judgement debts from lawsuits
  • Student loans (provided you have been out of school for at least seven years)

Debts not covered by bankruptcy

The following list includes most debts that are not covered by bankruptcy in Canada:

  • Secured loans – e.g. mortgages, car loans
  • Spousal support payments
  • Child support payments
  • Fraudulent debts
  • Court fines and penalties
  • Restitution orders
  • Alimony
  • Secured liens on property
  • Some gambling debts

Does bankruptcy clear debts?

Filing bankruptcy is the beginning of the process of having any unsecured debts discharged. Once your debts have been discharged, this means that legally, any unsecured debts you have at the time of filing bankruptcy are permanently cleared. It also means that creditors are no longer able to contact you. For debtors, no longer owing these debts provides a huge amount of relief and a fresh financial start. Discover more about who can file for bankruptcy in Canada.

Credit cards after bankruptcy

After filing bankruptcy, you will need to give up any credit cards to your Licensed Insolvency Trustee. At Spergel, you will receive your own trustee to walk you through every step of the bankruptcy process. We will advise on how to make purchases and applying for a secured credit card while bankrupt. Prior to filing bankruptcy, if you made unusual purchases on a credit card without the intention of repaying them, this could be seen as a fraudulent debt. Fraudulent debts are not cleared by bankruptcy, while routine transactions will be discharged by bankruptcy.

Student loans after bankruptcy

In Canada, student loans are treated a little differently to other unsecured debts because they are granted by the government. If you have been out of school for seven years or more, your student loan debt can be discharged by filing bankruptcy. You must ensure to have made effort to repay your student loans before you can have them cleared. In some rare circumstances, student loans can be considered for early discharge after five years. This would need to be based on evidence that effort was made to repay the student loans, including the utilization of assistance programs.

Tax debts after bankruptcy

Whether you are filing bankruptcy or a consumer proposal, both are able to provide relief from tax debt. Handling the Canada Revenue Agency can be an unnerving process when you have outstanding tax debts, so it is a good idea to contact a Licensed Insolvency Trustee. Spergel provides personalized advice tailored to your unique financial situation to help you gain relief from tax debt. It is best to act quickly, as the government has powerful collection procedures, and is able to place a lien on your property.

Secured loans after bankruptcy

Secured loans are any type of loan associated with an asset, including a mortgage or a car loan. Secured loans are treated differently to unsecured loans, and are not subject to automatic clearance through filing bankruptcy. That said, no secured creditor is able to cancel your loan just because you have filed bankruptcy. As long as you are able to make your monthly secured loan payments (e.g. monthly mortgage or car loan payments), you are permitted to keep these associated assets. As property equity is an asset, bankruptcy may not be the most appropriate option, and a consumer proposal may be more beneficial.

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