Bankruptcy in Ontario: How and when to file
Understanding the Process and Requirements for Filing Bankruptcy in Ontario
As the average consumer debt in Canada continues to increase—and interest rates rise with them—many Ontarians may, unfortunately, find themselves in a situation where they can’t pay all of their debts.
As of the second half of 2022, Ontarians carry, on average, $21,128 of consumer debt. Debt-to-income ratio widened to a record 181.7% during that same time period. And interest rates continue to rise. This has created a situation where many Ontarians simply can’t keep up with their bills. As a result, the number of bankruptcies in Ontario saw an 11.1% jump between August 2021 and 2022.
If you’re feeling overwhelmed by your debt load and can’t seem to keep up, then bankruptcy may be a viable solution for you. This guide will help walk you through what you need to know about bankruptcy in Ontario, and how to file for one.
Introduction to bankruptcy in Ontario
When to declare bankruptcy
Making the decision to declare bankruptcy in Ontario is a serious one. You need to ensure that it’s the right move for you, and be clear on the implications.
Generally, bankruptcy is the right solution if your liabilities exceed your income and assets and, as a result, you:
- Owe at least $1,000
- Can’t make your payments as they come due
- Don’t have sufficient assets to pay off your debt
Some common signs that bankruptcy may be the right step include:
- Only being able to cover the minimum payment on bills
- Having to push payments, delay some to pay others, or regularly going into arrears
- Not being able to get a handle on your debt load
- Missing mortgage or other loan payments
- Using credit card cash advances to pay bills
- Receiving threatening calls from collection agencies
- Receiving legal notice over your debt
In our experience, bankruptcy is the best solution for about 30% to 45% of people we talk to. If your situation sounds different, then we suggest discussing a consumer proposal with our team.
How to file for bankruptcy in Ontario
If you’ve determined that bankruptcy is the right solution for you, your first step should be to contact a Licensed Insolvency Trustee like Doyle Salewski.
They will conduct a free assessment of your financial situation that includes:
- A bankruptcy or consumer proposal comparison
- A review of your income and debt profile
- Creation of a proposed budget based on that profile
- A determination of whether you can afford that proposed budget
- A review of your assets and holdings to see what can be used to cover your commitments
If it’s determined that you cannot afford the proposal, but can afford bankruptcy, then the Licensed Insolvency Trustee—with your permission—will move forward with that option.
Once you decide to file for bankruptcy in Ontario, the process include:
- Submitting proof of income, valid IDs, a list of credits and proof of expenses to your trustee
- Working with your trustee to prepare the application forms
- Signing the documents with the trustee, filing with the Office of the Superintendent for Bankruptcy, and sending notice to all creditors
You are responsible for ensuring the accuracy and completeness of everything in your application.
How much does it cost to declare bankruptcy in Ontario?
The cost of declaring bankruptcy in Ontario includes:
- An $80 application filing fee
- A monthly tariff paid into the bankruptcy that ranges between $100 to $330
- Surplus payments toward your debt, as required
- The sale of non-exempt assets acquired before or during bankruptcy
The total cost of your bankruptcy will be determined by how much you earn, and the nature of your debts and assets. In some cases, you may be required to pay extra towards your debts to obtain a bankruptcy discharge. Your Licensed Insolvency Trustee will notify and work with you if this is the case.
What are the benefits of bankruptcy?
While declaring bankruptcy in Ontario is a difficult and emotional decision, there are some distinct benefits, including:
- Immediate relief from harassing calls, legal proceedings, and wage garnishments
- Expert guidance from a Licensed Insolvency Trustee to help get you back on your feet
- Debt counselling and financial training to ensure a brighter future
If you’re feeling overwhelmed about your debt, and unsure of who where to turn, then bankruptcy can be a lifeline to help you right your financial ship.
What is the downside of declaring bankruptcy?
The biggest downside of declaring bankruptcy is the impact that it has on your credit score. It’s completely reset, and you have begun building it from scratch with a bankruptcy on your record for seven years after your discharge. This is entirely doable—and we’ve seen lots of success at Doyle Salewski—but it requires discipline and consistency.
Additionally, declaring bankruptcy:
- Can have negative impacts on any co-signed or joint applicants on your debt accounts
- Doesn’t discharge all debts, meaning you are still responsible for things like alimony, child support, fines, mortgages, and some student loans
It’s also important to note that, if you declare bankruptcy three times, it remains on your credit score for the rest of your life.
What is the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act is one of the government statutes that regulates bankruptcy and insolvency law in Canada.
It’s designed to protect all parties and stakeholder involved in a bankruptcy in Canada, including debtors, lenders, creditors, and Licensed Insolvency Trustees, and lays out the standards, rules, and processes that all parties must follow.
What happens when you declare bankruptcy in Ontario?
After you formally declare bankruptcy in Ontario, your Licensed Insolvency Trustee will deal directly with your creditors on your behalf.
- Notifying your creditors about your bankruptcy
- Stopping payments directly to unsecured creditors
- Stopping all garnishments against your salary
- Stopping all lawsuits against you
Additional requirements include:
- Attending two financial counselling sessions
- Providing all tax return information for your bankruptcy year, and for previous years
- Disclosing your income and expenses each month during the bankruptcy
- Surrendering your credit cards
- Paying surplus income payments into your bankruptcy estate
- Being available to attend a meeting of your creditors, if requested
- Helping in the sale of your non-exempt assets
- Informing your trustee of any property, inheritances, sizable gifts, income tax refunds, or lottery winnings you acquire during the bankruptcy period
For first time applicants with no surplus income, automatic bankruptcy discharge usually happens nine months after filing. For second time applicants, that lengthens to 24 months.
Note: Surplus income is a major component in determining the length and cost of bankruptcy in Ontario. In simple terms, the more you make, the more you will pay in your bankruptcy. Surplus income is determined based on a variety of thresholds for family income. Read more about surplus income on the Government of Canada website, or ask your Licensed Insolvency Trustee for help.
What is the impact of declaring bankruptcy?
The impact of declaring bankruptcy includes emotional relief for the applicant, and a range of financial consequences.
Bankruptcy gives individuals with overwhelming amounts of debt the opportunity for a fresh financial start. That can have an enormous emotional impact on the applicant, and can help relieve a lot of immediate stress.
The consequences, however, including:
- Surrendering all non-exempt assets for sale to cover your debt requirements
- Resetting your credit score, and having a bankruptcy placed on your record for seven years
On second filing, a bankruptcy remains on your record for up to fourteen years. And on third filing, it remains there for life.
How long do you have to pay bankruptcies?
How long it takes to pay a bankruptcy in Ontario is determined by:
- Whether it’s your first or second filing
- The amount of debt accrued
- Whether or not you’re required to make surplus income payments
For first bankruptcies, the timing of automatic discharge is as follows:
- Nine months for individuals not required to make surplus income payments
- 21 months for those whose surplus income payments is more than $200 per month
For second bankruptcies, the timing is as follows:
- 24 months for individuals not required to make surplus income payments
- 36 months for those whose surplus income payments is more than $200 per month
For those individuals that do not qualify for automatic discharge—people on their third bankruptcy, for example—your Licensed Insolvency Trustee will have to apply for a court hearing to present your discharge request.
Once you’ve presented your case, the court will then decide to either grant an absolute or conditional discharge, suspend the discharge to a future date, or refuse it altogether.
How long does bankruptcy stay on my credit report in Ontario?
A bankruptcy stays on your credit report in Ontario for seven years, after which it is removed. If you declare bankruptcy a second time, it will remain on your credit report for 14 years. And, if you declare bankruptcy a third time, it will remain on your credit score for life.
What do you lose when you declare bankruptcy?
When you declare bankruptcy in Ontario, the Licensed Insolvency Trustee may sell any non-exempt assets that are required to pay your debt obligations.
Assets that are exempt from sale through a bankruptcy in Ontario include:
- Motor vehicles used for work
- Furnishing and appliances under a specific budget
- Tools of the trade under a specific budget
- Most pension plans and some life insurance policies and RRSPs (excluding recent contributions)
- Equity in your primary residence, up to a specific threshold
In some cases, motor vehicles may not be exempt. This includes cases of multiple vehicles or particular high-end performance vehicles.
This is where understanding the difference between bankruptcy and consumer proposals is critical. With a consumer proposal, you do not need to forfeit any assets. Talk to a Licensed Insolvency Trustee to determine if this is the better solution for your situation.
How many times can you declare bankruptcy?
Legally, you are able to file for bankruptcy as many times as you want in Ontario. However, the process becomes increasingly restrictive the more you do it.
With a second bankruptcy, you will not qualify for an automatic discharge after nine months. And with a third bankruptcy, you will need to go to court to request a discharge.
Remember, multiple bankruptcies also increase the length of time your credit score is impacted. On the third application, individuals are strapped with a bankruptcy on their credit score for life.
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Why work with a trusted Licensed Insolvency Trustee
Filing for bankruptcy in Ontario requires that you work with a Licensed Insolvency Trust (LIT) like Doyle Salewski. They will act as an advisor and administrator, helping you navigate the legal and emotional process of filing for bankruptcy.
LITs are responsible for helping you understand your financial situation. They provide debt reduction strategies based on what you earn, own, and owe.
More importantly LITs are a reliable and trustworthy partner who will work with you to determine the best path forward for your financial future. They will never charge upfront fees to assess your financial situation, and they are trusted advisors that will point you toward the right solution.
LITs are the only government-authorized administrations for insolvency proceedings. They’re regulated by the Office of the Superintendent of Bankruptcy Canada, and are the only professionals who can file a bankruptcy application in your name.
Filing for bankruptcy in Ottawa, for example, is made easier thanks to an expert team like Doyle Salewski. Our firm has guided more than 20,000 clients in Ontario and Quebec through the bankruptcy process with reliable, transparent, and honest advice.
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