What happens when you declare bankruptcy                               

Filing for personal bankruptcy is a difficult decision that can have a significant impact on your financial future. If you are considering filing for bankruptcy in Canada, it is important to understand the process and what to expect. In this blog, we will explore what happens when you file for personal bankruptcy in Canada.

What is Personal Bankruptcy?

Personal bankruptcy is a legal process that allows honest but unfortunate individuals who are unable to pay their debts to be discharged from most of their debts. Bankruptcy is governed by the Bankruptcy and Insolvency Act, which outlines the rules and procedures for the process.

When you file for bankruptcy, you are required to disclose all of your assets and debts to a licensed insolvency trustee (LIT), who will help you analyze your situation and explain which assets you are able to keep. There are exemptions for certain assets, such as your primary residence, personal belongings, vehicle, and tools of the trade.

A first time bankruptcy process typically lasts 9 or 21 months, and a second time bankruptcy typically lasts 24 or 36 months, this is depending on your income, after which you are discharged from your debts (with some exceptions).

The Bankruptcy Process

  • Meeting with a Licensed Insolvency Trustee (LIT): The first step in the bankruptcy process is to meet with a licensed insolvency trustee (LIT) to discuss your financial situation. The LIT will review your debts, assets, and income to determine if bankruptcy is the best option for you. If bankruptcy is the best option, the LIT will help you prepare the necessary paperwork and file your bankruptcy with the Office of the Superintendent of Bankruptcy (OSB).
  • Assets: When you file for bankruptcy, you are required to disclose all of your assets to the LIT. This does not mean that you lose everything, bankruptcy protection is a tool to help you start over and it is not meant to add additional burden into your financial situation. This will be discussed with your LIT in detail at your initial consultation. 
  • Making Payment: If you have surplus income (income above a certain threshold), you may be required to make payments to the LIT for a period of time (21 months for a first-time bankruptcy and 36 months for a second time bankruptcy). The amount of the payments is based on a formula outlined in the Bankruptcy and Insolvency Act.
  • Attending Counselling Sessions: As part of the bankruptcy process, you are required to attend two credit counselling sessions. The first session is within the first 60 days of filing for bankruptcy, and the second session is before you can be discharged from bankruptcy.
  • Discharge from Bankruptcy: Once you obtain your discharge, you are released from most of your debts, with some exceptions (such as court-ordered fines, child support, and student loans if less than 7 years old).


Filing for personal bankruptcy is a difficult decision that can have significant consequences on your financial future. The process requires the guidance of a licensed insolvency trustee. While bankruptcy can provide relief from overwhelming debt, it is important to consider all of your options and seek professional advice before making a decision. If you are considering bankruptcy, speak with a licensed insolvency trustee to determine if it is the best option for your situation.