What Happens to My Debts when I Go Bankrupt in Canada?
What happens to your debts when you go bankrupt in Canada is a complex question. It depends on the type of debt, and in some cases on your payment status. There are actually some debts that stay, even in bankruptcy.
The concept behind a personal bankruptcy in Canada is relatively simple. When you file for bankruptcy, you surrender your assets in return for the discharge of your debts. Just as there are some bankruptcy exemptionsfrom losing all your assets, there are some exceptions to the discharge of all your debts. Both are affected when debts are secured by assets, as in a mortgage.
In principle, bankruptcy discharges only unsecured debts, because the creditor in a secured debt has a special right to the security, which is your asset. If your mortgaged asset is worth more than the amount outstanding on the mortgage, the excess (your equity) must be surrendered.
In general, bankruptcy will discharge all your unsecured debts, but the law makes exceptions for these debts that stay:
- Student loans less than 10 years old.
- Child and spousal support.
- Fines and most court ordered restitution payments.
- Court awarded damages for sexual assault or intentionally inflicting bodily harm
- Debts that arose as a result of fraud or theft.
- Certain government overpayments.Overpayments are a complicated area, so if you have received overpayments from the government, you should discuss this with your Canada Licensed Insolvency Trustee.
In a bankruptcy, here are some examples of debts that go away:
- Credit card balances
- Lines of credit (if unsecured)
- Personal loans (if unsecured)
- Arrears of income taxes and municipal house taxes
- Unpaid utility bills
- Retail store accounts
- Insurance premiums past due
- Medical bills
- Payday loans
Other debts that stay may possibly be your house mortgage, or other secured debts. For more information about going bankrupt in Canada, go to Secured debts in bankruptcy.