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If you’re struggling with an overwhelming amount of debt, bankruptcy can provide you with a fresh financial start. However, bankruptcy is a serious thing to consider. It's important to seek impartial advice and hands-on help from a licensed professional who understands how the bankruptcy process works—and how to help you take the right steps to overcome debt problems.

Personal bankruptcy, explained

If you’re considering filing for bankruptcy in Canada, it’s vital to get informed. Learn more about what personal bankruptcy is and how it works, so you can decide if it’s the right solution for you.

What is personal bankruptcy?

Bankruptcy is a structured legal process that allows you to start over financially. In Canada, bankruptcy proceedings are governed by the Bankruptcy and Insolvency Act (BIA) and can only be administered by a Licensed Insolvency Trustee.

Should I declare bankruptcy?

While every financial situation is different, the following signs are a strong indicator that you may need to consider filing for bankruptcy:

  • You’re receiving harassing phone calls from creditors
  • You’re borrowing money to pay bills
  • Your credit cards are always at their limit
  • Your credit score is plummeting
  • Your debt load grows larger every month
  • Financial stress is severely affecting your quality of life

Before you decide to declare bankruptcy, be sure to speak with a Licensed Insolvency Trustee. Your Trustee will review your financial situation to assist you with determining if bankruptcy is the best path forward—or if an alternative solution makes more sense.

How does the personal bankruptcy process work?

The process of filing for bankruptcy in Canada involves five key steps:

STEP 1: Meet with a Licensed Insolvency Trustee
Start with a free consultation with a Licensed Insolvency Trustee (LIT). Your LIT will review your options and assess your financial situation, including discussing which assets are exempt from bankruptcy proceedings in your province. If declaring bankruptcy is the option you choose, your LIT will make sure you understand the process and all of its implications.

STEP 2: File the paperwork
Your Licensed Insolvency Trustee will help you prepare and file all required documents with the Office of the Superintendent of Bankruptcy (OSB), including a Statement of Affairs (a sworn declaration of your assets, debts, income, and expenses). A Stay of Proceedings then comes into effect, meaning that your creditors cannot continue collection efforts (including suing you), and existing garnishees are lifted.

STEP 3: Bankruptcy duties
If it's your first time declaring bankruptcy, the process generally lasts 9 months. In that time, you will: file monthly reports with your Licensed Insolvency Trustee to monitor your income, track expenses, and develop a budget; attend two counselling sessions to discuss the causes of your financial difficulty and various debt management strategies; give your Licensed Insolvency Trustee the information to complete your tax returns for the year in which you file bankruptcy; pay any required amounts to your Licensed Insolvency Trustee, such as surplus income payments, payments to repurchase an asset, or the minimum amount required to cover the costs of administration.

STEP 4: The process concludes
Once you have completed the necessary steps—and nobody objects—you will receive your discharge after either 9 or 21 months. That means you are released from bankruptcy and the debts you owed on day one. If you haven't completed the duties within the required period, you will not be released from bankruptcy until those steps are concluded. A court order will outline the remaining steps you need to complete.

STEP 5: Moving on
During mandatory counselling sessions with your Licensed Insolvency Trustee, you will discuss ways to restore your credit rating during the bankruptcy period and afterwards. It will usually take at least a year or two of good financial practice to rebuild your credit rating, but you will have no remaining unsecured debts once the process has run its course (with a few exceptions, such as child support and court fines).

Canadian bankruptcy laws

The Bankruptcy and Insolvency Act (BIA) governs all bankruptcies and proposals in Canada. However, each province and territory has specific laws regarding property exemptions and enforcement of court orders and debt collection. Provincial laws often determine what property you are entitled to keep when you declare bankruptcy.

Life after bankruptcy

A record of your bankruptcy will typically remain on your credit report for 6 years from your bankruptcy discharge date and you will be assigned the lowest possible credit score.

Now is the time to rebuild your credit and get back on financial track. In order to establish good financial habits from here on out, it’s important to take an honest look at your spending, create a budget, and establish a reliable system for making payments on time. You may consider getting a secured credit card and making a few small purchases on the card each month. Paying the statement in full and on time every month will demonstrate to creditors that you can responsibly manage debt and it will help improve your credit score.

Compare your options:

Compare your options:

How MNP LTD can help

Whether declaring bankruptcy is the right choice or another solution would suit your situation better, you can count on MNP LTD to explain the options available to you and assist with your decision on which action to take. Don't let debt stress take over your life: find out how our Licensed Insolvency Trustees can put you on the path to financial stability. Arrange your free confidential consultation today.