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Bankruptcy in Canada – how long does it last?

Posted on 23 April 2022

Written by Alan Spergel

The process of bankruptcy in Canada can vary in length, depending on your ability to complete the obligations of the bankruptcy process. It can also differ slightly depending on the responsibilities of your Licensed Insolvency Trustee, your creditors, and the Superintendent of Bankruptcy. Any of these parties could also potentially choose to argue against your discharge from bankruptcy, which could extend the process. In addition, other factors like your assets and income could determine the length of the process in a number of different ways. In this article, we discuss the variables of filing bankruptcy in Canada and share how long on average the process lasts. It will help you to decide if bankruptcy is right for you, or if an alternative form of debt relief may be more suitable.

How does bankruptcy in Canada work?

In Canada, filing for bankruptcy requires a Licensed Insolvency Trustee. Trustees are the only professionals in Canada legally able to file bankruptcy. If you are insolvent, your bankruptcy process will typically start by arranging a free consultation with a reputable Licensed Insolvency Trustee. They will first review your financial circumstances, and recommend a form of debt relief for you. It may not always be bankruptcy – there are bankruptcy alternatives including a consumer proposal or a debt consolidation loan that may be better for you. Bankruptcy in Canada is the process of assigning any non-exempt assets you may have to your trustee in exchange for the clearance of any unsecured debts from your creditors. This includes tax debt, credit card debts, payday loans, and so on, although does not include secured debts like mortgages or car loans. Each province has its own list of exempt assets that you may keep despite filing bankruptcy, which goes against the misconception that bankruptcy will leave you with nothing. For reference, here is the list of non-exempt assets in Ontario. As soon as you file bankruptcy, a stay of proceedings is generated meaning that creditors and collection agencies can no longer contact you.

Bankruptcy in Canada – how long does it last?

How long bankruptcy lasts depends on a number of factors:

  • Whether or not it is your first bankruptcy
  • If you have completed all your bankruptcy obligations, including attending two credit counselling sessions
  • Whether or not you have surplus income
  • If you commit any bankruptcy offences
  • Whether or not there are objections to your discharge from bankruptcy by your trustee, creditors, or the Superintendent of Bankruptcy

In the simplest circumstances, say it is your first bankruptcy, you complete all your bankruptcy obligations in a timely manner and do not have surplus income, bankruptcy will likely take around nine months. If it is a second bankruptcy, or you have committed bankruptcy offences or not completed your obligations, the process will likely take between two to three years. If you have surplus income, bankruptcy will likely last just under two years. In some instances, the court will need to decide when you will be discharged from bankruptcy. These include owing income tax debt of $200,000 or more, or if you face objections to your bankruptcy by a creditor or the Superintendent of Bankruptcy.

What does it mean to be discharged from bankruptcy in Canada?

When you are discharged from bankruptcy, all your debts are cleared and life after bankruptcy can begin. It is the final step of filing bankruptcy, and means you are no longer bankrupt and can apply for credit once again. It is important to be aware that bankruptcy will remain on your credit report for between six and seven years. Your focus should then be to rebuild your credit score while enjoying a fresh financial future. If, on the other hand, you are not discharged from bankruptcy, your Licensed Insolvency Trustee may be discharged from your bankruptcy. In this scenario, your creditors will once again begin to contact you for their outstanding debt. At Spergel, we can help you to avoid circumstances like this and are here for you if your bankruptcy does not quite work out as planned. No matter how bad you feel your financial situation may be, there is always a form of debt relief to get you back on track.

What happens in life after bankruptcy in Canada?

As soon as you are discharged from bankruptcy, you can rebuild your credit score as part of your fresh financial future. This will indicate to lenders and financial institutions that you are able to manage your finances, and are capable of borrowing credit. At Spergel, we can support with credit counselling and money management including how to budget to make sure you begin life after bankruptcy on the right track. Once you have been discharged from bankruptcy, it is now possible for you to apply for a credit card, often if you are able to put down a deposit beforehand in order to gain trust from your bank. It is also possible to apply for car loans and personal bank loans if needed, both of which will be dependent on the lender’s decision to approve the loan. You should be cautious about taking on additional credit, and some lenders may require a guarantor for your loan. As for your house and car, bankruptcy will not affect your secured debts provided you can continue making your payments on time and there is no equity in your assets. Learn more about bankruptcy and your assets, or speak to a reputable Licensed Insolvency Trustee for advice on bankruptcy in Canada.

So, bankruptcy in Canada – how long does it last? If you have more questions about bankruptcy or the process of filing for bankruptcy, book a free consultation with Spergel. We have helped over 100,000 Canadians find debt relief, and we can help you too. Our experienced Licensed Insolvency Trustees will begin by reviewing your financial circumstances before recommending a pathway to financial freedom that is right for you.

Alan Spergel

Alan Spergel is the founder and President of Spergel. A leader in our industry, he is also a former chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and has served on Canada's Superintendent of Bankruptcy Management Board. He actively supports multiple charities, ensuring that Spergel gives back to our communities and has recently been appointed as Chairman of the Board of the Humber River Hospital Foundation. Outside of the boardroom, you can find Alan playing golf, tennis, or skiing and enjoying quality time with his grandchildren.

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