Bankruptcies in Ontario

Bankruptcies in Ontario

Bankruptcy in Ontario is a legal process governed by federal and provincial laws that provides a fresh start for individuals and businesses struggling with overwhelming debt 1. To be eligible for bankruptcy in Ontario, one must owe at least $1,000 and be insolvent, meaning they are unable to pay their debts as they become due 2. The decision to file for bankruptcy is a significant one, often made as a last resort when other debt relief options have been exhausted 3.

This article will delve into the intricacies of bankruptcies in Ontario, exploring the common causes, the impact on personal and business finances, and the pros and cons of declaring bankruptcy 2. We will also discuss alternatives to bankruptcy, navigate the bankruptcy process, and provide insights into life after bankruptcy, including recovery and rebuilding 2. Throughout the article, we will highlight the legal and financial support available to those considering or undergoing bankruptcy in Ontario 1.

Understanding Bankruptcy in Ontario

Bankruptcy is a legal process that discharges an individual from most of their debts, subject to reasonable conditions 2. In Ontario, bankruptcy is governed by the Bankruptcy and Insolvency Act (BIA) and is a proceeding where an individual declares to the Bankruptcy Court and their creditors that they are insolvent, releasing them from the legal obligation to pay most debts 10. To qualify for bankruptcy in Ontario, one must be 18 years or older and insolvent, meaning they owe more than $1,000 and cannot afford to make payments when they are due 9.

There are three ways to go into bankruptcy: voluntary assignment, involuntary assignment, and deemed bankruptcy 4. Bankruptcies are administered by Licensed Insolvency Trustees (LITs) in Canada 5. The bankrupt individual is responsible for:

  • Providing a complete picture of their financial situation
  • Signing bankruptcy documents
  • Turning in all credit cards
  • Keeping the Trustee updated on personal and family status changes
  • Attending two financial counselling sessions
  • Making payments to the Trustee
  • Submitting monthly income and expense reports
  • Assisting with providing additional information related to assets that may need to be sold during the bankruptcy 10

The Trustee is responsible for:

  • Completing all necessary bankruptcy forms
  • Filing documents with the Office of the Superintendent of Bankruptcy
  • Acting as an intermediary between the bankrupt individual and unsecured creditors
  • Administering and managing disbursement to creditors
  • Notifying all creditors of the bankruptcy status
  • Attending any creditors’ meeting or Bankruptcy Court proceedings
  • Providing two credit counselling sessions
  • Filing and forwarding a Trustee’s Report to all of the creditors regarding the discharge application
  • Providing an Order of Absolute Discharge 10

During bankruptcy, non-exempt assets are used to pay off creditors, while exempt assets vary by province and can be kept regardless of bankruptcy 5. Some debts are not covered under bankruptcy, such as court-imposed fines, penalties, and restitution orders; default on a bail bond; alimony, child, and spousal support; and student loans if the bankruptcy occurs within seven years of ceasing to be a full or part-time student 10. After discharge, debts are eliminated, but the bankruptcy remains on the credit report for 6-7 years 5.

Common Causes of Bankruptcy in Ontario

Over-extension of credit and financial mismanagement are the leading causes of bankruptcy in Ontario, contributing to 62% of insolvency cases 11. This is often due to a lack of financial literacy skills, leading to over-spending and excessive use of credit 12 13.

Other common causes of bankruptcy in Ontario include:

  1. Job loss, layoff, or reduction in pay, causing 31% of insolvency filings 11
  2. Illness, injury, and health-related problems, leading to 19% of insolvency filings 11 12 13
  3. Marital or relationship breakdown, causing 14% of insolvency filings 11 13
  4. High-risk, high-cost debt, such as payday loans and quick and easy cash installment loans, increasing insolvency risk 11
  5. Helping family and friends financially, leading to bankruptcy if it puts the individual at personal financial risk 11
  6. Overextending mortgage and HELOCs, making homeowners more likely to file insolvency due to higher consumer debt levels 11
  7. Unexpected disasters, such as a major car or home repair, house fire, or death in the family 12 13
  8. Seasonal employment, making it challenging to save money and stick to a budget 13
  9. Failed business, leading to high expenses and personal responsibility for business debt 13
  10. Gambling addiction, causing severe financial problems 13
  11. Failure to pay taxes, indicating a serious underlying financial problem 13

These causes often intersect and compound, creating a perfect storm that leads individuals and businesses to seek bankruptcy protection in Ontario 11 12 13.

Impact on Personal and Business Finances

The impact of bankruptcy on personal and business finances in Ontario varies depending on the type of business structure and the individual’s role within the company 14 15.

For sole proprietorships or partnerships, personal bankruptcy has the same effect on the credit rating and score as a business bankruptcy 14. In these cases, the owner has unlimited personal liability for the business’s debts 15.

On the other hand, corporations can go bankrupt without involving personal assets, unless:

  • The owner has personally guaranteed a loan 14
  • The owner is a director and the company has failed to make payments 14
  • The directors are responsible for unpaid wages, unpaid GST, or payroll remittances 15
  • The directors were collecting dividends or took property from the company, exposing them to corporate income taxes 15

Bankruptcy affects credit scores for six years after the discharge date for first-time bankruptcies and longer for subsequent bankruptcies 6. However, individuals can keep several assets, including:

  • Most pension plans
  • Essential belongings
  • One vehicle worth up to $7,117
  • A home, as long as there is no equity exceeding $10,783 6

During a business bankruptcy, owners may have the opportunity to buy back the business equipment and start anew, free of most debts 14. When a business has a secured creditor with a General Security Agreement, the creditor will receive payment on secured assets in priority to unsecured creditors 14.

The Pros and Cons of Declaring Bankruptcy

Declaring bankruptcy in Ontario has both advantages and drawbacks that individuals should carefully consider before making a decision. Some of the pros include:

  1. Exemption of certain assets, such as:
    • Equity in a home up to $10,783
    • Household items up to $14,180 in value
    • One automobile up to $7,117 in equity
    • Tools used to earn a living up to $14,405 in value
    • Pension and RRSPs (except for contributions made 12 months before declaring bankruptcy) 9
  2. Automatic stay under the Bankruptcy & Insolvency Act, which stops wage garnishments, collection agency dealings, and lawsuits 17
  3. Quick process, often completed within 9 months 17
  4. Lowest cost option if you have no non-exempt assets and do not have to pay surplus income 17
  5. Debt discharge, leaving the individual debt-free with a few exceptions 18
  6. Target date for a clean credit report, allowing individuals to plan for rebuilding their wealth 18

However, there are also several cons to consider:

  1. Not all debts are discharged, including alimony, child support, fines, some student loans, and secured debts like mortgages 17
  2. Loss of non-essential assets, such as equity in a home, investments, or other non-exempt assets, which the Trustee will need to realize on and distribute the proceeds to creditors 17
  3. Negative impact on credit, with a bankruptcy record remaining on the credit report for 6 years after discharge and the loss of all credit cards 16 17
  4. Potential employment considerations, especially if the individual is in charge of money or trust funds, and a prohibition on being a director of a company while bankrupt 17
  5. Requirement to pay half of any surplus income earned above the standards set by the Office of the Superintendent of Bankruptcy Canada 18
  6. Added responsibilities, such as making regular payments, attending two credit counselling sessions, and sending a monthly budget statement to the Licensed Insolvency Trustee 18

Alternatives to Bankruptcy

For individuals facing financial difficulties in Ontario, there are several alternatives to bankruptcy that can help manage debt and regain financial stability:

  1. Credit Counselling: The Ontario Association of Credit Counselling Services (OACCS) helps you find an agency in your area, and credit counsellors can help you understand what went wrong, as well as your rights and responsibilities 7. Resolve Counselling Services Canada can help you stop the collection calls, negotiate monthly payments you can afford, and protect your assets 7.
  2. Consumer Proposal: The alternative to personal bankruptcy is a Consumer Proposal, which allows an individual to keep their assets, including their home and cars, but they must continue to make payments on those assets 9. A Consumer Proposal:
    • Reduces the debt owed by up to 80%
    • Brings about a stay of proceedings which protects from creditors
    • Allows keeping of assets
    • Requires a Licensed Insolvency Trustee for filing
  3. Debt Consolidation: Debt consolidation combines multiple debts into a single loan with a lower interest rate than most other debts and increases the term of the loan to gain longer to pay it off. However, qualification depends on credit score and income, and higher interest rates and associated risks for co-signers may occur. Negotiating debt amounts is not possible unless interest rates are considerably lowered.
  4. Debt Management Plan: A Debt Management Plan consolidates monthly debt payments without the requirement for a new loan and is ideal for those looking to consolidate smaller debts. It is filed through a credit counselling organization, is not legally binding, and shows up on credit reports.
  5. Debt Settlement: Debt settlement involves reducing the amount of debt owed to creditors if debts are relatively small and is effective if struggling with debts for a while and if they were taken out some time ago. It is an interest-free repayment option and can be done by directly negotiating a one-time settlement with each creditor, offering to pay off less than what is owed as a lump-sum. However, informal debt settlement is an informal process and may not always result in acceptance by creditors.

Navigating the Bankruptcy Process

The bankruptcy process in Ontario involves five main stages: before, during, and after filing for bankruptcy 21. The first step is to consult a Licensed Insolvency Trustee (LIT) who will assess your financial situation, provide advice on all debt relief options, and help you understand the implications of bankruptcy 16. To declare bankruptcy, complete the required government forms accurately and honestly, including a Statement of Affairs and an Assignment of Assets 16.

Upon filing these documents electronically, the individual is considered bankrupt, and the trustee will then notify creditors, and wage garnishments should stop 16. During the bankruptcy, the individual must complete certain duties such as:

  • Surrendering certain assets 16
  • Attending two credit counselling sessions 16
  • Sending proof of income and expenses to the trustee monthly 16
  • Making payments including surplus income payments if required 16
  • Providing information needed to file necessary tax returns 16

The length of the bankruptcy process depends on the completion of duties, how much the individual makes, and whether they have filed bankruptcy before. For a first-time bankrupt with no surplus income, a bankruptcy can be finished in as early as 9 months 16. The process can last between 9 and 36 months, and the debtor is required to complete monthly income and expense reports and make monthly bankruptcy payments determined by income and family size 22. Non-exempt assets are handed over to the Bankruptcy Trustee and liquidated, with funds given to creditors 22.

The Bankruptcy Assistance Program (BAP) is a government service that helps Ontarians who are unable to find or afford a Licensed Insolvency Trustee 7 19. To qualify for the BAP, individuals must not be incarcerated, involved in commercial activities, or required to make surplus income payments 20. The BAP costs vary based on the individual’s disposable income and reasonable living expenses 20. To apply for the BAP, individuals must contact the Office of the Superintendent of Bankruptcy and meet with two Trustees 20. If income increases after being accepted into the BAP, surplus income payments may be required 20.

Life After Bankruptcy: Recovery and Rebuilding

After declaring bankruptcy, rebuilding your financial life is crucial. Start by paying all bills on time, such as hydro, gas, cable, and internet, to signal to lenders that you’re managing money effectively 22. Applying for a cell phone contract with major companies will report your payment habits to credit bureaus each month, showing that you’re handling money responsibly 22. Consider applying for a secured credit card, which will have the same positive effect on your credit as paying a normal credit card bill. Use the card for one or two small, planned purchases each month, wait for the bill, and pay it in full and on time 22.

Limit how often you apply for new credit, as each application will result in a “hit” against your credit report. Wait at least 6 months between applications 22. Live within a realistic budget by examining your monthly income and average expenses, setting aside some savings for unexpected costs 22. Use your bank account responsibly and consistently, avoiding overdrafts or writing NSF cheques 22. Most people regain their credit within a few years after bankruptcy 23.

To rebuild your financial profile:

  1. Save all paperwork from your bankruptcy case, as these documents may be required when applying for future financial products 24.
  2. Start saving money and establish good financial habits, such as opening a savings account 24.
  3. Build a budget and adhere to it to gain insights into your financial habits and prevent overspending 24.
  4. Reestablish good credit by paying bills on time, opening a secured credit card, having utility bill payments reported, and using credit builder loans 24.
  5. Regularly monitor your credit reports to ensure accuracy and identify any errors that could negatively impact your score 24.
  6. Maintain stable employment to pay monthly expenses and begin the recovery process 25.
  7. Keep current on all your monthly expenses to repair your credit 26.
  8. Explore avenues that allow you to build an emergency fund 26.
  9. Despite a damaged credit score, it can be repaired with commitment and planning 27.
  10. If not already accustomed to budgeting, start with a three-month observation period to understand spending habits 27.
  11. Using cash instead of credit cards or debit can help visualize spending and prevent overspending 27.
  12. Responsible credit use is still important post-bankruptcy for re-establishing credit 27.

Legal and Financial Support During Bankruptcy

Individuals facing bankruptcy in Ontario can seek legal and financial support through various government regulations, organizations, and services:

  1. The Bankruptcy and Insolvency General Rules (C.R.C., c. 368) provide regulations for examinations, discharge of bankrupts, trustee reports, public records, and rate of levy 28. The Civil Code of Québec, which came into force on January 1, 1994, includes new provisions in the area of bankruptcy and insolvency 29.
  2. Several organizations offer assistance and advice:
    • Pro Bono Ontario provides toll-free phone advice to people living in Ontario 7.
    • Steps to Justice offers an online tool to help create a consumer complaint letter 7.
    • Get Cybersafe, a Government of Canada website, provides online shopping tips and guidance on staying safe online 7.
    • The Consumers Council of Canada works collaboratively with consumers, business, and government to support consumers’ rights and responsibilities 7.
    • The Canadian Standards Association develops standards for public safety and health 7.
    • The Electrical Safety Authority (ESA) is responsible for public electrical safety in Ontario 7.
    • The Technical Standards and Safety Authority (TSSA) delivers public safety education and consumer information programs to increase knowledge around hazards and promote safer behavior 7.
    • 4 Pillars – Canada’s Debt Relief Specialists is a notable organization providing assistance with debt relief across Canada, including Ontario 31.
  3. Legal services and resources:
    • Legal Aid Ontario provides various services, including assistance with criminal legal issues, domestic violence, family legal issues, mental health legal issues, refugee and immigration legal issues, youth legal issues, legal clinics, and finding a lawyer 30.
    • The Law Society Referral Service is an online service that provides a free 30-minute consultation with a lawyer or paralegal 8.


In conclusion, understanding bankruptcy in Ontario is essential for individuals and businesses facing overwhelming debt. By exploring the common causes, impact on finances, pros and cons, and alternatives to bankruptcy, those struggling with insolvency can make informed decisions about their financial future. Navigating the bankruptcy process requires guidance from Licensed Insolvency Trustees and adherence to specific duties and responsibilities.

Life after bankruptcy involves a commitment to rebuilding credit and establishing healthy financial habits. With the help of legal and financial support services, as well as a dedication to responsible money management, individuals can recover from bankruptcy and work towards a more stable financial future. Although bankruptcy can be a challenging experience, it also offers a fresh start and the opportunity to learn from past mistakes.


What items are exempt from being taken away during a bankruptcy in Ontario? Certain assets are protected and cannot be taken by creditors in the event of bankruptcy. These exempt items typically include essential household furniture, registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and other retirement investments, with the exception of contributions made in the last year. Additionally, tools that you use for your work may also be exempt.

How much does one typically pay each month when they declare bankruptcy? The monthly payment during bankruptcy in Ontario is determined by your surplus income. You won’t pay both the standard $2,700 bankruptcy fee and your surplus income. Instead, you will either pay a minimum of $200 per month for 21 months, totaling $4,200, or the amount of your surplus income over the same period, depending on which is greater.


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