Declaring Personal Bankruptcy in Canada

Declaring Personal Bankruptcy in CanadaDeclaring personal bankruptcy in Canada is a legal process that can help you eliminate your debts, but it comes with significant consequences. Before making such a decision, it’s essential to understand all its implications. This guide provides an in-depth explanation of the process, its effects, and potential alternatives.

Understanding Personal Bankruptcy in Canada

Personal bankruptcy is a legal proceeding, designed to provide relief to individuals who are unable to repay their accumulated debts. The Bankruptcy and Insolvency Act governs this process in Canada. When you declare bankruptcy, your debts are legally discharged, meaning you are no longer required to pay them back.

Note: There are three types of insolvency proceedings in Canada: personal bankruptcy, consumer proposal, and a Division I proposal. Each has its unique implications and should be chosen based on your financial situation.

Who is Eligible for Bankruptcy in Canada?

To be eligible to file bankruptcy in Canada, you must meet the following criteria:

  • Owe at least $1,000 in unsecured debt.
  • Unable to pay your debts as they become due.
  • Owe more in debts than the value of the assets you own.
  • Reside, do business, or have property in Canada.

Steps Involved in Declaring Personal Bankruptcy

1. Consult an Expert

Before declaring bankruptcy, it’s advisable to seek expert advice. A credit counsellor or a Licensed Insolvency Trustee can help you understand your financial situation and explore potential alternatives.

2. Meeting with a Licensed Insolvency Trustee

A Licensed Insolvency Trustee is the only professional authorized to administer the bankruptcy process. They will review your financial situation, discuss potential alternatives, and guide you through the bankruptcy process if it’s the best option.

3. Filing for Bankruptcy

Once you decide to file for bankruptcy, your Trustee will prepare the necessary paperwork based on your financial situation. This includes a list of your assets and liabilities. The Trustee will then file the documents with the Official Receiver, marking the beginning of your bankruptcy.

4. Delivery and Sale of Assets

After filing for bankruptcy, some of your assets may be sold to repay your creditors. However, certain assets are exempt from seizure under provincial laws. These exemptions may include household furnishings, personal belongings, tools of the trade, and a vehicle below a certain value.

5. Meeting of Creditors

In certain situations, a meeting of creditors may occur. During this meeting, creditors can decide how the funds from the sale of assets will be managed.

6. Counselling Sessions

As part of the bankruptcy process, you are required to attend two counselling sessions. These sessions aim to help you improve your money management skills and avoid financial difficulties in the future.

7. Discharge from Bankruptcy

The final step of the bankruptcy process is the discharge. This step releases you from the obligation to repay the debts included in your bankruptcy. The discharge typically takes place nine months after filing for first-time bankrupts.

Impact of Bankruptcy on Your Credit

Declaring personal bankruptcy in Canada has a significant impact on your credit. A note of your bankruptcy will appear on your credit report for six to seven years after your discharge. This can make it difficult to get credit or loans in the future.

Bankruptcy Alternatives

Before declaring bankruptcy, consider alternatives like a debt management plan, debt consolidation, or a consumer proposal. Each of these options has its own advantages and disadvantages, and the best choice depends on your specific circumstances.


Declaring personal bankruptcy in Canada is a serious decision that should not be taken lightly. It’s essential to understand the process, its implications, and potential alternatives. Always seek advice from professionals like credit counsellors or Licensed Insolvency Trustees before making such a decision.

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