The Truth About Bankruptcy

Bankruptcy in Canada is often perceived as a quick escape route for those grappling with overwhelming debt. Yet, it’s essential to understand the truth about bankruptcy in Canada before making this significant decision. This guide will debunk common misconceptions and provide critical insights into the intricacies of the Canadian bankruptcy process.

Understanding Bankruptcy

Bankruptcy is a legal process that offers debt relief to individuals unable to pay their outstanding debts. However, bankruptcy isn’t a simple or cost-free solution. It involves fees, affects your credit rating, and becomes part of your public record. Thus, it’s crucial to consider all alternative debt solutions before resorting to bankruptcy.

Should you find yourself contemplating bankruptcy, consulting with a credit counsellor from a non-profit agency like can be invaluable. They can guide you through other viable options to avoid bankruptcy.

Does Bankruptcy Erase All Debts?

The truth about bankruptcy in Canada is that it doesn’t always erase all debts. Certain types of debt may persist post-bankruptcy, including:


  • Student loans not meeting the seven-year waiting period post-study (or five years under a hardship provision).
  • Child and spousal support.
  • Court-ordered fines and restitution payments.
  • Damages awarded for intentional bodily harm or sexual assault.
  • Debts resulting from fraud or theft.
  • Specific government overpayments.


Costs of Declaring Bankruptcy

Bankruptcy isn’t a free ticket out of debt. The costs associated with the process depend on your earnings, family size, and assets, including your surplus income. Administrative costs such as court fees, mailing costs, and government filing fees are often incorporated into your overall monthly payments.

What Happens to My House in Bankruptcy?

The truth about bankruptcy in Canada is that you could lose your house if it has substantial equity. Equity is the difference between the value of your home and the outstanding mortgage. Depending on the equity, the bankruptcy trustee may seize and sell the house or arrange for you to repay the equity. Laws regarding houses in bankruptcy vary across provinces.

The Status of Student Loans in Bankruptcy

Student loans are not immediately eliminated during bankruptcy. Two waiting periods must lapse before student loan debt can be absolved:


  • Seven years from the end of your education.
  • Five years from the end of your education in instances of extreme hardship.


The Impact of Bankruptcy on Taxes

Your bankruptcy trustee will handle your income tax return during the bankruptcy process. They will file a return for the year preceding the bankruptcy and for the period from January 1 until the day before filing for bankruptcy. Any refunds or tax credits will be directed to the trustee and form part of your estate.

Influence of Bankruptcy on Your Spouse

Your spouse will only be liable for debts they have co-signed. If you both share a loan or credit card account, the debt legally belongs to both of you. However, your bankruptcy can indirectly affect your spouse when rebuilding credit, impacting eligibility to co-sign or secure credit, or leading to higher interest rates.

Seeking Help with Debt

If you’re unsure whether bankruptcy is the right route for you, reach out to us for a confidential consultation. We have been assisting consumers with debt relief since 1994 and are committed to helping you make the best decision for your financial health.

Unraveling the truth about bankruptcy in Canada can be a daunting task, but understanding these aspects can help you make an informed decision. Remember, bankruptcy is a significant step with long-term implications. It’s crucial to weigh all your options and seek professional advice before proceeding.

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