I never pictured myself declaring bankruptcy. A few years ago, I was drowning in debt. My credit cards were maxed, there were loan payments I couldn’t keep up with, and the stress was eating me alive. Collection agencies were on my case every day. It got so bad I couldn’t sleep.

Eventually, I bit the bullet and met with a Licensed Insolvency Trustee (which is often known as a LIT) to talk about filing for personal bankruptcy in Canada. It was one of the hardest decisions of my life, but looking back, it gave me the fresh start I desperately needed. I want to share my experience in case it helps someone else in a similar spot.

Deciding to File for Bankruptcy

For a long time, I felt ashamed even considering bankruptcy. I thought it meant I failed financially, and I was worried it would ruin my future. My family wasn’t thrilled either. There’s a stigma around the “B-word”. But I had reached a point where I couldn’t pay my debts. Literally, I couldn’t even make the minimum payments anymore. 

According to Canadian law, if you owe at least $1,000 and you’re insolvent (meaning you can’t pay your debts as they come due), you’re eligible to file for bankruptcy. Let’s be real though: if you only owed $1,000, a bankruptcy would be overkill,  in my case it was many times that. My trustee actually walked me through all my options, including a consumer proposal. I learned that this is an alternative where you pay back part of what you owe over a longer time. We decided bankruptcy was the right call because my situation was that bad.

I was terrified of what would happen when I declared bankruptcy. Would I lose everything? Would my employer find out? Could the court deny my bankruptcy? My LIT explained that outright denying someone a bankruptcy is rare. As long as you’re honest and meet the basic criteria, you have a right to file. 

If you try to hide assets or commit fraud before filing, then a court could refuse to discharge you (basically not forgive your debts) as a punishment. But I wasn’t trying any shady moves… I was just an ordinary guy who got in over his head with debt. Hearing that made me feel a bit more at ease that I wouldn’t be turned away unless I did something really dumb.

The Bankruptcy Process (In Plain English)

Filing for bankruptcy in Canada turned out to be a structured and surprisingly humane process. Here’s how it went for me…

Filing the Paperwork

My trustee prepared the paperwork (called a Statement of Affairs) listing all my debts, assets, income, and expenses. Going through that was rough… It laid bare every financial mistake I’d made. But once I signed, we officially filed for bankruptcy protection.

Immediate Relief

The day I filed, something amazing happened… **all the collection calls and legal actions **against me stopped. Seriously, it was like flipping a switch. Bankruptcy triggers an automatic stay of proceedings, which means unsecured creditors legally cannot continue to harass you for payment or sue you once you’re under bankruptcy protection. That alone was a huge relief. I remember thinking, “Why the hell didn’t I do this sooner?” as the constant phone calls finally went silent.

The Trustee Takes Over

When you go bankrupt, a trustee basically takes control of your financial affairs for a while. I had to hand over any credit cards I still had and stop using them. The trustee notified all my creditors that I’d filed. From that point on, those creditors had to deal with the trustee, not me. It felt weird, but also like a weight off my shoulders that someone was handling it. The trustee also filed my outstanding tax returns (apparently any tax refunds I was going to get would go to the bankruptcy estate, not to me… that sucked).

My Duties during Bankruptcy

Bankruptcy isn’t a free pass of course. I had a bunch of obligations to fulfill. I had to attend two financial counseling sessions (these were actually pretty helpful. They actually taught me how to budget better and avoid pitfalls in the future. I also had to submit monthly income and expense reports to my trustee. Every month I’d send in my pay stubs and a form detailing what I spent on groceries, rent, etc. It felt a bit invasive, but it’s done to see if I was making “surplus income.” 

If you earn above a certain threshold in Canada while bankrupt, you’re required to pay part of that surplus to the estate for your creditors. My income was modest, so I didn’t end up having to pay much extra. It was mostly just the base administration fee to the trustee and a small monthly amount.

Surrendering Assets

This part scared me the most. When you declare bankruptcy, you assign your assets to the trustee. They can sell certain things you own to pay back some of your debt. I thought I was going to lose everything I owned. Reality was a lot less dramatic. Canadian bankruptcy law has a bunch of exemptions. They can’t take the essentials you need to live and work. 

The exact rules depend on your province (I learned each province sets its own exemption limits). In my case, I didn’t own a home (I was renting) and my car was a 10-year-old Toyota worth maybe $3,000. I was allowed to keep my car because it was under the exemption limit in my province for a personal vehicle. I also kept all my clothes, furniture, and household items. Nobody expects you to give up your couch or your kids’ beds. They only target assets of real value beyond those protected necessities. I even kept my small set of tools I use for work. 

Tools of your trade are protected up to a certain value so that you can continue earning a living. The bankruptcy took only what I truly didn’t need. The big thing I had to give up was a small RESP savings account I had started for my child’s education. RESPs aren’t protected, so that money had to go to the estate. That stung, but I understood why.

What About RRSPs and Pensions? One pleasant surprise was that my retirement savings stayed intact. I had a modest RRSP with a few thousand dollars. Canadian law protects RRSPs in bankruptcy (except for any very recent contributions.)

This meant the trustee couldn’t seize my RRSP money at all, aside from potentially the last 12 months of contributions if I had made any (I hadn’t). The logic is, they don’t want people to lose their entire future just because they hit a rough patch now. Workplace pensions are also generally safe. So at least my retirement nest egg wasn’t wiped out. I was happy about that.

All in all, the filing process was humbling but not the nightmare I’d imagined. My creditors got a share of whatever the trustee collected. In my case there wasn’t much to distribute after selling a few non-exempt assets. And I got to breathe again knowing I wouldn’t be sued or hounded for those debts anymore.

Life During Bankruptcy (The “Undischarged” Period)

In Canada a first bankruptcy lasts a minimum of 9 months in straightforward cases. Mine was exactly nine months. It can stretch to 21 months for a first-timer if you have to make surplus income payments because you earn above the guideline… But that wasn’t me. During those months, I was considered an “undischarged bankrupt.” That status came with a few strings attached. 

For example, I couldn’t apply for new credit over $1,000 without telling the lender I was bankrupt. But I did not have any intention (or hope) of getting a new loan while bankrupt. I was also technically on the hook to report any windfalls (like if I’d won the lottery or gotten an inheritance, which sadly I did not).

Emotionally, those 9 months were a roller coaster. At first I felt embarrassed, as I didn’t really want friends or coworkers to know. A bankruptcy in Canada is a matter of public record, but unless someone goes digging or I tell them, no one would just “find out.” I mostly kept it private except for telling my closest family. Surprisingly, as time went on, I felt a lot of relief and even empowerment. 

I was sticking to a budget, attending the required credit counselling, and slowly learning better habits. I joked that I was in “financial rehab.” It was tough living on a strict cash diet (since there were no credit cards for me), but it also cured me of spending money I didn’t have. I actually started sleeping better knowing I wasn’t sinking deeper into the hole. This is because the hole had been sealed off.

What I Got to Keep (Exempt Assets)

Earlier I mentioned how I was worried I’d lose all my stuff, but due to exemption laws, I kept the essentials. To break it down clearly, here’s what I didn’t have to give up in bankruptcy…

Basic personal items

All my clothing was exempt. They don’t make you sell your shoes or clothes, obviously!. I also kept my basic household furniture, appliances, and personal effects. Each province sets a dollar value on how much your household goods are protected. My stuff was well below those limits because I never owned any fancy art or high-end electronics. The trustee literally never came to my house to catalog my toaster or anything. It was understood those were within the protected category.

My car

I owned an older car that I use to get to work. Provinces allow you to keep one vehicle up to a certain equity value. My province’s limit was around $5,000 equity in a car. My old Toyota was worth about $3,000, and I owed nothing on it, so I was safe. If I had a luxury vehicle, I’d probably have to sell it and maybe buy a cheaper one, but that didn’t apply to me. For many folks, if your car is on a loan or lease, you might choose to continue that if you need the car and can afford the payments. Just note that if the loan is upside-down, bankruptcy won’t cancel the loan unless you surrender the car.

Tools for work

I’m in a technical trade, and I have expensive tools. I was afraid I’d have to pawn my toolbox. However, tools of your trade are exempt up to a certain amount so that you can keep earning an income. I definitely needed my tools to keep my job. The exemption covered them, so I kept all my gear and could continue working, which is exactly the point. They don’t want to take away your livelihood.

Retirement savings

As I mentioned, my RRSP was protected by federal law. This is huge… Most Registered Retirement Savings Plans and Registered Pension Plans can’t be seized by the trustee. The only catch is any contributions you made in the 12 months right before filing can be clawed back into the bankruptcy estate. This is to prevent last-minute abuse, like dumping money into your RRSP when you know you’re going bankrupt. In my case, I hadn’t contributed anything in the last year anyway, so my whole RRSP stayed mine. 

This felt almost too good to be true, but it’s real. The government wants people to have something to retire on so they don’t become destitute in old age, so they let you keep your RRSPs. I can’t tell you what a relief that was. I’d been secretly planning to cash out that RRSP to pay creditors before I learned it was protected, as doing so would have been a mistake. Don’t liquidate your RRSP to pay debts without talking to a professional; you could be throwing away your protected retirement money.

My home (in some cases)

I personally didn’t own a home, which simplified things. However, a lot of people ask if you’ll lose your house. It depends on the province and the equity in the home. I heard that some provinces (like Alberta and Saskatchewan) have a homestead exemption. They let you keep your house up to a certain equity value as long as you continue living in it. Other places have little to no exemption for homes. 

If you have a mortgage and little to no equity (or negative equity), often the trustee isn’t interested in forcing a sale because there’s nothing there for creditors after the bank’s cut. I know individuals who went through bankruptcy and kept their homes because they were up-to-date on the mortgage and there wasn’t significant equity. In those cases, you just keep paying your mortgage and you keep the house. 

If you have lots of equity, that’s a different story… You might have to pay that equity to your estate or sell the house. Bankruptcy can get complicated if you own substantial assets, which is why some homeowners opt for a consumer proposal instead. In my scenario, since there was no house involved, I didn’t have to deal with that.

The Credit Hit and Rebuilding After Bankruptcy

The moment I filed bankruptcy, I knew my credit score was going to tank, and it did. Straight down to the bottom. You can’t go through a bankruptcy and expect your credit to be anything but awful in the short term. On my credit report, the bankruptcy showed up in the public records section and all my included debts were marked as “Included in bankruptcy.” 

After my discharge, the clock started ticking on how long that record would stay. A first bankruptcy in Canada stays on your credit report for about 6–7 years after discharge. Equifax (which is a shitty company) tends to remove after 6 years, TransUnion (much better) after 7 for a first-timer. If someone files a second bankruptcy, it sticks around much longer, up to 14 years. So I knew I had a black mark that would follow me around for six to seven years.

Now, seeing “6 to 7 years” on paper felt like forever at first. But I came to realize that if I didn’t go bankrupt, I’d be in debt for the rest of my life and probably defaulting anyway. And that would have been my own kind of credit hell. At least this way, I had a timeline for when the nightmare would fully be behind me. Plus, nothing stops you from rebuilding credit before that mark drops off. In fact, as soon as I was discharged, I started taking steps to rebuild my credit. 

The conventional wisdom (and my trustee’s advice) was to start small and be responsible. I got a secured credit card with a $500 limit (I had to put down a $500 deposit). I use it for a tank of gas and a small grocery trip each month, then pay it off in full. After about a year of doing that, I saw my credit score start to improve. 

It’s a slow climb, but it’s definitely possible to get credit again post-bankruptcy. I even managed to finance a used car two years after bankruptcy. Yes, the interest rate was high and I needed a co-signer, but it was doable. 

By proving that I could handle a bit of credit responsibly, I gradually earned back lenders’ trust. Some folks I met in online forums even got mortgages 3-4 years after bankruptcy. This was apparently done with a good down payment and steady income. So, bankruptcy isn’t the end of your financial life, it’s more like a reset. Lenders will see it in your history for those years, sure, and you’ll pay higher rates for a while, but you can bounce back. I used to think bankruptcy would destroy my credit for the rest of my days. But it cleared out the debt that was destroying my credit, so I could start rebuilding anew.

One more thing… Future creditors and landlords can see the bankruptcy on your credit report during those years. I was upfront about it when I applied for a new apartment lease after my bankruptcy. I explained that I’d gone through it and that now I had no debt and a stable income. 

The landlord actually said my clean-slate situation, oddly enough, made me less risky than someone juggling tons of debt. Go figure. Employers didn’t ever bring it up, but I wasn’t seeking jobs that required credit checks. If you plan to work in finance or positions handling money, be aware they might check and ask you about it.

Author: I’m Tyler. Born and raised in Hamilton, Ontario. I used to work in auto financing until a combo of divorce, a health scare, and some dumb credit decisions steamrolled me into a personal financial meltdown. I declared bankruptcy at 36. Not proud of it, but I’ve owned it.