What happens after you file for bankruptcy in Canada?

When it comes to dealing with debt, many people try to avoid bankruptcy at all costs—even if it means going further into debt. Though bankruptcy is considered a last resort, it’s an optimal solution for someone who is overwhelmed by debt.

In 2024, over 100,000 Canadians got a fresh start from their debt by filing for insolvency—but bankruptcy isn’t a “get out of jail free card.” Once you take the plunge and declare bankruptcy, it’s important to know what to expect and what’s expected of you over the next nine to 21 months.

When am I considered bankrupt?

People often talk about having to go bankrupt because of how much money they owe, but filing for bankruptcy isn’t something you have to do once you’ve hit a certain amount of debt. Personal bankruptcy is a voluntary process, and it starts by meeting with a Licensed Insolvency Trustee (LIT). During your free consultation, a debt solutions professional will review your current financial situation and will recommend a solution that works best for you.

How does filing work?

If you decide to file for bankruptcy, your LIT will then prepare the necessary paperwork. You’ll officially be declared bankrupt once this paperwork has been signed by you, submitted by your LIT, and accepted by our regulator, the Office of the Superintendent of Bankruptcy (OSB). Once this is complete, the official date of bankruptcy is confirmed and an “Estate number” is assigned to your file by the OSB. This is a unique identifier that makes it easier to track and manage your case throughout the process. Book a free consultation to learn more about bankruptcy estates and exempt assets.

What are my responsibilities during bankruptcy?

To maintain your bankruptcy and eventually receive your discharge, you need to uphold certain responsibilities, such as:

• Completing monthly reports to track your income and expenses. If there are any changes to your situation, such as reduced/increased income or loss/gain of a dependent, the terms of your bankruptcy may change (i.e., paying/not paying surplus income or changing the length of your bankruptcy).
• Completing two financial counselling sessions to enhance your financial literacy and help you gain future financial stability.
• Providing your Canada Revenue Agency (CRA) tax information for the year you were bankrupt, so our team can file your taxes on your behalf—as is required during the bankruptcy process. Any CRA tax refunds from that year will go to your creditors.
• Making monthly payments to repay the portions of your debt that you’re deemed able to pay. Generally, the first payment is due within 30 days of filing. Monthly debt payments are most common, but some prefer bi-weekly payments to align with their pay schedule.

What if I can’t keep up with my responsibilities?

We understand that life happens, emergencies can come up and situations can easily change. If you won’t be able to pay your monthly bankruptcy payments for a specific period, it’s important to keep your file administrator or LIT up to date so that they can notify your creditors and properly advise you on how missed or delayed payments may affect your bankruptcy.

If you fail to meet your duties, you risk failing your bankruptcy. Your LIT can then close your file, leaving you responsible for repaying your debt again, and restoring your creditors' right to restart collection activities.

When will I be discharged from bankruptcy?

The length of your bankruptcy depends on a few factors, but you can expect to be discharged within nine to 21 months. If you’ve never been bankrupt before, complete all your duties, and if your income is below the OSB guideline, you can be discharged in as quickly as nine months.

If you have surplus income—an income above the OSB’s guidelines—or have filed bankruptcy before, the length of your bankruptcy could increase up to 36 months. No matter the length of your bankruptcy, it’s important to complete all your duties, otherwise you risk being undischarged and left responsible for paying the full amount of your debt.

What happens when I’m discharged from my bankruptcy?

Once your nine to 21 months are up and you’ve completed all your duties, you’ll be discharged from your bankruptcy. At this time, you’ll receive a “Certificate of Discharge” or, if your bankruptcy required a court hearing, an “Absolute Order of Discharge.” This certifies that you’ve been discharged from bankruptcy and no longer legally owe any of the debt included in the bankruptcy. Keep this document safe – you’ll need it to update your credit report, and for protection should any included creditors attempt to contact you about your debt.

Overwhelming debt isn’t a dead end, and there’s no shame in filing for bankruptcy. Getting a fresh start doesn't have to be a complicated process. Our team of LITs and debt solutions professionals are here to help you every step of the way. Wondering if bankruptcy is right for you? Start your journey today with a free, non-judgmental consultation. You’re one step closer to debt freedom!