Bankruptcy in Canada: How Long Does It Last?

Key Takeaways

✅ Bankruptcy in Canada typically lasts 9 to 21 months for a first-time bankruptcy.

✅ If you have been bankrupt before, the process can extend to 24 to 36 months or longer.

✅ The length of bankruptcy depends on factors such as income, prior bankruptcies, and compliance with bankruptcy requirements.

✅ Bankruptcy can stay on your credit report for 6 to 14 years, depending on the number of bankruptcies filed.

✅ Alternative debt relief options, such as a consumer proposal, may impact your credit rating less.

Understanding Bankruptcy in Canada

Bankruptcy is a legal process designed to help individuals eliminate overwhelming debt when they can no longer meet their financial obligations. It provides relief from creditors while requiring individuals to surrender certain assets and meet specific obligations.

One of the most common concerns among those considering bankruptcy is how long the process lasts and its impact on their financial future. In this blog, we will explore the timeline, influencing factors, and alternatives to bankruptcy in Canada.

How Long Does Bankruptcy Last in Canada?

The duration of bankruptcy depends on various factors, including whether it is your first bankruptcy and whether you meet all requirements. Here’s a breakdown of the standard timelines:

1. First-Time Bankruptcy

If you have never filed for bankruptcy before, the process typically lasts:

9 months if you complete all duties (such as attending financial counselling sessions and making required payments)
21 months if your income exceeds the government’s set income threshold, requiring you to make monthly surplus income payments

2. Second-Time Bankruptcy

If you have previously declared bankruptcy, the timeline extends:

24 months (2 years) if there are no surplus income payments
36 months (3 years) if you must make surplus income payments

3. Third-Time or More Bankruptcies

If you declare bankruptcy three or more times, there is no automatic discharge after a fixed period
The court will review your case and determine when you can be discharged

4. Extended or Delayed Bankruptcies

Certain circumstances can extend bankruptcy, such as:

Failing to complete required duties (e.g., not attending financial counselling or missing payments)
Objections from creditors who believe more assets should be surrendered.
Court involvement, which may delay discharge proceedings

How Bankruptcy Affects Your Credit Report

Filing for bankruptcy has a significant impact on your credit history. Here's how long bankruptcy remains on your credit report:

Bankruptcy Type	Duration on Credit Report
First Bankruptcy	6 to 7 years from discharge date
Second Bankruptcy	14 years from discharge date
Third or More	Indefinitely or as determined by the court

Even after bankruptcy is removed from your credit report, it can still affect your ability to secure loans or credit in the future. However, rebuilding your credit can help mitigate the long-term effects.

Factors That Influence Bankruptcy Duration

Several factors determine how long bankruptcy lasts in Canada, including:

Surplus Income – If your income exceeds a government-set threshold, you must make additional payments, which extends your bankruptcy period.
Previous Bankruptcies – The more times you declare bankruptcy, the longer the process will take.
Completing Required Duties – Attending financial counselling, submitting reports, and making payments as required can ensure a timely discharge.
Objections from Creditors – If a creditor challenges your discharge, the bankruptcy process may be prolonged.

Alternatives to Bankruptcy

Bankruptcy is not the only option for managing overwhelming debt. Consider these alternatives:

1. Consumer Proposal

A legally binding agreement where you negotiate to repay a portion of your debts over a period of up to 5 years
Unlike bankruptcy, you can keep all your assets
Remains on your credit report for 3 years after completion to a maximum of 3 years from when filed (shorter than bankruptcy)

2. Debt Consolidation

Combines multiple debts into a single loan with lower interest rates
Requires a good credit score to qualify

3. Debt Management Plan (DMP)

A structured repayment plan is arranged through a credit counselling agency
It is not legally binding but helps in managing debts without filing for bankruptcy

4. Informal Debt Settlements

Negotiating directly with creditors to settle debts for a reduced amount
No legal protection, but it can be an effective option for those who can pay a portion of their debts

Conclusion

Bankruptcy in Canada is a structured process that typically lasts 9 to 21 months for first-time filers and up to 36 months for those with prior bankruptcies. While it provides financial relief, it also has long-term consequences on your credit. Exploring alternatives such as a consumer proposal or debt consolidation may be a better option for some individuals.

If you're considering bankruptcy, consult with a Licensed Insolvency Trustee to discuss the best debt-relief solution for your situation. Litvack Group is a Licensed Insolvency Trustee and we offer free consultations to review your financial situation.

Frequently Asked Questions

1. Can bankruptcy last longer than 21 months in Canada?

Yes. If it is your second bankruptcy, it can last 24 to 36 months. It could take longer if you fail to meet requirements, creditors object, or the court is involved.

2. Will bankruptcy affect my ability to get a mortgage?

Yes, bankruptcy can make it challenging to qualify for a mortgage. However, after rebuilding your credit and demonstrating financial stability, you can still secure a home loan in the future.

3. Can I file for bankruptcy if I have a job?

Yes. However, if your income exceeds a government-set threshold, you will be required to make surplus income payments, which could extend your bankruptcy period.

4. What debts are not erased by bankruptcy?

Bankruptcy does not eliminate:

Student loans (if less than 7 years old)
Child support and alimony payments
Court-ordered fines and penalties
Fraudulent debts

5. Can I keep my house and car if I file for bankruptcy?

It depends. Some assets may be exempt, but if you have significant equity in your home or car, you must pay the equity amount or surrender your house to the Trustee. A consumer proposal might be a better option if you want to keep your assets.

6. Is bankruptcy the best option for everyone?

Not necessarily. After considering other options, such as consumer proposals, debt consolidation, and financial counselling, bankruptcy should be a last resort.