How long does a bankruptcy last?

The length of the bankruptcy depends on a few factors – whether you have ‘surplus income’ (see below) and whether you have been bankrupt before. If you have no surplus income and have never been bankrupt before, you will be eligible for an automatic discharge after nine months.

How long does the Consumer Proposal last?

A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.

What is a bankruptcy?

A bankruptcy is a legal process to discharge your debts. It is a declaration that your debts are too high for you to repay – and far better than the old concept of a ‘debtor’s prison’! It allows for a fresh start, while giving your creditors some return on what’s owed only if you have a level of income that allows for payments to be made to them, or unprotected assets that can be liquidated (however, most common assets are protected during this process – see below for more information on protected personal assets).

What is a Consumer Proposal?

A Consumer Proposal is an offer to your creditors to pay back a percentage of what you owe them, based on your ability to pay. It is governed by the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. Unlike other negotiated debt settlement plans, it is legally binding on all creditors and usually involves paying back less than the total amount of your debt.

What is a Licensed Insolvency Trustee (LIT)?

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.

Bankruptcy Myths vs. Facts

Most people do not start by asking if they should file for bankruptcy. They start by trying to keep up.

You might still be making payments, doing your best to stay on top of things, and hoping it will turn around. But behind the scenes, the balance grows.

This is where misinformation makes things harder. What you think bankruptcy means can keep you stuck longer than you need to be. Before making any decisions, it is important to understand what is real, what is not, and what your options actually look like.

What Bankruptcy Really Means in Canada

When people hear the word bankruptcy, it often comes with a lot of assumptions. In reality, bankruptcy is not a punishment or a last resort reserved only for extreme situations. It is a legal process designed to give individuals and businesses a structured way to deal with debt when repayment is no longer realistic.

In Canada, bankruptcy is governed by federal law and is meant to provide protection and relief. Once filed, it can create space to reset financially and move forward with a clear plan.

At the center of this process is a Licensed Insolvency Trustee. This is the only professional authorized to file a bankruptcy in Canada and guide you through each step. Their role is to review your financial situation, and help you choose the best option for you.

Bankruptcy is available to both individuals and small businesses who are unable to meet their financial obligations.

Who Can File for Bankruptcy in Canada?

To qualify for bankruptcy in Canada, you must meet a few basic criteria. You need to owe at least $1,000 in unsecured debt and be unable to keep up with your payments as they come due. This could include credit cards, personal loans, or other unsecured debts that have become difficult to manage.

Most people begin to consider bankruptcy when the pressure becomes constant. This can look like struggling to keep up with minimum payments, using credit to cover everyday expenses, receiving ongoing collection calls or legal notices, or watching debt grow despite efforts to manage it.

These requirements are meant to ensure that bankruptcy is used as a solution for those who truly need it. That said, qualifying does not automatically mean it is the right option for you.

Why Bankruptcy Myths Cause People to Delay Getting Help

Many of the people we speak with have been managing their debt for longer than anyone around them realizes.

We often meet clients who have been making every minimum payment, doing everything they can to stay on top of things. From the outside, nothing looks wrong. But behind the scenes, they are relying on credit to get through the month, watching balances grow, and feeling like there is no way to catch up.

By the time they reach out, the situation has been building quietly for a long time.

What usually changes things is not a sudden crisis. It is when they understand their options. and realize they are not stuck, and they do not have to figure it out alone.

Common Bankruptcy Myths vs. Facts

Let’s walk through some of the most common bankruptcy myths and what actually happens in real life.

Myth #1: Bankruptcy Means You Lose Everything

This is one of the biggest fears people have, and it is not accurate.

Bankruptcy laws are designed to help you move forward, not leave you with nothing. Most people are able to keep the things they need for daily life. This often includes:

Clothing and basic household items
Tools you need for work
A vehicle within a certain value
Some equity in your home, depending on your situation
Retirement savings like RRSPs (with some limits)

These are called exemptions. They exist to make sure you can maintain a reasonable standard of living while working toward a fresh start.

Myth #2: Bankruptcy Will Ruin Your Credit Forever

Bankruptcy does impact your credit, but not forever.

For most people, a first-time bankruptcy stays on your credit report for about 6 to 7 years after discharge. That can sound like a long time, but it is important to look at the full picture.

Many people who consider bankruptcy already have damaged credit due to missed payments, high balances, or collections. In some cases, bankruptcy is the first step toward rebuilding, and you can begin improving your credit right away.

Myth #3: Only Financially Irresponsible People File Bankruptcy

This belief is simply not true. Financial challenges can happen to anyone. We regularly see people facing job loss or reduced income, dealing with health issues or unexpected expenses, going through divorce or major life changes, or struggling as the cost of living continues to rise faster than their income.

Most people do not plan to fall into debt. It often builds slowly over time until it becomes too much to manage.

Myth #4: Bankruptcy Is the Only Option

Bankruptcy is one option, but it is not the only one.

Before moving forward, it is important to look at all available solutions. Depending on your situation, alternatives may include:

Consumer proposals, which allow you to repay part of your debt over time
Debt consolidation, which combines multiple debts into one payment

Each option has different benefits and considerations. What works for one person may not be right for another. That is why a Licensed Insolvency Trustee can review your situation and help you understand all of your options.

Myth #5: Everyone Will Know If You File

Many people worry that bankruptcy will be public knowledge. In reality, it is much more private than most expect as it is not widely shared. All bankruptcies filed in Canada are listed in the Superintendent of Bankruptcy’s insolvency records, which is searchable by anyone – but they would need to pay a fee and specifically search for your name. And while some bankruptcies require a notice to be published in a local newspaper, the majority of bankruptcies filed by individuals do not have this requirement.

Myth #6: You Can Just Max Out Debt and File

Bankruptcy is meant to help people who are genuinely unable to repay their debts. If there are signs of misuse, such as taking on large amounts of debt right before filing, creditors may challenge the process.

Bankruptcy works best when it is approached as a solution, not a shortcut.

Bankruptcy Facts You Need to Know Before Deciding

Understanding the facts about bankruptcy can help you move from uncertainty to clarity.

Fact #1: Bankruptcy Is a Legal Process Designed to Help

Bankruptcy is not a loophole or a way to avoid responsibility. It is a structured legal process created to protect people when debt becomes unmanageable.

One of the most important protections is something called a stay of proceedings. This means that once you file, creditors must stop collection calls, wage garnishments, and legal action. It gives you breathing room to move forward without constant pressure. There are defined steps, timelines, and responsibilities, all designed to help you resolve your debt in a fair and organized way.

If you would like a deeper understanding of how the process works, you can learn more here.

Fact #2: You Must Work With a Licensed Insolvency Trustee

In Canada, you cannot file for bankruptcy on your own. You must work with a Licensed Insolvency Trustee, who is trained and regulated to guide you through the process properly. They will review your full financial situation and help you choose the right solution for your circumstances.

Fact #3: The Process Is Often Faster Than People Think

Many people believe bankruptcy will last for years, but that is not usually the case.

For a first-time bankruptcy, the process can often be completed in as little as nine months, as long as all required duties are completed.

Fact #4: Not All Debts Are Eliminated

Bankruptcy can eliminate many types of unsecured debt, including credit cards, personal loans, and lines of credit. In most cases, CRA debts will be included.

However, obligations like child or spousal support, court fines, and some student loans may still remain. This is why it is important to understand your specific situation. Knowing what will and will not be included helps you make a decision with realistic expectations.

Fact #5: There Are Structured Costs

The costs to filing for bankruptcy are set within a structured system and are often spread out over time through manageable monthly payments. These payments are typically much lower than what you were paying toward your debt before. For many people, this creates relief right away. Instead of juggling multiple payments and rising interest, you have one clear plan that moves you toward becoming debt-free.

Is Bankruptcy the Right Solution for You?

There is no single moment that tells you it is time to file for bankruptcy. Every situation is different.

However there are signs that it may be time to look at your options: you may be struggling to keep up with payments, using credit for everyday expenses, or dealing with ongoing collection calls.

If this feels familiar, it does not mean bankruptcy is your only choice. It does mean your current approach may not be working.

The goal is not to rush into a decision, but to get clear on your options. For some, bankruptcy is the right path. For others, there may be better alternatives.

Take the Next Step With Clarity

When you understand the facts, bankruptcy becomes less about fear and more about clarity.

If you are feeling stuck or unsure, speaking with a Licensed Insolvency Trustee can help you get clear. At Campbell Saunders, we take the time to understand your situation, walk you through your options, and help you find a path forward that makes sense for you.

Reaching out is not a commitment. It is simply a step toward getting answers and moving forward with confidence.

Frequently Asked Questions

What debts are included in bankruptcy?

Bankruptcy can eliminate most unsecured debts. This often includes credit cards, personal loans, lines of credit, and most tax debt. However, not all debts are included. Things like child or spousal support, court fines, and some student loans may still need to be paid.

How long does bankruptcy last in Canada?

For most people filing for the first time, bankruptcy can be completed in as little as nine months. In some cases, it may take longer. This can depend on your income level or if you have filed before.

Can I keep my house or car?

In many cases, yes.

Bankruptcy is designed to help you move forward, not leave you without essentials. You may be able to keep your home or vehicle depending on how much equity is in them and your ability to maintain payments.