Bankruptcy and Insolvency in Canada: Options, Stay, and Discharge

Bankruptcy and insolvency in Canada are governed by a single federal statute, the Bankruptcy and Insolvency Act, which gives individuals who can’t keep up with their debts two broad options: file a proposal to repay a portion of what they owe, or assign their non-exempt property into bankruptcy in exchange for a discharge that wipes out most debts. Every filing runs through a Licensed Insolvency Trustee, and the same rules apply in every province and territory. The Office of the Superintendent of Bankruptcy, part of Innovation, Science and Economic Development Canada, licenses the trustees, supervises the process, and keeps the public record of filings.¹

Who Counts as Insolvent

The Act sets a low entry point. An insolvent person is someone who owes at least $1,000 and can’t meet payments as they come due. A bankrupt is someone who has either voluntarily assigned themselves into bankruptcy or been pushed into it by a court order on a creditor’s application. The two statuses are distinct. You can be insolvent without being bankrupt, which matters because insolvency is what qualifies you to file any of the options below, while bankruptcy is only one of them.

The Licensed Insolvency Trustee

You cannot file under the Act without a Licensed Insolvency Trustee. They are the only people in Canada legally authorized to administer insolvency estates, and the OSB regulates them.² They act as officers of the court, which means they don’t work exclusively for you or for your creditors.

The trustee reviews your finances, prepares and files the paperwork, takes control of any non-exempt property in a bankruptcy, converts assets to cash, and distributes the proceeds to creditors according to the priority order set out in the Act.³ They also deliver the mandatory counselling sessions, report to the OSB, and confirm that you’ve met every obligation before you can be discharged.

Your Three Options

The Act gives individuals three paths: a consumer proposal, a Division I proposal, or personal bankruptcy. Which one fits depends on how much you owe, how much income you have, and how much property you want to protect.

Consumer Proposal

A consumer proposal is a legally binding offer to pay your unsecured creditors a portion of what you owe over a period of up to five years.⁴ You qualify if your total debts, not counting any mortgage on your principal residence, are no more than $250,000.² Proposed federal regulations published in November 2025 would raise the ceiling to $325,000; the change takes effect one year after the regulations are formally registered, which had not yet occurred as of early 2026.⁵

Once your trustee files the proposal, creditors have 45 days to request a meeting to vote. If creditors holding at least 25 percent of the proven claims don’t request one, the proposal is automatically deemed accepted.⁶ If a meeting is held, acceptance requires a simple majority of the dollar value of unsecured creditors who vote. An accepted proposal binds every unsecured creditor, including those who voted against it or didn’t vote at all.

The practical advantage is that your property doesn’t transfer to the trustee. You keep your home, your vehicle, and your savings as long as you make the payments. For people with equity in a home, this is usually the deciding factor.

Division I Proposal

If your debts exceed the consumer proposal ceiling, a Division I proposal is the equivalent at higher stakes. There is no cap on the debt amount.⁷ The voting threshold is steeper: at least two-thirds of the dollar value and a majority of the number of eligible creditors who vote must approve, and the court must then approve as well.⁸

The important difference is what happens if creditors reject it. A failed Division I proposal results in automatic bankruptcy as of the date of the creditors’ meeting.⁷ A rejected consumer proposal carries no such consequence.

Personal Bankruptcy

Bankruptcy is typically used when you can’t afford the regular payments a proposal would require, or when a proposal has failed. You sign an assignment that transfers your non-exempt property to the trustee, who sells it and distributes the proceeds. In return, you eventually receive a discharge from most of your pre-filing debts.

It is more intrusive than a proposal. You lose control of certain assets, your income is monitored for surplus payments, and the credit report impact lasts longer. For people with few assets and modest income, it is often the fastest route to a clean slate.

What Filing Does Immediately: The Stay of Proceedings

The moment your trustee files the paperwork electronically with the OSB, a stay of proceedings takes effect. Creditors can no longer contact you, garnish your wages, or continue lawsuits to collect on the debts covered by the filing.⁹ The stay applies in both bankruptcy and proposals, and for most people it is the first visible relief.

Surplus Income in Bankruptcy

If you’re in bankruptcy and your household income is above an annual threshold set by the OSB, you must pay half of the amount over that threshold into the estate. The OSB calls this surplus income.

For 2026, the monthly thresholds by family size are:¹⁰

1 person: $2,716
2 persons: $3,381
3 persons: $4,157
4 persons: $5,047
5 persons: $5,724
6 persons: $6,456
7 or more: $7,188

These figures are net of taxes, with deductions for certain costs such as child care and medical expenses. If your monthly surplus is less than $200 above the threshold, you owe nothing. At $200 or above, you owe 50 percent of the surplus.¹⁰

Surplus income also lengthens the process. A first-time bankrupt with no surplus income is eligible for automatic discharge after nine months. With surplus income payments, that extends to 21 months.¹¹ Your trustee recalculates the figure whenever your finances change.¹²

What You Keep

Bankruptcy doesn’t take everything. The Act leaves property that is exempt under provincial law out of the estate, and each province sets its own dollar limits for categories like household goods, clothing, tools of trade, and vehicles. The variation is wide. Household goods exemptions range from a few hundred dollars in some territories to unlimited amounts in others, and vehicle exemptions run roughly from $2,000 to $10,000 depending on where you live.

Registered retirement savings plans, registered retirement income funds, and registered disability savings plans are protected under federal law, with one exception: contributions made in the 12 months before the bankruptcy date are not exempt and can be claimed by the trustee.¹³ Older contributions are fully protected, so a lifetime of retirement savings generally survives bankruptcy intact.

Debts That Survive Discharge

A discharge wipes out most unsecured debts, but the Act names specific categories that are not released no matter what:¹⁴

Fines, penalties, and restitution orders imposed for a criminal offence, plus debts arising from bail or recognizance.
Alimony, spousal support, and child support, whether under a court order or a separation agreement.
Debts arising from fraud, embezzlement, misappropriation, or dishonesty in a position of trust.
Court-awarded damages for intentionally inflicted bodily harm, sexual assault, or resulting wrongful death.
Any creditor’s claim you failed to disclose to the trustee, unless that creditor had notice of the bankruptcy and did not act.
Interest accrued on any of the above.

Student and Apprentice Loans

Government student loans and apprentice loans get special treatment. If you file within seven years of ceasing to be a student (or finishing your apprenticeship), those loans survive the discharge.¹⁴ After seven years they are dischargeable like any other unsecured debt.

There is a hardship route. Once five years have passed since you were last a student, you can ask the court to release the loan early, by showing that you acted in good faith and that you are experiencing financial difficulty that will keep you from repaying.¹⁴

When You’re Done

For a first-time bankrupt with no surplus income, automatic discharge comes nine months after the bankruptcy date. With surplus income, it extends to 21 months. A second-time bankrupt waits 24 months without surplus income, or 36 months with it.¹⁵ A consumer proposal has no discharge; once you finish the scheduled payments, the trustee issues a certificate of full performance.

Automatic discharge only happens if no one opposes it. The trustee, a creditor, or the OSB can object on grounds listed in the Act, including that your assets were worth less than 50 cents on the dollar of unsecured debts without an acceptable explanation, that you kept inadequate records in the three years before filing, that you continued borrowing after you knew you were insolvent, that gambling or extravagant living contributed to the bankruptcy, that you failed to make surplus income payments, or that you could have filed a viable proposal and chose bankruptcy instead.¹⁶ If an opposition is filed, the court can grant a conditional discharge with extra payment obligations, suspend the discharge, or in rare cases refuse it.

How Long It Follows You on Credit

A first-time bankruptcy typically stays on your credit report for six years after your discharge date. In Ontario, Quebec, Prince Edward Island, and Newfoundland and Labrador, TransUnion keeps it for seven.¹⁷

A consumer proposal is removed either three years after you pay off all the debts included in it, or six years after you signed it, whichever comes first.¹⁷ A second bankruptcy stays on the report for 14 years.

1
Office of the Superintendent of Bankruptcy. Office of the Superintendent of Bankruptcy
2
Department of Justice Canada. Bankruptcy and Insolvency Act
3
Department of Justice. Bankruptcy and Insolvency Act (RSC, 1985, c. B-3) – Scheme of Distribution
4
Insolvency Insider Canada. Reviving a Consumer Proposal After the Expiry of the Five-Year Period
5
Canada Gazette. Regulations Amending the Bankruptcy and Insolvency General Rules and the Companies Creditors Arrangement Regulations
6
Department of Justice Canada. Bankruptcy and Insolvency Act
7
Office of the Superintendent of Bankruptcy. You Owe Money – Division I Proposals
8
Department of Justice. Bankruptcy and Insolvency Act
9
Department of Justice Canada. Bankruptcy and Insolvency Act – Stay of Proceedings
10
Office of the Superintendent of Bankruptcy. Directive No. 11R2-2026 Surplus Income
11
Department of Justice. Bankruptcy and Insolvency Act – Section 168.1
12
Department of Justice. Bankruptcy and Insolvency Act – Section 68
13
Department of Justice. Bankruptcy and Insolvency Act – Section 67
14
Department of Justice. Bankruptcy and Insolvency Act – Section 178
15
Office of the Superintendent of Bankruptcy. Bankruptcy Discharge and its Consequences for the Bankrupt
16
Department of Justice. Bankruptcy and Insolvency Act – Section 173
17
Financial Consumer Agency of Canada. How Long Information Stays on Your Credit Report