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Canada Bankruptcy Guide

the bankruptcy in Canada. The bankruptcy is the "legal process under the Bankruptcy and Insolvency Act" (the "BIA") — the "debtor who is unable to pay the debts can file the bankruptcy to obtain the debt discharge". The Licensed Insolvency Trustee (LIT) administers the bankruptcy. The first-time bankrupt is automatically discharged after 9 months (if the "no surplus income" and the "no objection from the creditors"). The bankruptcy exemptions protect the certain assets — the "RRSP (except the contributions in the 12 months before the bankruptcy)", the "principal residence (up to $40,000 in the Ontario — the provincial limits vary)", the "vehicle (up to $7,800 in the Ontario — the provincial limits vary)", and the "household goods and the personal effects". The student loans are discharged in the bankruptcy only if the bankruptcy occurs 7 years or more after the completion of the studies. The tax debt (the income tax, the GST/HST, the payroll deductions) can be discharged in the bankruptcy — but the "deemed trust" gives the CRA the "super-priority" for the source deductions. The credit impact: the "R9 rating" — the "bankruptcy stays on the Equifax credit report for 7 years" (the "6 years on the TransUnion").

Bankruptcy Process

• Filing for bankruptcy: The "assignment in bankruptcy" — the "debtor meets with the LIT" — the "LIT prepares the bankruptcy documents" — the "debtor signs the assignment" — the "LIT files the bankruptcy with the Office of the Superintendent of Bankruptcy (OSB)". The bankruptcy is effective from the "filing date".
• Duties of the bankrupt: The "attend the counselling sessions" (the "two mandatory financial counselling sessions"). The "provide the financial information" (the "statement of affairs" — the "list of the assets and the liabilities"). The "report the income and the expenses" (the "monthly income and expense report"). The "cooperate with the trustee" (the "answer the questions" — the "provide the documents").
• Surplus income payments: The "bankrupt is required to pay the surplus income" if the net income exceeds the "OSB threshold" (the "superintendent's standard" — the "$2,525 per month for the single person in 2025" — the "50% of the surplus income must be paid to the trustee"). The surplus income extends the automatic discharge from 9 months to 21 months.

Provincial Exemptions

• Ontario: The "principal residence equity: $40,000". The "vehicle: $7,800". The "household goods: $16,000". The "tools of the trade: $20,000".
• British Columbia: The "principal residence equity: $12,000 in the Vancouver area, $9,000 in the rest of BC". The "vehicle: $5,000". The "household goods: $4,000". The "tools of the trade: $10,000".
• Alberta: The "principal residence: $40,000". The "vehicle: $5,000". The "household goods: $20,000". The "tools of the trade: $10,000".
• Quebec: The "principal residence: $15,000". The "vehicle: $8,000". The "household goods: $10,000". The "tools of the trade: $10,000".

Bankruptcy & CRA

• CRA as the creditor: The CRA is the "unsecured creditor" for the income tax debt, the GST/HST debt, and the payroll debt. The CRA files the "proof of claim" in the bankruptcy.
• Deemed trust: The "source deductions (the CPP, the EI, the income tax deducted from the employee's wages)" are held in the "deemed trust" — the CRA has the "super-priority" over the other secured creditors.
• Tax refund: The "pre-bankruptcy tax refund" (the "return for the year before the bankruptcy") belongs to the "trustee in bankruptcy". The "post-bankruptcy tax refund" (the "return for the year after the bankruptcy") belongs to the "bankrupt individual".

For the consumer proposal (the alternative to the bankruptcy), see our Consumer Proposal Guide →. For the LIT selection and the fees, see our Licensed Insolvency Trustee Guide →.