Bankruptcy

When debt becomes
unmanageable.

Understanding insolvency options, consumer proposals, and bankruptcy in Canada.

⚠ Not legal advice
The information on this page is for educational purposes only. Bankruptcy and insolvency law is complex and situation-specific. Always consult a Licensed Insolvency Trustee (LIT) — the first consultation is free by law.
What is Bankruptcy?

Bankruptcy is a legal process governed by Canada's Bankruptcy and Insolvency Act (BIA) that gives people who cannot repay their debts a fresh start. In 2025, approximately 140,000 Canadians filed for consumer insolvency — 78% chose a consumer proposal over full bankruptcy.

🛑
Collection calls stop
Immediately upon filing, all collection activity, wage garnishments, and legal action by creditors must cease.
💸
Interest is frozen
Once you file, interest on included debts stops accruing. You stop the bleeding immediately.
🤝
LIT handles creditors
Your Licensed Insolvency Trustee deals with all creditors on your behalf.
📋
Minimum $1,000 in debt
You must owe at least $1,000 in unsecured debt and be unable to pay it through your income.
⏱
9 months minimum
First-time bankruptcies typically last 9 months. Surplus income extends this to 21 months.
📉
R9 credit rating
The worst credit rating in Canada. Stays on your report 6-7 years after discharge for a first bankruptcy.
Should I Consider Insolvency?
Question 1 of 5
How much unsecured debt do you have?
Insolvency Options in Canada
📋
Debt Management Plan (DMP)
Impact: Minimal if creditors cooperate • Timeline: 3-5 years

A non-profit credit counsellor negotiates with your creditors to reduce interest rates and consolidate payments into one monthly payment. You keep all your assets.

✓ Pros
• No court involvement
• No credit report filing
• Keep your assets
• Creditors often agree to 0% interest
⚠ Cons
• Requires creditor agreement (not guaranteed)
• Takes 3-5 years typically
• Still appears on credit report
Cost: Free through non-profits
Best for: People with under $10K debt and stable income
🤝
Consumer Proposal
Impact: R7 rating (recoverable in 3 years) • Timeline: 3-5 years

A Licensed Insolvency Trustee files a formal proposal with creditors to repay only a portion of your debt (usually 30-50%) over a set time (typically 3-5 years). Interest stops immediately.

✓ Pros
• Keep all your assets
• Interest stops immediately
• Pay only a portion of debt
• Faster than bankruptcy
• Public record for only 3 years after completion
⚠ Cons
• Creditors must agree (though most do)
• Still affects credit rating
• Monthly payments required
Cost: $1,500-$3,000 (usually paid from proposal funds)
Best for: 78% of insolvency filers choose this — the most popular option
⚖️
Bankruptcy
Impact: R9 rating (6-7 years) • Timeline: 9-21 months

A formal legal process where a Licensed Insolvency Trustee liquidates your non-exempt assets and distributes proceeds to creditors. Remaining debt is forgiven. Interest stops, collection stops.

✓ Pros
• Debt is discharged (forgiven)
• Interest stops immediately
• Collection stops immediately
• No monthly payments after discharge
• Shortest path for severe debt
⚠ Cons
• Worst credit rating (R9)
• Lose non-exempt assets
• Public record for 6-7 years
• Employment restrictions in some fields
Cost: Free - LIT is paid from assets
Best for: Over $250K debt, no income, or assets already exempt
Find a Licensed Insolvency Trustee
The first consultation is always free

Licensed Insolvency Trustees are federally regulated. They are legally required to explain all your options. The initial consultation is confidential and free.

Official LIT Directory
Search by city or postal code on the OSB website.
Search on OSB.gc.ca ↗
Google Search Tip
Search "Licensed Insolvency Trustee [your city]" — never pay for a referral service.
🎯 Important facts about insolvency in Canada
✓Bankruptcy is not a crime — it's a legal protection designed to give people a fresh start.
✓You cannot be jailed for debt in Canada (except unpaid court-ordered support or taxes).
✓A consumer proposal is successful 95%+ of the time — creditors almost always agree.
✓Your home may be protected — in most cases, bankruptcy doesn't force you to sell.
✓RRSP funds are protected — they cannot be seized to pay unsecured debts.
✓You can rebuild credit quickly — many people get approved for credit within 2-3 years of discharge.
✓A Licensed Insolvency Trustee is a neutral officer of the court — they're not working for creditors.