Bankruptcy in Canada: Discharge Timelines, Surplus Income, and Debts That Survive

Personal bankruptcy in Canada is a federal process filed through a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act, and while a first time bankrupt with no surplus income can be automatically discharged in as little as 9 months, surplus income, an opposition, or a prior bankruptcy can extend that timeline well beyond a year.

Information last verified on 2026-09-24. This article has not yet been reviewed by a licensed lawyer.

This article addresses personal bankruptcy under the federal Bankruptcy and Insolvency Act (BIA), RSC 1985, c B-3, which the Office of the Superintendent of Bankruptcy administers the same way in every province and territory, including Quebec. It covers how a bankruptcy proceeds once it is filed: discharge timing, surplus income, which debts survive, and how RRSPs, tax refunds and secured creditors are treated. It does not cover the consumer proposal alternative to bankruptcy, covered in Consumer Proposal in Canada, the property you keep under your province's exemption law, covered in Bankruptcy Exemptions in Canada, or the trustee who administers the process, covered in What Is a Licensed Insolvency Trustee.

Who Files a Bankruptcy: The Licensed Insolvency Trustee Requirement

A personal bankruptcy is not something you file yourself with a court. BIA s.13(1) requires anyone who wants to act as a trustee to be licensed by the Superintendent of Bankruptcy: "A person who wishes to obtain a licence to act as a trustee shall file with the Superintendent an application for a licence in the prescribed form." The Act's own machinery then routes a bankruptcy assignment through that licensed trustee.

Acting as a trustee without a licence is a distinct criminal offence, not just a professional rule. BIA s.202(1)(a) states that a person who, "not being a licensed trustee, does any act as, or represents himself to be, a licensed trustee," is guilty of an offence punishable on summary conviction, with a fine of not more than $5,000, imprisonment of not more than one year, or both.

The federal government's own consumer messaging puts the reason for this plainly: "LITs are the only federally regulated professionals in Canada authorized to provide government-regulated solutions like consumer proposals or bankruptcies." For how to confirm a specific trustee actually holds a licence, what a trustee's fees look like, and how to raise a concern about a trustee's conduct with the OSB, see What Is a Licensed Insolvency Trustee.

How Long Bankruptcy Lasts: Automatic Discharge Periods

Discharge is the order that formally ends a bankruptcy and releases the bankrupt from most debts. BIA s.168.1(1) sets automatic discharge timelines that depend on whether this is your first bankruptcy, your second, and whether a surplus income obligation or an opposition affects the case.

The Act's own text for a first time bankrupt, s.168.1(1)(a), is precise about the hinge: automatic discharge comes "on the expiry of 9 months after the date of bankruptcy unless, in that 9-month period, an opposition to the discharge has been filed or the bankrupt has been required to make payments under section 68 to the estate of the bankrupt," and otherwise "on the expiry of 21 months after the date of bankruptcy unless an opposition to the discharge has been filed before the automatic discharge takes effect." Section 168.1(1)(b) mirrors that structure for a second time bankrupt at 24 and 36 months.

It is a myth that 9 months is a blanket rule for every first time bankrupt. It only applies if you owe no surplus income payment under section 68 and nobody has filed an opposition; a first time bankrupt who is required to pay surplus income under the 2026 OSB directive below (monthly surplus income of $200 or more) moves to the 21 month track, even without any opposition at all. If an opposition is filed, the automatic discharge does not take effect and the discharge is decided at a court hearing.

Third or Later Bankruptcy: No Automatic Discharge

Section 168.1(1) only defines automatic-discharge timelines for two situations, a bankrupt "who has never before been bankrupt" and one "who has been a bankrupt one time before." A bankrupt on a third or later bankruptcy falls into neither category, so the automatic-discharge machinery in s.168.1(1) does not apply at all.

Instead, BIA s.169(1) treats the bankruptcy as an ordinary application for discharge: "The making of a bankruptcy order against, or an assignment by, a person other than a corporation or an individual in respect of whom subsection 168.1(1) applies operates as an application for discharge." Section 169(2) requires the trustee to apply for a court hearing on that application between 3 months and 1 year after the bankruptcy, so a third time bankrupt goes before a judge rather than receiving an automatic discharge.

At that hearing, and at any contested discharge hearing generally, s.173(1)(j) lists a prior bankruptcy or proposal as one of the facts a court can weigh in deciding whether to grant, refuse, suspend or condition the discharge. Separately, BIA s.172.1 sets the earliest date a discharge hearing may be held, in some cases 36 months after the bankruptcy, for a bankrupt who owes $200,000 or more in personal income tax debt representing 75 percent or more of their total unsecured proven claims; such a bankrupt receives no automatic discharge under s.168.1(1); that rule applies to large income tax debtors and is a separate trigger from the number of prior bankruptcies, not itself a general answer for every third time bankrupt. This article does not state a single exact discharge timeline for a third or later bankruptcy beyond the fact that it requires a court hearing rather than an automatic discharge; a Licensed Insolvency Trustee can confirm what a specific court is likely to set.

Surplus Income: The 2026 OSB Standards and the 50 Percent Rule

Surplus income is the part of a bankrupt's income that exceeds what is needed for a reasonable standard of living, and it is the main reason a first time bankrupt can end up on the 21 month track instead of 9 months. BIA s.68(1) leaves the dollar figures entirely to the regulator: "The Superintendent shall, by directive, establish ... the standards for determining the surplus income of an individual bankrupt and the amount that a bankrupt who has surplus income is required to pay to the estate of the bankrupt." Section 68(2) defines surplus income as "the portion of a bankrupt individual's total income that exceeds that which is necessary to enable the bankrupt individual to maintain a reasonable standard of living, having regard to the applicable standards."

The current dollar figures come from OSB Directive No. 11R2-2026, issued 2026-03-27, which superseded 11R2-2025. The 2026 Superintendent's Standards are:

The directive explains where these numbers come from: "The Superintendent's Standards ('S') are derived from the Low Income Cutoffs (LICO) released by Statistics Canada. The Superintendent uses the before-tax LICO for urban areas with 500,000 people and over. The 2026 standards are updated by applying a 2.16% adjustment to the 2025 LICO to reflect the 2026 CPI (Consumer Price Index) expectation."

A bankrupt whose income exceeds the applicable standard for their family size does not hand over the entire excess. Paragraph 5(6) of the directive provides: "Where the bankrupt has monthly surplus income of less than $200, the bankrupt is not required to pay any amount to the bankrupt's estate under this Directive." At $200 or more, paragraph 5(7) requires the bankrupt to pay 50 percent of the monthly surplus income, subject to a family situation adjustment when another member of the family unit also has income. The directive's worked example for a family of two shows both steps: "Total monthly surplus income: $919 Family Situation Adjustment (3300 ÷ 4,300 = 76.74% $919 × 76.74% = $705.24) ... Payment required from bankrupt as per paragraph 5(7) of this Directive: ($705.24 × 50% = $352.62)."

The OSB reissues this directive roughly every year, typically each March, so a later directive number may already be current by the time you read this; check the OSB's directives page directly before relying on the dollar figures above if you are reading this well after September 2026.

Debts a Bankruptcy Discharge Does Not Erase

A bankruptcy discharge does not wipe out every debt. BIA s.178(1) lists the debts an order of discharge does not release the bankrupt from, and the full list matters because it is easy to assume bankruptcy is a complete reset:

• Any fine, penalty or restitution order imposed by a court for an offence, or a debt arising out of a recognizance or bail (s.178(1)(a))
• Court damages for bodily harm intentionally inflicted, sexual assault, or a wrongful death resulting from either (s.178(1)(a.1))
• Alimony or alimentary pension debts, and debts under a judicial decision establishing affiliation or support or maintenance obligations (s.178(1)(b) and (c))
• Debts from fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity (s.178(1)(d))
• Debts from obtaining property or services by false pretences or fraudulent misrepresentation (s.178(1)(e))
• A dividend a creditor would have received on a provable claim the bankrupt failed to disclose to the trustee (s.178(1)(f))
• Student loans under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any provincial enactment that provides for loans or guarantees of loans to students, and Apprentice Loans Act debts, where the bankruptcy date fell before the bankrupt stopped being a full or part time student (or, for an apprentice loan, an eligible apprentice), or within 7 years after (s.178(1)(g) and (g.1))
• Interest owed on any of the amounts above (s.178(1)(h))

Student loans have a separate hardship route that is easy to confuse with the 7 year rule above. Section 178(1.1) lets a bankrupt apply to court, starting 5 years (not 7) after ceasing to be a student, to have the student loan released early on the basis of good faith and genuine ongoing financial hardship. The 5 year hardship application and the 7 year non-dischargeability window are two different rules, not the same rule stated two ways.

RRSPs and the 12 Month Clawback

Registered retirement savings are largely protected in a bankruptcy, but not entirely. BIA s.67(1)(b.3) excludes from the bankrupt's divisible property "property in a registered retirement savings plan, a registered retirement income fund or a registered disability savings plan, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy."

In plain terms: your RRSP, RRIF and RDSP balances are shielded from creditors, except for whatever you contributed in the 12 months right before your bankruptcy date. That slice of recent contributions is clawed back into the estate, which exists specifically to stop someone from sheltering cash in a registered plan on the eve of filing. Section 67(1)(b.1) and (b.2) separately exclude GST/HST credit payments and certain prescribed essential needs payments from the divisible estate as well.

Tax Refunds During Your Year of Bankruptcy

A tax refund is not automatically yours to keep once you are bankrupt. BIA s.67(1)(c) includes in the property divisible among creditors "any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year ... in which the bankrupt became a bankrupt." That means a refund for the calendar year you go bankrupt in belongs to the estate and goes to the trustee. Section 67(1)(c) also covers all property the bankrupt held at the date of bankruptcy, so a refund already owing for an earlier year goes to the estate as well. The same paragraph reaches property acquired before discharge, so confirm with your trustee how a refund for a later year will be treated.

Secured Creditors: What Bankruptcy Does Not Stop

A bankruptcy is often described as stopping your creditors from coming after you, and for unsecured debt that is broadly true. It is not true for secured debt. A secured creditor, such as a mortgage lender or a car loan lender, generally keeps the right to enforce its own security under s.69.3(2) of the Act, subject only to a time limited court ordered postponement in some cases. Filing for bankruptcy does not, by itself, stop a mortgage foreclosure or a vehicle repossession the way it can pause unsecured collection efforts such as wage garnishment on ordinary unsecured debt.

Summary Administration for Smaller Estates

The BIA sets up a streamlined process, summary administration, for bankruptcies below a set asset threshold. BIA General Rules s.130 fixes that amount directly: "For the purposes of subsections 49(6) and (8) of the Act, the amount is $15,000." That $15,000 figure is the current, in force threshold.

It is also a figure under active review. A Canada Gazette Part I notice published 2025-11-29 proposes raising it to $20,000, alongside other proposed changes covered on the Consumer Proposal in Canada page. As of this article's verification date, that proposal has not been registered as a final regulation, so $15,000 remains the figure that applies. Check the current General Rules consolidation before relying on this figure if you are reading this well after September 2026.

Disclaimer: This article provides general information about personal bankruptcy under the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3, and Office of the Superintendent of Bankruptcy directives and standards current as of September 2026. It is not legal advice. It does not independently confirm the exact discharge timeline a court will set at a contested hearing, including for a third or later bankruptcy or for a bankrupt covered by the separate large income tax debt rule in section 172.1. The summary administration asset threshold discussed here is subject to a pending, not yet registered regulatory amendment. Consult a Licensed Insolvency Trustee or a lawyer licensed in your province for advice on your specific situation.