How to File Bankruptcy in Canada: Step-by-Step Guide

Short Answer: How Do You File Bankruptcy in Canada?

In Canada, you cannot file bankruptcy on your own. To file personal bankruptcy, you must work with a Licensed Insolvency Trustee (LIT), who is a federally regulated debt professional.

To file bankruptcy, you usually:

1. Meet with a Licensed Insolvency Trustee for a free consultation.
2. Review your finances and consider alternatives like a consumer proposal.
3. Sign official bankruptcy documents prepared by the LIT.
4. Your LIT files the documents with the Office of the Superintendent of Bankruptcy (OSB).
5. A stay of proceedings begins, stopping most collection actions and wage garnishments.
6. You complete your bankruptcy duties (payments, reports, and counselling).
7. You receive a discharge, which releases you from most unsecured debts.

The OSB provides an overview here: Considering Bankruptcy – Government of Canada.

Quick Facts: Filing Bankruptcy in Canada

What Does Filing Bankruptcy Mean in Canada?

Filing bankruptcy is a legal process that allows an insolvent person to eliminate most unsecured debts in exchange for meeting certain duties and, in some cases, surrendering non-exempt assets or making payments based on income.

Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act and is overseen by the Office of the Superintendent of Bankruptcy. Only a Licensed Insolvency Trustee can administer it.

Who Can File Bankruptcy in Canada?

You may be eligible to file bankruptcy if:

• You owe at least $1,000 in provable debts.
• You are insolvent (you cannot pay your debts as they come due, and your total debts exceed the value of your assets).
• You live in Canada, carry on business in Canada, or have property in Canada.

Your LIT will help determine whether you meet the legal criteria and whether bankruptcy is appropriate or if a consumer proposal or other solution might be better.

Step-by-Step: How to File Bankruptcy in Canada

Step 1: Book a Free Consultation with a Licensed Insolvency Trustee

Because you cannot file bankruptcy on your own, your first step is to speak with a Licensed Insolvency Trustee. Most LITs offer free consultations.

During this meeting, the LIT will:

• Review your debts, income, expenses, and assets.
• Explain all options: budgeting, debt consolidation, credit counselling, Debt Management Plans, consumer proposals, and bankruptcy.
• Answer your questions about how to file bankruptcy and its consequences.

Step 2: Decide Whether Bankruptcy Is the Best Option

Bankruptcy is usually considered when:

• Your debts are too high to repay within a few years.
• Lower interest or consolidation won’t be enough.
• You face wage garnishments, lawsuits, or CRA collection and need legal protection.

If a consumer proposal can provide enough relief, your LIT may recommend that instead of bankruptcy.

Step 3: Complete Information Forms and Provide Documentation

If you decide to file, your LIT will ask for documents such as:

• Pay stubs or proof of income.
• Bank statements.
• Recent tax returns and notices of assessment.
• Loan and credit card statements.
• Details of assets (home, vehicles, investments, RRSPs, etc.).

The LIT uses this information to prepare your official bankruptcy paperwork.

Step 4: Sign the Bankruptcy Documents

Your LIT prepares and reviews with you:

• An Assignment in Bankruptcy (your formal declaration).
• A Statement of Affairs (detailed list of your debts, assets, income, and expenses).

Once you sign these documents, your LIT files them electronically with the OSB.

Step 5: Bankruptcy Is Filed and the Stay of Proceedings Begins

When your bankruptcy is filed:

• A stay of proceedings generally stops most collection actions, wage garnishments, and lawsuits.
• Creditors must deal with your LIT, not with you directly.
• Your LIT notifies your creditors and begins administering your estate.

Step 6: Complete Your Bankruptcy Duties

During bankruptcy, you must:

• Submit monthly income and expense reports to your LIT.
• Make required payments (basic payments and any surplus income, if applicable).
• Attend two financial counselling sessions.
• Provide any additional information requested.

Details on duties can be found on the Government of Canada site: Your Duties While Bankrupt.

Step 7: Receive Your Discharge and Move Forward

If you complete all duties and it is your first bankruptcy with no complicating factors, you may receive an automatic discharge after 9 months. If you have surplus income or a previous bankruptcy, it may take longer.

The discharge is the legal end of your bankruptcy and the point at which you are released from most debts.

How Much Does It Cost to File Bankruptcy?

The cost of filing bankruptcy in Canada depends on:

• Your income (and whether you have surplus income).
• Your household size.
• The value of any non-exempt assets.
• Whether this is your first or a subsequent bankruptcy.

LIT fees in consumer proposals and bankruptcies are set by federal regulations and are included in the payments you make into the bankruptcy estate. You do not pay a separate invoice on top of those payments.

The Financial Consumer Agency of Canada – Insolvency provides more information on costs and expectations.

What Happens to Your Assets When You File Bankruptcy?

Each province and territory in Canada has laws that list certain exempt assets — property you are allowed to keep in bankruptcy (up to certain limits). Common examples include:

• Basic household furniture and personal effects.
• Tools of the trade (up to a set amount).
• A modest vehicle (up to a certain value, depending on the province).
• Most RRSP contributions made more than 12 months before filing.

Non-exempt assets may need to be surrendered or you may arrange to buy back the value through payments. Your LIT will explain what property is exempt in your province and what impact, if any, bankruptcy will have on your home, car, and investments.

What Happens After You File Bankruptcy?

Once your bankruptcy is filed and the stay of proceedings is in place:

• Most collection calls and wage garnishments should stop.
• You focus on completing your duties and following your budget.
• You attend counselling sessions to rebuild financial skills.

After discharge:

• You are released from most unsecured debts included in the bankruptcy.
• Your credit report will show the bankruptcy for several years, but you can begin rebuilding credit using good habits and secured products.

Alternatives to Filing Bankruptcy in Canada

Before you decide how to file bankruptcy, it’s important to understand your alternatives. These may include:

• Debt consolidation: Combining multiple debts into a single loan or line of credit at a lower interest rate. See: Debt Consolidation in Canada.
• Credit counselling and Debt Management Plans: Working with a non-profit agency to reduce interest and consolidate payments. See: Credit Counselling and Debt Management.
• Consumer proposal: A formal, legally binding arrangement where you repay only part of your unsecured debt, usually with no interest. See: Consumer Proposal in Canada.
• Informal arrangements: Negotiating directly with some creditors on your own.

Our Debt Relief in Canada guide compares all major options.

When Is Bankruptcy the Right Choice?

Bankruptcy may be appropriate if:

• Your debts are so high that you cannot reasonably repay them, even with lower interest.
• You are facing aggressive collection actions, lawsuits, or garnishments.
• You owe significant CRA tax debt or government debts.
• You have already tried or do not qualify for consolidation, DMPs, or a consumer proposal.

However, bankruptcy is not always necessary. A Licensed Insolvency Trustee will help you weigh bankruptcy against alternatives and choose the best path for your situation.