What Happens After Bankruptcy?

Bankruptcy can be a daunting process for many. However, understanding what happens after bankruptcy can help alleviate some of the stress. This article aims to provide an in-depth perspective on the subject and guide those on their journey to financial recovery.

Defining Bankruptcy

To begin with, we must understand that bankruptcy is a legal procedure in which an individual or business who cannot pay their debts can get a fresh financial start. The main purpose of bankruptcy is to help the debt-ridden individual start anew by relieving them of their overwhelming debts.

The Bankruptcy Process

In the context of Canadian bankruptcies, the debtor is required to work with a licensed insolvency trustee (LIT). This LIT is responsible for filing the necessary paperwork for bankruptcy. During the process, you will meet with your LIT to discuss your situation and decide if bankruptcy is the right choice for you.

If you decide to proceed with bankruptcy, you will complete and sign the necessary paperwork with your LIT. This document will then be sent to the Office of the Superintendent of Bankruptcy, who will then inform credit bureaus like TransUnion and Equifax. Soon after, the LIT will send a copy of your bankruptcy file to all your creditors.

Once your creditors are notified, a stay of proceedings comes into effect, meaning that creditors are legally prohibited from contacting you to collect debts. However, creditors who are secured, like mortgage lenders, can still attempt to seize assets put up as security if you don’t keep up with your payments.

Next, the LIT will file your tax returns up to the date of bankruptcy. If you owe money to the Canada Revenue Agency (CRA), those amounts will become part of your bankruptcy. If you receive a refund, those amounts will be handed over to the LIT for distribution among your creditors.

Throughout the bankruptcy process, you must fulfill specific duties. These may include:


  • Attending creditor meetings, if requested.
  • Making monthly surplus income payments to your LIT.
  • Providing your LIT with proof of income periodically.
  • Attending credit counseling sessions on budgeting and money management.



Upon receiving a Notice of Discharge from your LIT, the bankruptcy process is officially over. A discharge from bankruptcy cancels your outstanding debts, allowing you to begin rebuilding your credit score and financial standing. However, the bankruptcy proceedings can last longer, and your bankruptcy will remain on your credit report for six years after the date of discharge.

Rebuilding Credit After Bankruptcy

Despite a bankruptcy on your record, you may still be able to secure new credit. Your LIT can provide advice on rebuilding credit and starting anew financially. They may suggest adding a personal statement to your credit report.

One way to begin rebuilding your credit is by using a secured credit card. With these cards, a cash deposit is required, which also serves as the credit limit. By consistently paying your credit card bills on time and in full, you can start to rebuild your credit. After several months of responsible use, you could potentially apply for a regular credit card.

You can also apply for other types of debt once you’ve established some credit history, such as a car loan or a personal loan. By obtaining new credit and managing it responsibly, you’ll be building credit and, eventually, you can apply for larger debts like mortgages.

Rebuilding credit after bankruptcy can be challenging and requires patience. However, by maintaining good financial habits, your credit score will gradually improve.

Seeking Help

If you’re still unsure about what happens after bankruptcy, it might be beneficial to seek help from a credit counselor. They can provide guidance on establishing good financial habits at any point during bankruptcy.

Regardless of your financial situation, credit counseling could be beneficial. It’s never too early or too late to seek help from a trusted expert. If you’re concerned about your finances, consider seeking help sooner rather than later.

In conclusion, understanding what happens after bankruptcy can help you navigate the process and assist in your financial recovery. The road to recovery may be challenging, but with patience, good habits, and the right guidance, you can rebuild your credit and financial standing.

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