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Personal Bankruptcy

Personal Bankruptcy

Consolidation3 min readFebruary 11, 2026
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Personal bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and serves as a last-resort measure allowing insolvent debtors to obtain discharge from most debts. In Quebec, the process is administered by a Licensed Insolvency Trustee (LIT) licensed by the Office of the Superintendent of Bankruptcy (OSB). Contrary to popular belief, bankruptcy does not automatically mean losing your principal residence. If the debtor can continue making mortgage payments and the equity in the property does not exceed provincial exemptions, they can often keep their home. In Quebec, article 553 of the Code of Civil Procedure provides certain exemptions for essential property, but the principal residence is not automatically protected as in some other provinces. The credit impact is severe: an R9 rating is recorded on the credit file for 6 to 7 years after discharge (first bankruptcy) or 14 years (second bankruptcy) with Equifax and TransUnion. During this period, obtaining a new mortgage is extremely difficult. B lenders and private lenders offer solutions at higher rates, typically 2 to 5 percentage points above conventional rates. The AMF-certified mortgage broker plays an essential role in guiding credit-rebuilding clients toward available options under OSFI and CMHC criteria.

Personal Bankruptcy: Impact on Your Mortgage and Financial Future

Personal bankruptcy is a last-resort measure under Canada's Bankruptcy and Insolvency Act (BIA). It allows an insolvent person, meaning someone unable to pay their debts as they become due, to obtain discharge from most financial obligations. In Quebec, the process is governed by both fédéral law (BIA) and provincial civil law, notably the Civil Code of Quebec (CCQ) and the Code of Civil Procedure. The entire process is overseen by a Licensed Insolvency Trustee (LIT) licensed by the Office of the Superintendent of Bankruptcy (OSB), a fédéral agency.

Impact on Your Residence and Existing Mortgage

One of the most common concerns involves the fate of the principal residence. In Quebec, unlike other Canadian provinces that offer generous exemptions for the family home, protection is limited. Article 553 of the Code of Civil Procedure provides exemptions for essential furniture and work instruments, but the home itself is not automatically protected. The trustee will assess the net equity in the property (market value minus the mortgage balance). If that equity is significant, the trustee may require a sale to repay creditors. However, if equity is low or nil and you can maintain your mortgage payments, it is often possible to keep your home. Since the mortgage is a secured debt, the lender retains its security interest in the property regardless of the bankruptcy.

The Bankruptcy Process Step by Step

  1. Consultation with a LIT: The Licensed Insolvency Trustee evaluates your complete financial situation, including assets, debts, income, and expenses. They present all available options, including a consumer proposal, voluntary deposit, and bankruptcy.
  2. Filing the assignment: If bankruptcy is a commonly preferred option, the LIT prepares and files the assignment with the OSB. From that point, a stay of proceedings prevents most creditors from initiating or continuing actions against you.
  3. Administration of the bankruptcy: The trustee administers your non-exempt assets, receives your monthly payments (based on surplus income per OSB standards), and coordinates with creditors. It is necessary to attend two mandatory financial counselling sessions.
  4. Discharge: For a first bankruptcy without opposition and without surplus income, automatic discharge occurs after 9 months. If you have surplus income, the timeline extends to 21 months. A second bankruptcy results in delays of 24 to 36 months.

Future Mortgage Borrowing Capacity

After discharge, credit rebuilding is a gradual process. The R9 rating remains on your file with Equifax and TransUnion for 6 to 7 years, making access to conventional credit extremely limited. However, avenues do exist. B lenders, specializing in non-conventional credit files, can grant a mortgage with a larger down payment (generally 20% or more) at higher rates. Private lenders offer another option, though at even higher rates and stricter conditions. CMHC can insure a mortgage as early as 2 years after discharge from a first bankruptcy, provided the client has re-established a good credit history and meets other qualification criteria, including debt service ratios compliant with OSFI guidelines.

  • A lenders (banks, caisses): generally accessible 2 to 3 years after the bankruptcy is purged from the credit file, with re-established credit and a compliant down payment.
  • B lenders: accessible within 1 to 2 years after discharge, with a minimum 20% down payment and rates 1 to 3 percentage points higher.
  • Private lenders: accessible quickly after discharge, but with rates of 8% to 15% and significant setup fees. A temporary solution only.
  • CMHC: mortgage insurance may be available 2 years after discharge, under strict conditions of re-established credit.

The AMF-certified mortgage broker in Quebec is a valuable ally in this rebuilding journey. The LDPSF requires the broker to act in the client's best interest, which includes recommending a realistic credit rehabilitation plan and directing the client toward lenders best suited to the post-bankruptcy situation. A good broker will establish a rebuilding timeline and work with the client to progressively improve their borrower profile.

Frequently Asked Questions

Will I lose my house if I declare bankruptcy in Quebec?
Not necessarily. If you can continue your mortgage payments and the equity in your property is reasonable, you can often keep your home. The Licensed Insolvency Trustee will assess your situation. However, in Quebec, the principal residence does not benefit from an automatic exemption like in Alberta or Saskatchewan. The trustee may require a sale if equity is significant.
How long does bankruptcy stay on my credit report?
A first bankruptcy remains on file for 6 years with TransUnion and 7 years with Equifax after the discharge date. A second bankruptcy stays for 14 years. During this period, your rating is R9, the lowest possible, which severely limits access to conventional credit.
Can I get a mortgage after bankruptcy?
Yes, but not immediately. After discharge, you need to rebuild your credit for at least 2 years using products like secured credit cards. Some B lenders accept post-bankruptcy files with a 20% or higher down payment. CMHC can insure a mortgage 2 years after discharge from a first bankruptcy, under certain strict conditions.
Which debts are NOT eliminated by bankruptcy?
Certain debts survive bankruptcy: alimony and child support, court fines, debts resulting from fraud, student loans if you completed studies less than 7 years ago, and secured debts (like the mortgage itself) if you keep the property. The mortgage remains a debt secured by the property.
What is the difference between bankruptcy and a consumer proposal?
A consumer proposal is less severe: you negotiate partial repayment with creditors, you keep your assets, and the credit file notation lasts 3 years after completion (versus 6-7 years for bankruptcy). An AMF-certified mortgage broker can refer you to a Licensed Insolvency Trustee to evaluate which option is most appropriate.

Educational information only. This does not constitute financial advice under the Act Respecting the Distribution of Financial Products and Services (LDPSF). Consult an AMF-certified mortgage broker before making any financial decision.

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