Bankruptcy can be a helpful solution for those struggling with overwhelming debt, but it doesn’t clear all types of obligations in Canada. If you’re wondering what debts are erased and which ones remain, this article will guide you through the key aspects of bankruptcy in Canada.

What Debts Are Cleared by Bankruptcy in Canada?

While bankruptcy can provide relief from many forms of debt, it does not eliminate everything. It can discharge unsecured debts like credit card balances, lines of credit, overdrafts, and even some government taxes. However, secured loans, such as car loans and mortgages, are not wiped out. Additionally, student loans that are less than seven years old remain in place after a bankruptcy. If a student loan falls between 5 and 7 years old, there may be a chance for it to be included in the bankruptcy process, though it depends on the trustee’s discretion. Other debts that are typically unaffected include court fines, child support obligations, government overpayments, and registered judgments.

Duration of the Bankruptcy Process

In Canada, the bankruptcy process typically lasts between 9 to 21 months. This period starts when you file for bankruptcy, and the judge will set the time frame based on your specific situation. During this time, your income, adjusted for family size, will determine your monthly payments. Any non-exempt assets you own may also be sold to help repay your creditors.

For first-time bankruptcy filers, the process lasts between 9 and 21 months. However, if you’ve declared bankruptcy before, the duration could be longer. After the bankruptcy period ends, you will be “discharged,” meaning that the official process is over. But the effects linger—your credit report will carry negative marks for up to six years, making it harder to secure new credit. A permanent record of the bankruptcy will also be kept by the courts.

Bankruptcy vs. Insolvency: What’s the Difference?

Insolvency is a broad term that refers to a financial situation where an individual cannot meet their debt obligations. The Bankruptcy and Insolvency Act provides several options for dealing with insolvency, including bankruptcy and consumer proposals. Bankruptcy is one solution to insolvency, but not the only one.

Monthly Costs of Filing for Bankruptcy

Filing for bankruptcy in Canada comes with costs, and while the minimum is typically $200 per month, the amount could be much higher depending on your financial situation. The base fee for filing with a licensed trustee is generally around $1,800 for a nine-month period. If your bankruptcy lasts longer—up to 21 months—your monthly payments will be adjusted accordingly.

Beyond the base fee, you may be required to send your surplus income (determined by an official schedule) to your creditors. This means that if you have a higher income, your bankruptcy costs will be greater. The sale of non-exempt assets also adds to the overall cost, but this is a one-time event, not a monthly expense.

Can You Own Property After Bankruptcy?

While bankruptcy doesn’t prevent you from owning property, it can make securing a mortgage quite challenging, especially during the six years following your discharge. A bankruptcy record on your credit report significantly lowers your credit score, making it difficult to obtain loans from traditional lenders. You may need a co-signer with strong credit or turn to private lenders, which can be costly.

Government and Bankruptcy Costs

The government does not cover the costs associated with personal bankruptcies. The individual or business filing for bankruptcy is responsible for these expenses. However, the government oversees the bankruptcy process through the Office of the Superintendent of Bankruptcy (OSB), which regulates and monitors insolvency proceedings in Canada.

Rebuilding Credit After Bankruptcy

It is possible to rebuild your credit after bankruptcy, but it takes time. Your credit will remain negatively impacted for six years after your discharge. However, there are steps you can take to improve your credit score. For example, obtaining a secured credit card or a secured loan can help you gradually rebuild your credit. You can also become an authorized user on another person’s credit card. Once the negative marks from the bankruptcy are removed from your credit report, you can start fresh and rebuild your credit.

How Long Does It Take to Recover from Bankruptcy?

The full recovery from bankruptcy can take 7 to 8 years. The bankruptcy process itself lasts between 9 and 21 months, followed by a 6-year period where your credit is negatively affected. During this time, it can be difficult to obtain credit, but there are ways to improve your financial situation, such as through secured credit cards or loans.

Is it Hard to Get Credit After Bankruptcy?

Yes, obtaining credit after bankruptcy is challenging. Most standard lending options, including credit cards, loans, and mortgages, become difficult to access. During the six years following your bankruptcy discharge, a notation will appear on your credit report, signaling your bankruptcy status. This drastically lowers your credit score, making lenders wary.

However, you can still rebuild your credit through options like a secured credit card. This type of card requires a deposit that serves as collateral, helping to rebuild your credit over time. While it may be tough to get a loan or mortgage, there are still potential avenues, such as finding a co-signer or using private lenders, though these options may be more expensive.

Conclusion

Bankruptcy can offer a fresh start by wiping out significant portions of debt, but it comes with lasting consequences. It’s essential to understand both the immediate effects and long-term implications, such as the difficulty in obtaining credit and the impact on your ability to own property. Before deciding whether bankruptcy is right for you, it’s advisable to speak with a credit counselor who can help guide you through your options and make a well-informed decision about your financial future.