Are you considering filing for bankruptcy in Ontario? If so, it’s essential to understand how the process works to ensure it’s the best choice for your debt relief. And that includes becoming familiar with Ontario’s bankruptcy laws.
While bankruptcy is governed by federal legislation in Canada, specific rules vary by province. As a result, declaring bankruptcy could look much different in Ontario than it would in another province.
Given these differences, it’s easy to get confused about what to expect when filing for bankruptcy. In this guide, we’ll walk you through the key laws that apply to bankruptcy in Ontario so you can better understand your rights and responsibilities, the assets you can keep, the debts of debt you can include, and more.
Bankruptcy laws in Ontario
Several types of legislation guide the bankruptcy process in Ontario. These laws dictate the filing process, protect your rights, outline your responsibilities, and ensure everything is handled fairly—both for you and your creditors.
As shown in the table below, bankruptcy is mainly governed by federal law. However, specific provincial laws impact what property you get to keep, how long creditors have to collect on a debt, and how certain assets are treated. Together, these laws form the legal framework for bankruptcy in Ontario.
| Legislation | Jurisdiction | Primary Function in Bankruptcy |
| Bankruptcy and Insolvency Act (BIA) | Federal | Governs the bankruptcy procedure and outlines the rights and responsibilities of creditors, debtors, and Licensed Insolvency Trustees (LITs) |
| Ontario Executions Act | Provincial | Defines the assets that are exempt from seizure by creditors from bankrupt individuals in Ontario |
| Ontario Limitations Act | Provincial | Outlines the time limit for creditors to take legal action to collect a debt in Ontario. |
| Personal Property Security Act (Ontario) | Provincial | Governs the rights of secured creditors in Ontario |
Let’s examine each piece of legislation in more detail.
Canadian Bankruptcy and Insolvency Act (BIA)
The Canadian Bankruptcy and Insolvency Act (BIA) is federal legislation that forms the foundation for bankruptcies across Canada. It outlines the procedure for bankruptcy proceedings and defines the rights and obligations of all parties involved in the process: debtors, creditors, Licensed Insolvency Trustees, and the bankruptcy court.
The BIA governs the process for filing personal bankruptcy in Ontario, which is the same nationwide. Your Licensed Insolvency Trustee will guide you through the procedure, helping you complete the required paperwork, notifying your creditors, and arranging a meeting with them if necessary.
The BIA also outlines how assets are distributed (i.e., who receives payment first in bankruptcy), the requirements for obtaining discharge from bankruptcy, and the consequences for failing to fulfill your duties as the debtor under bankruptcy. It also protects from creditors seizing certain assets from bankrupt individuals, such as GST credits, Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs).
In addition to bankruptcies, the BIA also governs other types of debt relief programs, including consumer proposals, Division 1 Proposals, and receiverships.
Ontario Executions Act
The Execution Act of Ontario determines what assets you can keep in bankruptcy. These are known as provincial exemptions and vary from province to province. In contrast, the asset exemptions outlined by the BIA apply to all individuals who file for bankruptcy regardless of where they live in Canada.
In Ontario, some of the assets you can retain during bankruptcy include:
- All clothing for you and your dependents
- A vehicle worth up to $7,117
- Household furnishings and equipment worth up to $14,180
- Home equity worth up to $10,783
- Tools of Trade up to $14,405
Please note that these exemptions, including the dollar limits, are subject to change. Your LIT can inform you of the current exemptions and limits.
If you’re concerned about giving up your assets, we recommend researching this topic further before deciding on bankruptcy. Learn more about which assets you can keep during bankruptcy in Ontario and which you must surrender to creditors.
Limitations Act
The Limitations Act set the time limit for how long creditors have to take legal action to collect on a debt. It’s crucial to understand this legislation since debt contracts become legally unenforceable once the time limit expires. These debts are deemed “statute-barred” and no longer collectible through court proceedings. As a result, you may not have to file for bankruptcy to wipe them out—your creditors will likely write them off.
In Ontario, creditors generally have two years to sue you for payments on unpaid unsecured debts.
Personal Property Act of Ontario
The Personal Property Security Act of Ontario (PPSA) governs how creditors can secure personal property as collateral for a loan. It protects the rights of and enforces obligations for the borrower and lender. For example, let’s say you took out a loan to purchase a car, and your lender registered a lien under the PPSA. In that case, they have the right to repossess the vehicle if you default on the loan.
Bankruptcy deals exclusively with unsecured debts—it doesn’t eliminate secured debts. However, secured creditors still maintain the legal right to the property if it serves as collateral for the outstanding loan. A bankruptcy filing doesn’t remove this right, nor does it pass it on to your unsecured creditors.
However, it’s necessary to clarify which of your assets secured creditors have a stake in. The reason is that secured creditors have priority over the proceeds following their sale—they receive payment in full before unsecured creditors get anything. Your LIT will check the PPSA database to see if any secured credit claims exist before selling your assets.
Common questions about Ontario bankruptcy laws
Below are some of the most frequently asked questions and concerns we encounter as Licensed Insolvency Trustees (LITs) about bankruptcy laws in Ontario.
Which types of debts are excluded from bankruptcy protection?
You cannot include any secured debts in your bankruptcy filing. These are debts backed by an asset the lender can seize to pay off the balance. Some examples include mortgages, car loans, and home equity loans (HELOCs). Other debts ineligible for bankruptcy are:
- Spousal and child support payments
- Alimony,
- Court-imposed fines,
- Debts resulting from fraud.
- Government student loans less than seven years old
Are there debts in Ontario not subject to the statute of limitations?
Yes, there are some debts that fall under this legislation, but with different rules and time periods. These include government-issued student loans, taxes, real property related debts and court-ordered debts, such as child support amongst otheres. The statue of limitations applies to them differently, which means these creditors may be free to pursue you for payment beyond the general two-year window.
Do I have to make monthly payments during bankruptcy?
Yes. When you file for bankruptcy in Ontario (or elsewhere in Canada), the minimum monthly payments is $200. Since a first-time bankruptcy lasts nine months, your total cost is $1,800. This monthly fee covers the administrative expenses of your bankruptcy, such as government fees and the trustee’s time.
You may also have to make additional monthly payments if you earn surplus income. Surplus income refers to earnings beyond the thresholds set by the federal government. Each year, it determines a reasonable income level to support a person or family’s living costs. If your household exceeds this limit, you’ll have to make surplus income payments to creditors. Doing so will extend your bankruptcy for another 12 months, too.
Learn more about surplus income during bankruptcy.
How does the bankruptcy filing process work in Ontario?
Going through bankruptcy in Ontario consists of several steps:
- Arranging a free consultation with a Licensed Insolvency Trustee
- Reviewing your financial situation with the trustee (debts, budget, income, assets, etc)
- Assessing the feasibility of bankruptcy and exploring alternative debt relief solutions
- Completing the required bankruptcy documents
- Filing the documents and notifying creditors of your bankruptcy
- Completing all bankruptcy duties under federal and provincial law
- Receiving your bankruptcy discharge (meaning your bankruptcy is complete and you’re now debt free)
Learn more about the bankruptcy filing process in Ontario.
Is bankruptcy the right debt relief option for you?
Before pursuing bankruptcy, we encourage you to learn how the process in detail. There are both advantages and disadvantages to consider before filing. While laws are in place to ensure you receive fair treatment under bankruptcy, you must be prepared to deal with the negative effects, too.
If you’re struggling with unaffordable debts, the Licensed Insolvency Trustees at David Sklar & Associates can help you craft a plan to eliminate them for good. We will review your financial situation and determine whether personal bankruptcy or another debt relief solution, such as a consumer proposal, is the most suitable option for you.
Don’t let your debts hold you back from achieving your goals and living the life you deserve. Contact us today to book a free, no-obligation consultation. No matter how dire your situation, there’s always a solution.
