Declaring Bankruptcy: Pros, Cons, and Procedures

Bankruptcy can be daunting, especially when you’re struggling with debt and feel like you’re drowning in financial obligations. It’s not a decision to be taken lightly, but understanding what declaring bankruptcy entails can help you make an informed choice.

Crowe MacKay & Company’s Licensed Insolvency Trustees in Vancouver and Surrey provide expert guidance through the complexities of bankruptcy to help you regain control of your financial future. If you require assistance, contact our team in Vancouver and Surrey to start your debt relief journey.

Bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act designed to help individuals or businesses eliminate or repay their debts.. This article explores bankruptcy, the pros and cons of declaring bankruptcy, and the steps involved in the process. We also address common myths, provide life after-bankruptcy tips, and answer frequently asked questions to give you a comprehensive understanding of what declaring bankruptcy entails.

What is bankruptcy

Bankruptcy is a legal process intended to help an honest debtor have a fresh financial start.  To file a personal bankruptcy in Canada, you must owe at least $1,000 and be unable to pay your debts as they become due. 

Types of Bankruptcy

In Canada, there are two types of personal bankruptcies, Summary Administration and Ordinary Administration.  A Summary Administration is streamlined bankruptcy process for debtors who’s realizable assets are less than $15,000.  No notice is required to be published in the newspaper and there is no automatic meeting of creditors.  The creditors do have the right to call and meeting of creditors however that is uncommon.

If a debtors realizable assets exceed $15,000, they are required to file an Ordinary Administration bankruptcy.  An Ordinary Administration is normally more complex in nature however they are treated in the same manner as a Summary Administration with the exception that a Meeting of Creditors is mandatory and notice of the bankruptcy is required to be filed in the newspaper.

Pros of Declaring Bankruptcy

Bankruptcy isn’t all doom and gloom. There are some significant benefits to consider.

Immediate Relief

One of the most immediate benefits is the automatic Stay of Proceedings, which halts most collection actions against you. This means no more harassing phone calls or letters from creditors. The stay of proceedings can provide the breathing room you need to assess your financial situation without the constant pressure from collectors.

Debt Discharge

For many, the most significant advantage is the discharge of unsecured debts. This can include credit card debt, medical bills, and personal loans, giving you a clean slate to start over. Once your debts are discharged, you are no longer legally required to pay them, which can provide significant financial relief.

Retention of Essential Assets

Depending on your situation and the type of bankruptcy filed, you may be able to keep your home, car, and other necessary assets. Bankruptcy exemptions allow you to protect specific essential property from being seized for the benefit of your creditors.  Exemptions vary from province to province so it is important to speak to a Licensed Insolvency Trustee to find out what you can claim.

Cons of Declaring Bankruptcy

Of course, there are also downsides to declaring bankruptcy that you need to weigh carefully.

Credit Score Impact

When it is your first time filing a bankruptcy, the bankruptcy notations stay on your credit report for  6 years from the date of your discharge from bankruptcy.  In the case of a second or third bankruptcy, the notations will stay on your credit report for 14 years after receiving your discharge. This can make it difficult to obtain new credit, buy a home, or even get a job in certain fields. The immediate impact on your credit score can be severe, and rebuilding your credit will take time and effort.

Public Record

Your bankruptcy filing is a matter of public record. This means that anyone can potentially access this information, which can feel invasive. While most people are not likely to search for this information, the knowledge that it is publicly available can be uncomfortable.

Potential Asset Loss

In bankruptcy, you might lose non-exempt property. This can include luxury items, secondary vehicles, or valuable collections. While bankruptcy exemptions protect many essential assets, non-essential or luxury items may need to be sold to repay creditors.

The Bankruptcy Process

Understanding the steps involved in declaring bankruptcy can demystify the process and help you feel more in control.

Initial Consultation

Before filing, you’re required to have an initial consultation. . This helps ensure that bankruptcy is truly your best option. The consultation will give you an overview of your financial situation and discuss alternatives to bankruptcy.

Filing the Bankruptcy

Next, you will need to meet with a Licensed Insolvency Trustee to sign the legal documents to file your bankruptcy. This includes a sworn statement detailing information about your debts, income, expenses, and assets.

Stay of Proceedings

Once your bankruptcy is filed and accepted by the Office of the Superintendent of Bankruptcy, the stay of proceedings goes into effect, halting most collection actions against you and stopping any wage garnishees. This provides immediate relief from creditor harassment and gives you time to organize your finances.

Meeting of Creditors

A meeting with your creditors, where they can ask questions about your financial situation and bankruptcy plans, is mandatory in an Ordinary Administration and can be required if requested by your creditors in a Summary Administration.. A bankruptcy trustee conducts the meeting, and it is an opportunity for creditors to clarify any issues related to your bankruptcy.

Discharge from Bankruptcy

The length of your bankruptcy can vary from 9 months to 3 years and is determined by your income level and if you have previously filed a bankruptcy.  If there are no issues during your bankruptcy, you will be eligible for an automatic discharge at the end of your bankruptcy term.  If however, you are not compliant with your duties as a bankrupt or if a creditor files an opposition to your discharge, you will no longer be eligible for an automatic discharge and your Trustee will make an application to the Court for a discharge hearing.  The Courts can grant a variety of discharge Orders, such as Conditional, Suspended, Adjourned or Absolute, depending on what the issue may be. Your bankruptcy will be completed once you have received an Absolute Order of Discharge.

Life After Bankruptcy

Bankruptcy isn’t the end of your financial life. There are steps you can take to rebuild and move forward.

Rebuilding Credit

Start by obtaining a secured credit card, paying bills on time, and monitoring your credit report for errors. Responsible credit use and timely payments can gradually improve your credit score.

Creating a Budget

Develop a realistic budget that helps you live within your means and avoid falling back into debt. A budget can help you track your income and expenses, ensuring that you allocate funds for essential needs and savings.

Seeking Financial Advice

Consider working with a financial advisor to create a long-term plan for maintaining financial health. Professional advice can help you set realistic financial goals and develop strategies to achieve them.


Declaring bankruptcy is a significant decision that can have lasting effects on your financial life. However, for many, it’s a necessary step towards regaining financial stability and peace of mind. By understanding the pros and cons, the procedures involved, and the impact on your future, you can make the best choice for your situation. Remember, you’re not alone in this, and there are resources and professionals available to help you navigate this challenging process.

H2: Require Assistance?

At Crowe MacKay & Company, we have over 60 years of experience and offer free initial consultations. If you have any questions regarding the information above, contact our office today and start your debt relief journey.

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This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice. If you require corporate  or personal insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing you to live debt-free.

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Common Questions about Debt Relief

Our Licensed Insolvency Trustees are experienced and qualified to answer all your questions about personal and corporate debt. From identifying imminent financial trouble to providing commercial and personal debt relief options, we are committed to educating you so you feel confident and informed. Depending on your income, the amount of debt you have, your monthly financial commitments, and your future goals, we can recommend the best way forward and assist you with all legal and documentation processes.