Consequences of Bankruptcy in Ontario

Bankruptcy, a legal process that discharges overwhelming debts, is often viewed as a last resort for individuals and businesses struggling financially. This article explores the Consequences of Bankruptcy in Ontario, providing a detailed understanding of its positive and negative effects, the step-by-step process, and potential alternatives.

Understanding Bankruptcy

Consequences of Bankruptcy in OntarioBankruptcy is a legal declaration made by individuals or businesses that their income is insufficient to cover their debts. Governed by the Canadian Bankruptcy and Insolvency Act (BIA), this process offers protection for debtors, providing them with options to either submit a financial proposal or file for bankruptcy.

The Positive Consequences of Bankruptcy in Ontario

Filing for bankruptcy can bring about several beneficial outcomes for the debtor.

Cessation of Creditor Actions

Upon declaring bankruptcy, all actions from creditors, including harassment and wage garnishments, are halted.

Debt Elimination and Asset Protection

Bankruptcy eliminates unsecured debts and protects certain assets of the debtor. Additionally, it unfreezes the debtor’s bank accounts, allowing them to regain financial control.

Credit Counselling Sessions

Debtors are offered private credit counselling sessions to better understand their financial situation and learn how to manage their finances effectively in the future.

The Negative Consequences of Bankruptcy in Ontario

While bankruptcy offers numerous benefits, it also carries several drawbacks which should be thoroughly understood.

Credit Score Impact

Bankruptcy severely impacts the debtor’s credit score. For first-time bankruptcies, the effect lasts for six years after the discharge date, extending to 14 years for subsequent declarations.

Incomplete Debt Elimination

Certain debts, including traffic fines and student loans less than seven years old, may not be eliminated through bankruptcy.

Potential Loss of Assets

There’s a possibility of losing some assets in the process, depending on the debtor’s financial situation and the amount of debt accumulated.

The Bankruptcy Process in Ontario

The process of declaring bankruptcy in Ontario is straightforward and involves the following steps:

Step 1: Consultation with a Licensed Insolvency Trustee (LIT)

The initial step involves consultation with a LIT, who provides a financial assessment and recommends the best debt solution.

Step 2: Completion of Bankruptcy Forms and Documentation

Debtors are required to sign several bankruptcy forms prepared by the LIT, including:

  1. Form 21 (Assignment of Assets): This assigns eligible assets to creditors.
  2. Form 79 (Statement of Affairs): This provides an inventory of all assets and liabilities.
  3. Form 65 (Statement of Income and Expenses): This lists income, fixed expenses, living expenses, and personal information.

Step 3: Filing of Documents with the Official Receiver

The Trustee and the Official Receiver from the Office of the Superintendent of Bankruptcy file the bankruptcy documents. Once submitted, the debtor is officially considered bankrupt.

Step 4: Fulfillment of Bankruptcy Duties

Debtors must complete several duties, including attending counselling sessions, making surplus income payments, surrendering credit cards, providing tax information, and notifying the Trustee of any significant changes in their financial situation.

Step 5: Receipt of Discharge Certification

The final step involves receiving a discharge certificate, marking the end of the bankruptcy process and confirming the debtor’s debt-free status.

Filing for Bankruptcy Online in Ontario

The online bankruptcy filing process is similar to the traditional method, with the added convenience of virtual meetings with the LIT and online document signing.

Alternatives to Bankruptcy

Several alternatives to bankruptcy exist, offering different solutions based on each debtor’s unique situation. These include:

Seeking Assistance for Your Bankruptcy Process

If you’re considering bankruptcy in Ontario, it’s advisable to seek advice from a LIT. They can guide you through the process, helping you weigh the pros and cons, and assist you in making the best decision for your financial future.


The Consequences of Bankruptcy in Ontario can be both beneficial and detrimental, depending on the individual’s specific circumstances. It’s essential to comprehend the full scope of these consequences before proceeding with bankruptcy. With the right guidance and understanding, one can navigate this process effectively and make informed decisions towards a debt-free future.

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