How bankruptcy works in Ontario

Posted on 3 October 2023

Written by Ashvin Sharma

Bankruptcy is a legal process that allows individuals and businesses in Ontario and the rest of Canada to manage their overwhelming debts and regain financial stability. It is the process of assigning any non-exempt assets you may have over to a Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. Your assets are then sold, with any proceeds going towards the repayment of your creditors. Understanding how bankruptcy works in Ontario is essential for those considering this form of debt relief. It will help you to be prepared for what is to come, your bankruptcy duties, and the consequences of filing bankruptcy. In this article, we provide an in-depth overview of the bankruptcy process in Ontario, its implications, and the steps involved.

What is bankruptcy?

Bankruptcy is a legal status declared by an individual or a business when they are unable to meet their debt obligations. It eliminated unsecured debt, and involves a formal process of liquidating assets and sometimes establishing a repayment plan to settle debts owed to creditors. When you file bankruptcy, you declare that you are unable to pay your debts due to a lack of income. As well as being in line with the federal Bankruptcy and Insolvency Act, bankruptcy in Ontario is regulated by provincial laws too. The Bankruptcy and Insolvency Act provides guidelines for debtors, creditors, and Licensed Insolvency Trustees throughout the process, and offers protection to debtors.

Who is eligible to file bankruptcy in Ontario?

In order to be eligible for bankruptcy in Ontario, an individual or business must owe at least $1,000 in debt and be insolvent. Insolvency is the state when you are unable to pay your debts as they become due.

How bankruptcy works in Ontario

No two bankruptcies in Canada will look exactly the same, but here is the typical process of filing bankruptcy in Ontario:

Beginning the bankruptcy process

Firstly, you will need to have a consultation with a reputable Licensed Insolvency Trustee. Licensed Insolvency Trustees play a crucial role in bankruptcy. They are the only professionals in Canada legally able to file all forms of debt relief. They will help you to understand the process, ensure you are legally compliant, and act as an intermediary between you and your creditors. Firstly, they will begin by reviewing your finances, before explaining each of your debt relief options. Together, you can then establish whether or not bankruptcy is the most suitable option for you. If so, you and your trustee will file a formal bankruptcy petition with the Office of the Superintendent of Bankruptcy (OSB). At Spergel, unlike other bankruptcy firms, you will be assigned your own Licensed Insolvency Trustee to walk you through the entire debt relief journey, instead of being passed from person to person. We also offer a free consultation and a financial assessment of your situation in order to recommend the best debt solution for you.

Bankruptcy proceedings

The next step of filing bankruptcy is assessing the exemption of assets. Certain assets are exempt from the bankruptcy process, meaning that debts can keep key possessions like household goods, a vehicle, or tools needed for work up to a certain value. See Ontario bankruptcy exemptions. Any non-exempt assets will be sold by your Licensed Insolvency Trustee, with the proceeds going towards your creditors in line with the Bankruptcy and Insolvency Act. If you have surplus income, you will also need to make monthly payments to your trustee, which will then be distributed to your creditors. At this stage, you also need to complete your bankruptcy duties. This includes attending credit counselling sessions, surrendering your credit cards, and sharing any information needed for tax purposes. You must also let your Licensed Insolvency Trustee aware of any major changes to your finances, like a raise. In some instances, you might need to attend a meeting with your creditors.

Discharge from bankruptcy

The goal of filing bankruptcy is to eventually be discharged. If this is your first time filing bankruptcy, this will typically happen within nine months. Once you receive your discharge from bankruptcy, you will receive a Certificate of Discharge to show that you are finally debt free. There are a few different types of bankruptcy discharge:

  • Automatic discharge – you will be automatically discharged from bankruptcy after nine months (if it is your first bankruptcy), and after two years for a second or subsequent bankruptcy
  • Conditional discharge – in some instances, the court might grant a conditional discharge depending on your circumstances and compliance with your bankruptcy duties

Once you have been discharged from bankruptcy, you are free to enjoy life after bankruptcy.


Bankruptcy has a significant impact on your credit score and credit report. But all is not lost – through responsible financial behaviour, you can rebuild your credit over time after being discharged from bankruptcy. At Spergel, we can help you to do so – a secured credit card is also a good start when used responsibly.

The advantages of filing bankruptcy

Bankruptcy ultimately allows you to have a fresh financial start. Here are the advantages of filing bankruptcy in Ontario:

The disadvantages of filing bankruptcy

Bankruptcy is not without some negative effects. Here is a summary:

  • Impact on your credit score for six years after you have been discharged, and longer for a subsequent bankruptcy
  • Not all debts can be included, like student loans less than seven years old, and secured debts
  • The possibility to lose some of your assets

Bankruptcy alternatives in Ontario

If you reach out to one of our Licensed Insolvency Trustees at Spergel with the intention of filing bankruptcy in Ontario, you could be advised to choose another debt relief option that might be more suitable for you. There are plenty of debt relief methods out there that meet the needs of each individual. Here are some of the most popular bankruptcy alternatives in Ontario:

If bankruptcy is the best option for you, your Licensed Insolvency Trustee will help you throughout each step of the journey.

Ontario bankruptcy exemptions: what you keep

In line with Ontario law, certain assets are exempt from seizure by bankruptcy trustees. At present, Ontario bankruptcy exemptions allow you to keep the following:

  • Unlimited clothing
  • A motor vehicle valued up to $7,117
  • Furnishings and appliances worth up to $14,180
  • Tools for work worth up to $14,405
  • Most pension plans and some types of life insurance

Most people are able to keep their assets in bankruptcy. If you have property valued above these exemption thresholds that would need to be realized by your Licensed Insolvency Trustee in a bankruptcy, an alternative form of debt relief like a consumer proposal might work better for you.

How to file bankruptcy in Ontario

Bankruptcy in Ontario must be filed through a Licensed Insolvency Trustee. It is a relatively straightforward process:

  • Book a free initial consultation with a Licensed Insolvency Trustee at Spergel
  • Meet with your trustee to review your financial situation
  • Review your debt relief options and their respective costs
  • Complete the forms and administration
  • Your trustee will file the forms with the government
  • Your protection from creditors begins

If you have further questions on how bankruptcy works in Ontario, book a free consultation with Spergel. We offer free, no obligation consultations to review your finances and help you decide if filing bankruptcy is the right form of debt relief for you. Reach out today – we will help you on your journey to debt relief so that you can begin afresh, free from overwhelming debts.

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Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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