Personal bankruptcy is often misunderstood, and with that misunderstanding comes hesitation, fear, and delay. At C.E. Craig & Associates Inc., we frequently meet people who put off getting help with their debt because they believed a myth they’d heard from a friend or online. The truth is that bankruptcy is a federally regulated, confidential process that offers many Canadians a second chance at financial stability.
In this updated 2025 guide, we break down the 14 most common myths about bankruptcy in Canada, and what the reality is instead.
Myth #1: Anyone Can File for Bankruptcy
Reality: You must meet legal criteria under the Bankruptcy and Insolvency Act (BIA).
To be eligible to file for bankruptcy in Canada, you must:
- Owe at least $1,000;
- Be insolvent (unable to pay debts as they become due or your total debts exceed the value of your assets).
Only a federally Licensed Insolvency Trustee (LIT) can file a bankruptcy or consumer proposal in Canada. They will assess your situation and explain all available debt relief options.
Myth #2: Bankruptcy Means Losing Everything
Reality: You’re allowed to keep many essential assets under BC law.
In British Columbia (as of 2025), the following are exempt from seizure:
- Household furnishings: up to $4,000
- Tools of your trade: up to $10,000
- Equity in a vehicle: up to $5,000 ($2,000 for maintenance enforcement debtors)
- Equity in your principal residence: up to $12,000 (in the Capital Regional District), or $9,000 elsewhere in BC
- Clothing and necessary medical aids
- Pets
You may also keep RRSPs (excluding recent contributions from the past 12 months).
Recommended Resource: What Assets Can You Keep if You Declare Personal Bankruptcy in Canada?
Myth #3: Everyone Will Know I Filed for Bankruptcy
Reality: Bankruptcy is a private legal process.
Unless you’re a public figure or involved in a corporate bankruptcy, your bankruptcy won’t appear in newspapers or public notices. The bankruptcy is recorded in a public registry managed by the Office of the Superintendent of Bankruptcy (OSB), but access requires a fee and formal search. In most cases, only your creditors and your LIT will be aware.
Myth #4: Bankruptcy Will Ruin My Credit Forever
Reality: You can rebuild credit within a few years after discharge.
A first bankruptcy remains on your credit report for:
- 6 years (Equifax)
- 7 years (TransUnion)
Most people who file are already facing poor credit. After discharge, you can begin rebuilding your score using tools like:
- Secured credit cards
- Making payments on time
- Monitoring your credit through Equifax or TransUnion
Many people see significant improvement in their credit score within 2–3 years of discharge.
Myth #5: Bankruptcy Erases All Debts
Reality: Some debts survive bankruptcy.
The following debts are not discharged:
- Student loans if you’ve been a student within the last 7 years (sometimes reduced to 5 years via hardship application)
- Child or spousal support
- Court fines or penalties
- Damages from assault or misrepresentation
- Debts resulting from fraud or theft
Learn more about student loan exceptions in bankruptcy here: Student Loans and Bankruptcy in BC
Myth #6: Bankruptcy Is Free
Reality: Bankruptcy involves regulated costs.
While the initial consultation with a Licensed Insolvency Trustee is free, costs of filing depend on:
- Your income (surplus income payments may apply)
- Assets that may be sold or contributed
- A minimum monthly contribution (usually around $200/month for a first bankruptcy)
All fees are regulated by the BIA. Read more about surplus income obligations here: Surplus Income Guide
Myth #7: Bankruptcy Affects My Spouse’s Credit
Reality: Bankruptcy is an individual legal process.
If your spouse is not a co-signer or joint account holder, your bankruptcy will not affect their credit or financial status. Joint debts, however, become the full responsibility of the non-bankrupt spouse.
Discover more about if you’re responsible for spousal debts in BC.
Myth #8: Only Irresponsible People Declare Bankruptcy
Reality: Bankruptcy is often the result of unforeseen life events.
Many people file due to:
- Job loss
- Illness or medical emergencies
- Divorce or separation
- Business failure
Bankruptcy is a responsible step toward regaining control, not a sign of failure.
Myth #9: Bankruptcy Will Ruin My Career
Reality: Most jobs are not affected by bankruptcy.
Bankruptcy does not restrict you from employment. Exceptions may apply for positions in financial services, law, or accounting, but even then, disclosure or restrictions vary. You can still start or continue a career after bankruptcy.
Myth #10: I Won’t Be Able to Get a Loan Again
Reality: Many people get loans and mortgages post-bankruptcy.
Lenders often approve:
- Secured credit cards within months of discharge
- Car loans within 1–2 years
- Mortgages within 2–3 years (with a down payment and good income)
Responsible credit use post-bankruptcy helps rebuild trust with lenders.
Myth #11: You Can Only File Bankruptcy Once
Reality: You can file more than once, though timelines and consequences differ.
A second bankruptcy requires a longer discharge period and may involve more scrutiny from the court or creditors. But yes, it is possible to file again.
Myth #12: Bankruptcy and Consumer Proposals Are the Same
Reality: They are two different legal processes.
A consumer proposal allows you to repay a portion of your debt over up to 5 years while keeping your assets. Bankruptcy, on the other hand, may involve surrendering assets for discharge. Your LIT will explain which is more suitable based on your income, assets, and goals.
Learn more about consumer proposals versus personal bankruptcy.
Myth #13: Bankruptcy Automatically Discharges CRA Tax Debts
Reality: Most CRA debts are discharged, but not all.
CRA can oppose your discharge or request conditions under BIA section 172.1 if your tax debts exceed $200,000 and represent over 75% of total unsecured debt. Fraudulent or non-compliant tax behavior may also result in non-dischargeable debt.
Myth #14: Bankruptcy Affects Immigration or Citizenship
Reality: Bankruptcy has no direct impact on your status in Canada.
Filing bankruptcy does not affect your eligibility for permanent residency or citizenship. However, unpaid debts could affect sponsorship applications or government program eligibility.
Need More Help Understanding Bankruptcy in BC?
At C.E. Craig & Associates Inc., our Licensed Insolvency Trustees help individuals across Vancouver Island and the Lower Mainland, including Victoria, Nanaimo, Langford, and Surrey understand their options. Whether it’s bankruptcy or a consumer proposal, we’re here to help you get a fresh financial start.
