Is Bankruptcy My Best Option? 6 Instances When Declaring Bankruptcy in Canada May Not Be Right For You

Few things in life are as stressful or emotionally crippling as being caught in a sea of mounting debt.

If you find yourself falling deeper and deeper by the month, filing for bankruptcy may feel like the only way to stop yourself for drowning.

While the opportunity to start over is an attractive prospect for anyone that needs to lift the weight of mounting debts from their shoulders, filing for bankruptcy in Canada is a serious legal process that is followed by severe repercussions ranging from problems with securing future credit to poor cash flow in the immediate aftermath.

Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation

Call 877-879-4770


There are several situations in which those issues are a fair trade for debt relief and the ability to feel as though your finances are finally under control.

However, it would be very foolish to enter the process of filing for bankruptcy in Canada without confirming that it is the right for you.

In reality, there are many reasons why it might not be the right solution for you.

Here are six of the most common examples where bankruptcy in Canada should be avoided at all costs.

#1. Your Debts Won’t Be Covered By Bankruptcy

The main incentive behind seeking debt relief in this drastic manner stems from the ability to discharge yourself from various creditor agreements.

However, it should be noted that not all forms of debt will be included in the bankruptcy filing.

Consequently, if you are burdened by the wrong types of debt, filing for bankruptcy will not produce the outcome you seek.

Your debts and liabilities will ultimately be categorized as either secured or unsecured debts.

The latter are not tied to any assets, meaning you can essentially wipe the slate clean.

Unsecured debts include medical bills, credit cards, store cards, and agreements with various utility providers.

However, secured debts are financial agreements tied to assets.

In most cases, the collateral comes courtesy of the item that has been purchases, such as a property or vehicle.

However, there are instances where another asset may have been used as collateral to secure a loan or financial agreement.

Either way, secured debts are not impacted by bankruptcy, meaning you’ll still have to pay the monies owed through cash payments or selling the assets in question.

Examples of secured debts include, but are not limited to:


  • Mortgage loans;
  • Secured car loan agreements;
  • Student loans (up to 7 years);
  • Court-ordered fines;
  • Child or spousal support;
  • Government overpayments.


Therefore, it is essential that anybody considering a bankruptcy filing takes the time to analyze their debts.

If the legal procedure will only wipe out a small percentage of the debts that you owe, the negatives will easily outweigh the positives while it won’t even solve your initial objective of wanting to wipe the slate clean.

In this situation, then, there are far better options out there.

#2. You Can’t Afford The Legal Hearing

Filing for bankruptcy is a significant legal procedure, which is why you have to pay for the privilege.

If finding this money is going to exacerbate your problems even further, it’s probably best to look at alternative forms of financial relief.

Otherwise, your bankruptcy hearing may simply signal the start of a new cycle.

A bankruptcy case in Canada will cost at least $1,800 and can be significantly more depending on personal circumstances.

Contributing factors include income levels, the nature of your debts, and extra fees that may be required to obtain a bankruptcy discharge.

Meanwhile, you’ll be required to pay additional funds should you receive significant lumps of money – such as tax refunds or lottery wins – during the bankruptcy procedure.

The fees are paid to a trustee before being distributed to creditors, who will also calculate 50% of your surplus income and designate this as an additional fee to be paid.

In addition to the direct costs of the legal matters, you should take the following issues into account:


  • If you lose assets like your home, you will need to find the money for rent;
  • The legal processes may cause you to lose some of your income, especially if you are self-employed;
  • Hearings also encounter travel costs and other issues;
  • If you can’t pay for the services straight away, repayments will result in interest payments.


Individuals that cannot afford the fees can contact the Office of the Superintendent of Bankruptcy (OSB) to discuss reduced rates.

Nonetheless, it should always be noted that the financial implications can make bankruptcy a decision that generates more headaches than it solves.

#3. The Financial Problems Are Only Temporary

Experiencing debt is never enjoyable, which is why the opportunity to start afresh feels attractive.

As mentioned, though, the repercussions of filing for bankruptcy in Canada will affect your life for many years.

For starters, details of the bankruptcy will appear on your credit history for a duration of seven years, which will impact your ability to arrange new credit agreements, as well as the interest rates that may be offered.

Likewise, bankruptcy could see you lose a number of secured assets.

So, if it’s likely that your financial situation will improve over the coming months, it may be better to roll with the punches rather than file for bankruptcy.

After all, there are many situations in which the financial hardships won’t be forever.

Some of the more common examples include:


  • You fell into debt after losing your job but have since found new employment. It will take a few months to recover, but your financial health is now moving in the right direction;
  • An unexpected illness or medical bill has put you in debt. However, it was a one-off situation that your finances will repair over the coming months;
  • Home repairs and associated costs have placed you in debt. Once again, though, your finances are slowly improving now;
  • Your current repayments are causing major problems, but some of your financial obligations are soon to end. Respite is in sight, and will allow you to start rebuilding your financial health.


When faced with temporary hardships, several steps can be taken to accelerate your recovery.

Temporary cutbacks on luxuries, for example, could help you regain control of your finances far sooner.

Compensating your comfort for a few months is better than damaging your financial opportunities for several years.

Do not forget it.

#4. The Debt Isn’t Solely Yours

The long-term implications on your personal finances are one thing, but what about when you’re not the only person affected?

When the debts you’ve encountered are shared with someone else, through co-signing and guarantor agreements, your proposed bankruptcy can impact them too.

Given that anyone you’ve entered a financial agreement with is likely to be a spouse or relative, you must not ignore this factor when deciding whether bankruptcy in Canada is the route for you.

By co-signing a financial agreement, the other party has agreed to take on the responsibility and settle any loans you’ve taken out.

Therefore, your bankruptcy doesn’t even remove the debt.

Instead, it simply transfers it to the co-signer.

Worse still, creditors can sometimes demand the full settlement as a result of you defaulting on your obligations.


Naturally, then, bankruptcy when you have joint debts can cause a wide range of problems, including:


  • Damage to your relationships,
  • Lose any chance of gaining a co-signer in the future,
  • Assets still become lost,
  • Damage to two credit scores.


So, if only a small percentage of your debts are individual debts that are covered by the bankruptcy (aka unsecured debts), the benefits of any proposed bankruptcy are negligible.

When accompanied by the stress and time constraints of trying to handle an issue that affects a loved one, it’s probable that other solutions would be better.

#5. Bankruptcy Will Impact Other Aspects Of Your Life

There’s no escaping the fact that filing for bankruptcy will impose financial restrictions that influence your financial opportunities for many years to come.

However, it’s equally important to analyze the impact on other aspects of your life.

In truth, there could be several.

Bankruptcy will probably prevent you from buying a home, which can instantly make your living situations feel far less stable as tenancy agreements are usually between 6 and 24 months, depending on your landlord.

This makes it very difficult to truly settle, not least on an emotional level, which is particularly tough to take when you have a young family.

Crucially, the presence of a bankruptcy on your file can harm your career.

While it won’t impact workers in all industries, it can jeopardize employees in a range of sectors.

It might also stop you from transitioning into new jobs in any of the following areas:


  • Law enforcement;
  • Finance and banking;
  • Jobs licensed by professional associations;
  • Jobs supported by bonds;
  • Positions where high-security clearances are needed.


Losing your job or stifling future aspirations would cause significant financial problems that may lead you back into debt even after wiping the slate clean.

The fact of the matter is that bankruptcy slams a lot of doors in your face.

In addition to the direct impacts on your career and home life, the indirect restrictions can extend to relationships and more.

While bankruptcy in Canada can still provide the best solution for individuals in several circumstances, you must consider the full situation.

#6. Other Options Are Available

Even when bankruptcy is deemed a suitable option, it won’t always be the best option.

In the vast majority of circumstances, it should be seen as a last resort that is only used when other avenues have been explored and rejected.

In truth, several alternative solutions deserve your attention before deciding whether bankruptcy is right for you.

They include:

Debt Consolidation

Consolidating your debts into one loan serves two main purposes.

Firstly, it allows you to clear high-interest debts, such as credit card debts, to lower your overall payments.

Secondly, it organizes your repayments into one easy monthly plan.

The mental benefits of knowing that your finances are back under control are telling while the ability to bypass late payments and associated fees can also help put your finances back on track.

Getting approved isn’t always possible, especially if you have bad credit, but it is a route that’s worth pursuing.

Debt Management Programs (DMPs)

DMPs are facilitated by non-profit credit counsels and are designed to help you get out of debt in five years or less.

They consolidate your debts without the need to borrow money while also allowing you to avoid the legal issues (and repercussions) of bankruptcy.

One of the main benefits is that DMPs contact your creditors to strike new repayment plans at a lower rate, meaning you end up paying a little less.

DMP agreements do show on your credit rating for two years after settlement, but allows you to meet obligations with one simple monthly payment.

Consumer Proposals

Consumer Proposals share many attributes with bankruptcy agreements.

It will show on your credit history while you will need to pay for this legal procedure.

However, the impacts are far less significant while it allows you to rearrange payment plans over the course of five years.

The trustee will propose an agreement to your creditors of unsecured loans, meaning they’ll accept a partial repayment while you do not have to liquidate assets.

Like bankruptcy, any secured debts still need to be repaid.

Trustees do charge 20% of your future payments, so you need to calculate the overall costs.


Bankruptcy in Canada is a financial pathway taken by thousands of citizens every single year, and it remains the right choice for a large percentage of them.

However, a significant number of people are better suited to taking an alternative pathway.

If you wish to make the right decision for your personal circumstances, it is imperative that you analyze the pros and cons of each option.

Aside from finding the right choice, the added preparation will provide peace of mind.

Whichever path you take, it is a huge decision for your financial decision.

To discuss all bankruptcy in Canada, as well as all other possibilities, with an impartial expert, give us a call today!

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.