What debts are cleared by bankruptcy in Canada?

Most unsecured debts are discharged in bankruptcy: credit card balances, unsecured personal loans, payday loans, lines of credit, NSF charges, utility arrears, and most income tax debt (though CRA is a preferred creditor and pursues these actively). Debts that are NOT discharged include: student loans if it has been fewer than 7 years since you stopped studying, spousal and child support arrears, court-imposed fines and penalties, debts arising from fraud or misrepresentation, and liability for causing bodily harm. Secured debts (mortgage, car loan) are also not discharged — you must continue paying them or surrender the asset.

How long does bankruptcy stay on your credit report in Canada?

A first-time bankruptcy stays on your credit report for 6 years after the discharge date (Equifax and TransUnion in most provinces). A second bankruptcy stays for 14 years. The discharge is typically granted 9 months after filing for a first-time bankruptcy with no surplus income obligations, and 21 months if surplus income applies. This means a first-time bankruptcy can clear from your credit report roughly 7 years after filing. During those 7 years, you can still get credit — secured cards, some auto loans, and specialized lenders — but at worse rates.

What is a Licensed Insolvency Trustee (LIT) and how much do they cost?

A Licensed Insolvency Trustee (LIT) is a federally regulated professional who administers bankruptcies and consumer proposals in Canada. You cannot file for bankruptcy without one. LIT fees are set by law — they are not negotiable and come from your assets, not as an additional out-of-pocket cost in most cases. For a no-asset personal bankruptcy, the typical trustee fee is approximately $1,800–$2,000 for a first bankruptcy. The trustee takes this from any assets surrendered, monthly payments you make, and tax refund assignments. Always consult an LIT before deciding between bankruptcy and a consumer proposal.

What is a consumer proposal and is it better than bankruptcy?

A consumer proposal is an alternative to bankruptcy where you negotiate to repay a portion of what you owe — often 30–50 cents on the dollar — to creditors through an LIT, over up to 5 years. Advantages over bankruptcy: you keep your assets (including RRSP contributions made more than 12 months before the proposal), it stays on your credit report for only 3 years after completion (vs 6 years for a first bankruptcy discharge), and there is no surplus income requirement. The trade-off: it costs more overall. For people with steady income and significant assets, a consumer proposal is often better than bankruptcy.

How do I rebuild credit after bankruptcy in Canada?

Start with a secured credit card immediately after discharge — Capital One, Home Trust Secured Visa, or Neo Secured are common choices. Deposit $200–$500 as collateral, use the card for small regular purchases, and pay the full balance every month. After 12–24 months of perfect payment history, apply for an unsecured credit card. Simultaneously, a credit builder loan from a credit union can also help — your payments are reported to Equifax and TransUnion while the funds sit in a savings account. Avoid credit repair companies charging fees — they cannot do anything you cannot do yourself for free.

Can I keep my RRSP if I go bankrupt in Canada?

Partially. RRSP contributions made more than 12 months before filing for bankruptcy are generally protected from creditors. Contributions made within the 12 months before bankruptcy can be "clawed back" by the trustee for distribution to creditors. TFSA assets are not protected and can be seized by the trustee. Employer pension plan assets (DB or DC plans registered under provincial pension legislation) are fully protected. RRSPs in RRIFs may have different treatment. The key planning point: if bankruptcy is foreseeable, do not transfer assets to your RRSP in the year before — it will not protect them and may be challenged by the trustee.

Finances After Bankruptcy in Canada | How to Rebuild Your Credit and Finances

Finances After Bankruptcy in Canada

Bankruptcy is not the end — it is a legal fresh start. Understanding the timeline, what it clears, and how to rebuild systematically makes recovery faster and more predictable.

What Bankruptcy Discharges (and What It Does Not)

Debts cleared by bankruptcy

Debt type	Cleared?
Credit card balances	✅ Yes
Personal loans (unsecured)	✅ Yes
Payday loans	✅ Yes
Lines of credit (unsecured)	✅ Yes
NSF charges	✅ Yes
Utility arrears	✅ Yes
Business debts (personal liability)	✅ Yes
Most income tax debt (CRA)	✅ Yes — though CRA actively pursues
Medical bills	✅ Yes

Debts NOT cleared by bankruptcy

Debt type	Why not cleared
Student loans (under 7 years since last study)	Statutory exception — must be 7 years post-studies
Child support arrears	Family law takes precedence
Spousal support arrears	Same
Court fines and criminal restitution	Public interest exception
Fraud-related debts	Cannot escape debts obtained by fraud
Secured mortgage (if kept)	Must continue paying to keep home
Car loan (if kept)	Must continue paying to keep vehicle

The Bankruptcy Timeline

Stage	Typical timeline
File with Licensed Insolvency Trustee	Day 0
Automatic stay of proceedings (creditors must stop)	Immediately on filing
Surplus income assessment period	Months 1–9 (or 1–21)
Mandatory credit counselling sessions (2)	Within first few months
First-time bankruptcy discharge (no surplus)	9 months
First-time bankruptcy discharge (surplus income)	21 months
Second bankruptcy discharge	24–36 months
Credit report clear — Equifax/TransUnion	6 years after discharge

Surplus Income Explained

If your income exceeds the government’s set threshold during bankruptcy, you must pay a portion to the trustee — this extends the bankruptcy period.

Monthly surplus (income above threshold)	Payment required	Term
Under $200/month	None	9 months
$200–$500/month	50% of surplus	21 months
Over $500/month	50% of surplus	21 months

The surplus income threshold is updated annually by the Superintendent of Bankruptcy. In 2026, for a single person, the threshold is approximately $2,444/month net income.

Bankruptcy vs Consumer Proposal

Factor	Bankruptcy	Consumer Proposal
Cost to creditors	Creditors paid after assets liquidated	Negotiated fraction (30–60¢/$)
Your assets	Many assets surrendered	You keep assets
RRSP protection	Only contributions 12+ months old	Fully protected
Credit report	6 years after discharge	3 years after completion
Monthly payments	Surplus income (if any)	Fixed negotiated amount
Maximum debt	No limit	$250,000 (excluding mortgage)
Income requirement	None	Steady income helps
Best for	Truly unable to repay anything	Can repay something; want to keep assets

What Happens to Your Assets

Asset	Treated how in bankruptcy
RRSP (contributions 12+ months old)	✅ Protected — creditors cannot touch
RRSP (contributions within 12 months)	❌ Trustee can claw back
TFSA	❌ Seized by trustee
Employer pension plan	✅ Protected by provincial pension laws
Home (with equity)	❌ May need to refinance or surrender
Vehicle (basic)	✅ Usually allowed to keep one modest vehicle
RDSPs	✅ Protected
Personal effects (clothes, furniture)	✅ Exempt up to provincial limits
Tax refunds (year of bankruptcy)	❌ Assigned to trustee

Trustee Fees: What You Pay

LIT fees are regulated by the federal government and typically come from your assets, not as an additional bill:

Fee component	Typical amount
Basic fee (no-asset bankruptcy)	~$1,800–$2,000
Filing / government levy	~$75
Surplus income (if applicable)	Goes to trustee for distribution
Tax refunds	Assigned to trustee in year of bankruptcy (and prior year)
Consumer proposal filing	Typically 20% of distributed funds

The trustee works for creditors, not you. Their job is to distribute whatever they recover. However, the initial consultation is typically free, and they are legally required to explain all options including consumer proposals before proceeding.

The Credit Rebuilding Timeline

Milestone	Timeline after discharge
Get a secured credit card	Week 1 — do not wait
First credit score improvement visible	6–12 months of good payment history
Unsecured credit card eligibility	12–24 months after discharge
Auto loan (higher rate) available	12–18 months after discharge
Mortgage (some lenders)	2 years after discharge
Return to normal credit market	4–5 years after discharge
Credit record fully cleared	6 years after discharge

Secured Credit Card Strategy

Step	Details
Choose a secured card	Capital One, Home Trust Secured Visa, Neo Secured Mastercard
Deposit	$200–$500 collateral (becomes your credit limit)
Usage	Charge 2–3 small monthly expenses: groceries, gas, Netflix
Payment	Pay full balance every month — never carry a balance
Why it works	Every on-time payment is reported to Equifax and TransUnion
After 12–18 months	Apply for a regular unsecured credit card
Do not close the account	Keep the secured card — long credit history helps

Common Post-Bankruptcy Mistakes to Avoid

Mistake	Why it hurts
Ignoring rebuilding entirely	Credit stays rock-bottom without active effort
Using credit repair companies	They charge fees for things you can do free
Taking predatory high-rate unsecured credit	39.99% interest deepens the cycle
Not filing post-bankruptcy tax returns	CRA can pursue and may oppose discharge
Missing counselling sessions	Required for discharge — missing them can delay it

Bottom Line

Bankruptcy is a legal process designed to give people an honest fresh start — not a permanent financial mark. A first-time discharge after 9 months, followed by a secured card strategy and consistent payment history, means most people can access normal credit within 3–4 years and have the bankruptcy clear from their credit report in 6 years. The most important action you can take the week after discharge is to get a secured credit card and use it responsibly — the rebuilding clock starts only when positive information is being reported to Equifax and TransUnion.

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