How Bankruptcy Works in Canada | Metus Lykos

Bankruptcy in Canada is federal law. The process, the paperwork, the timelines, and the debts it wipes out are the same whether you live in Halifax or Victoria. What changes at the provincial border is the part most people care about most: how much of your home, your car, and your things you get to keep. Two people with identical debts can walk out of bankruptcy with very different results depending only on where they live.

We are Metus Lykos Debt Law Firm, and we help people across Canada understand their legal options before they commit to anything. This guide explains how bankruptcy actually works nationally, where your province changes the outcome, and why most people who look into bankruptcy end up choosing something else.

If you live in Ontario and want the provincial detail rather than the national picture, our guide to how bankruptcy works in Ontario covers that in full.

One Law for the Whole Country

Personal bankruptcy is governed by the Bankruptcy and Insolvency Act, a federal statute that applies in every province and territory. It is overseen by the Office of the Superintendent of Bankruptcy, a federal body.

That means these things do not change based on where you live:

• Who can file bankruptcy on your behalf. Only a Licensed Insolvency Trustee can do this, anywhere in Canada.
• Which debts get cleared and which survive.
• How long a bankruptcy lasts before discharge.
• The income thresholds that decide whether you make extra payments.
• The legal stay that stops collection calls and wage garnishment.

There is no minimum debt to file. You need to be insolvent, which means you cannot pay your debts as they come due and you owe more than your assets are worth.

The Process, Step by Step

This sequence is the same in every province.

1. You meet with a Licensed Insolvency Trustee.
   They review your debts, income, assets, and expenses, and confirm whether you are insolvent. They are required to explain your alternatives, including a Consumer Proposal.
2. The documents are prepared and filed.
   You sign a sworn statement of affairs listing everything you owe and everything you own. The trustee transmits it electronically to the Office of the Superintendent of Bankruptcy.
3. A stay of proceedings starts immediately.
   This is a federal legal order. Most unsecured creditors must stop calling you, stop suing you, and stop garnishing your wages from the moment of filing.
4. Your creditors are notified.
   Each one can file a claim to share in whatever your estate pays out.
5. Non-exempt assets go to the trustee.
   This is the step where your province matters. Anything above your provincial exemption limits is sold, and the money goes to creditors.
6. You make surplus income payments if your income is high enough.
   The threshold is federal and based on the size of your household.
7. You attend two counselling sessions.
   These are mandatory everywhere and cover budgeting and money management.
8. You are discharged.
   Once you have met every obligation, the remaining included debts are legally released.

What You Keep Depends Entirely on Your Province

This is the single biggest regional difference, and it is the reason a national guide can only take you so far. Each province decides which assets are protected from your trustee. The gaps are large.

Home equity is the clearest example. In Saskatchewan you can protect $50,000 of equity in your home. In Alberta, $40,000. In Manitoba, $2,500. In Quebec there is no general home equity exemption at all. Same federal law, wildly different outcome for a homeowner.

These figures were accurate as of early 2026. Provinces adjust them periodically, so treat the table as a guide to how much variation exists rather than as a final answer for your own file.

One rule that is national: money in an RRSP is protected except for contributions made in the 12 months before filing. That comes from the federal act, so it holds everywhere.

Surplus Income: The National Income Test

If your household income is above a federal threshold, you pay half of the amount above that line into your estate every month. The Office of the Superintendent of Bankruptcy sets the thresholds and updates them each year. These are the standards that took effect on 27 March 2026.

You pay 50% of whatever you earn above your line. If you live alone and take home $3,216 a month, you are $500 over the threshold, so your payment is $250 a month. If the calculated surplus works out to less than $200 a month, no payment is required.

Surplus income does something else that catches people off guard: it more than doubles the length of your bankruptcy. A first bankruptcy with no surplus income ends in 9 months. With surplus income, it runs 21 months.

Which Debts Bankruptcy Clears

These are federal rules and apply identically nationwide. Bankruptcy can clear:

• Credit card balances
• Personal loans and lines of credit
• Income tax debt owed to the CRA
• HST and GST debt
• COVID benefit repayments, including CERB
• Medical bills
• Payday loans
• Utility arrears
• Most other unsecured personal debt

Which Debts Survive Bankruptcy

Some debts follow you through and come out the other side. If most of what you owe sits in this list, bankruptcy will not fix your situation.

How Long It Lasts

These are minimums, not guarantees. If you miss counselling sessions or payments, or a creditor opposes your discharge, it takes longer.

The Credit Record Is National

Equifax and TransUnion both operate Canada-wide, so moving provinces does nothing to your credit file. A first bankruptcy is recorded as an R9, the lowest rating there is. It stays on your Equifax file for 6 years after discharge and on TransUnion for 7 years after filing. A second bankruptcy stays for 14 years.

A Consumer Proposal is recorded as an R7 and comes off 3 years after you finish it. For many people that difference alone decides which path they take.

Bankruptcy Compared to a Consumer Proposal

If you owe less than $250,000 in unsecured debt, both options are legally open to you anywhere in Canada.

Notice the third row. Because a Consumer Proposal never touches your assets, provincial exemption limits stop mattering entirely. Someone in Manitoba or Quebec with equity in their home is in a very different position under bankruptcy than under a proposal. Our comparison of a Consumer Proposal versus bankruptcy goes through the trade-offs in more detail.

If you owe more than $250,000, a Consumer Proposal is not available, but a Division 1 Proposal may be. It is court supervised and more involved, and it carries the same protection from creditors.

Where We Can Represent You

Bankruptcy law is federal, but law firms are licensed provincially. We are licensed by the Law Society of Ontario and practise primarily in Ontario. Through law society mobility rules we are able to assist clients in Alberta, British Columbia, and Saskatchewan on a temporary basis.

A Licensed Insolvency Trustee is required to stay impartial between you and your creditors. That is their legal duty, and it is not the same as having someone on your side. As a law firm, our duty runs to you alone. We advise you on your legal rights, explain what each path actually costs you, and represent your interests throughout. For a wider view of what is available, our guide to debt relief options in Canada lays out every route.

Frequently Asked Questions

Are bankruptcy rules the same in every province in Canada?

The process is. Bankruptcy runs under the federal Bankruptcy and Insolvency Act, so the filing, the timelines, the debts that get cleared, and the income test are identical nationwide. What differs is the exemption list that decides which assets you keep, which each province sets on its own.

How much debt do you need to file for bankruptcy in Canada?

There is no minimum. You need to be insolvent, meaning you cannot pay your debts as they come due and you owe more than your assets are worth.

Which province’s exemptions apply if I recently moved?

Generally the province where you lived for the greater part of the year before filing. If you moved recently or own property in more than one province, get legal advice first, because the answer can change what you keep.

What is the surplus income limit for 2026?

For a household of one it is $2,716 in monthly net income, rising with household size to $7,188 for seven or more people. You pay 50% of anything above your threshold, and nothing at all if the calculated amount comes to less than $200 a month.

Can bankruptcy clear CRA tax debt?

Usually yes. Unpaid income tax, HST and GST arrears, and COVID benefit repayments such as CERB can generally be discharged. CRA debt tied to fraud or misrepresentation may not be.

Will I lose my house if I file for bankruptcy?

It depends on your equity and your province. Saskatchewan protects $50,000 of home equity and Alberta protects $40,000, while Manitoba protects $2,500 and Quebec has no general exemption. Equity above your provincial limit has to be paid out or the property sold. A Consumer Proposal avoids the question, because your assets are never at stake.

Does bankruptcy clear student loans in Canada?

Only if you have been out of school for 7 years or more. Under 7 years, student loans survive bankruptcy and remain payable after discharge.

How long does bankruptcy stay on my credit report?

A first bankruptcy stays on your Equifax file for 6 years after discharge and on TransUnion for 7 years after filing. A second stays for 14 years. Credit reporting is national, so moving provinces does not reset it.

Is bankruptcy the only way to deal with debt I cannot repay?

No, and for most people it is not the best one. A Consumer Proposal, a Division 1 Proposal, and negotiated debt settlement all reduce or resolve unsecured debt without the asset surrender that bankruptcy involves.

Do I need a lawyer to file for bankruptcy?

Only a Licensed Insolvency Trustee can carry out the filing itself. A lawyer plays a different role: we advise you on your legal rights, help you compare the options honestly, and represent your interests, which a trustee cannot do because they must remain impartial.