Bankruptcy Myths in Canada: 15 Misconceptions That Stop People Getting Help

Introduction

Every day in Canada, thousands of people who could benefit from bankruptcy protection continue to struggle with overwhelming debt. Not because help isn’t available, but because of the myths surrounding it. These misconceptions are powerful. They spread quietly through family stories, cultural beliefs, outdated information, and fear and they stop people from reaching out long after they should.

The result? Canadians stay trapped in debt for years. They drain savings, juggle high‑interest credit, avoid calls, lose sleep, and watch their mental health decline, all because they believe something about bankruptcy that simply isn’t true. Many people wait until they’re at a breaking point before seeking help, not realizing that earlier intervention could have protected their credit, their assets, and their peace of mind.

These myths don’t just create confusion, they create paralysis. Many people feel ashamed to ask questions, or they assume their situation is “too far gone” to fix. Others rely on outdated advice from friends or family, not realizing that Canadian bankruptcy laws have evolved significantly over the years. The emotional weight of debt, combined with misinformation, often keeps people stuck in silence far longer than necessary.

Bankruptcy exists for a reason: to give people a legal, structured way to reset when debt becomes unmanageable. But myths make it feel like a last resort, a moral failure, or a life‑ruining decision. In reality, bankruptcy is a regulated, federally governed process designed to help Canadians rebuild. This article breaks down the 15 most common myths about bankruptcy in Canada and explains the facts that can help you make informed, confident decisions about your financial future.

To learn more about how bankruptcy works in Canada, visit our Bankruptcy resource page.

Myth 1: “I’ll Lose Everything I Own If I File for Bankruptcy”

This is one of the biggest fears and one of the biggest misconceptions.

In Canada, bankruptcy does not mean losing everything. Each province has exemption laws that protect essential assets so you can maintain stability while rebuilding. These exemptions exist because the bankruptcy system is designed to help you recover, not punish you.

Most people keep:

• Clothing
• Household furniture
• Tools needed for work
• A vehicle up to a certain value
• RRSPs (except recent contributions)
• Basic personal belongings

In many cases, people are surprised by how much they’re allowed to keep. Bankruptcy is meant to give you a fresh start, not strip away the things you rely on to live, work, and support your family.

And because exemption limits vary by province; for example, Alberta and Saskatchewan offer higher allowances than Ontario, a Licensed Insolvency Trustee can explain exactly what applies in your region. Understanding these protections often brings immediate relief to people who feared they would lose everything.

Myth 2: “My Credit Will Be Ruined Forever”

Bankruptcy impacts your credit, but not permanently.

Bankruptcy does impact your credit, but not permanently. How long it stays on your report depends on the province and the credit bureau.

For a first bankruptcy:

• Equifax typically reports it for 6 years after discharge.
• TransUnion reports it for 7 years after discharge in NL, ON, PEI, and Quebec, and 6 years in most other provinces.

So while bankruptcy does affect your credit in the short term, it does not follow you forever  and you can start rebuilding long before it drops off your report.

But here’s the part most people don’t realize: continuing to struggle with unmanageable debt often damages your credit far more, and for much longer, than bankruptcy ever would.

Late payments, maxed out credit cards, collections, and high utilization can drag your score down for years. Bankruptcy, on the other hand, gives you a clean slate to rebuild.‑out credit cards, collections, and high utilization can drag your score down for years. Bankruptcy, on the other hand, gives you a clean slate to rebuild.

After discharge, many people begin rebuilding immediately by:

• Using a secured credit card
• Making on time payments‑time payments
• Keeping balances low
• Monitoring their credit report

Most Canadians see meaningful improvement within 12-24 months. Bankruptcy doesn’t end your financial future, it helps you restart it. And because both Equifax and TransUnion follow federally regulated reporting timelines, you always know exactly how long the bankruptcy will appear on your file. There are no surprises, no hidden penalties, and no permanent marks.

Myth 3: “Everyone Will Know I Filed for Bankruptcy”

Bankruptcy is not publicly announced. There is no newspaper ad, no social media post, no employer notification. The only people who are informed are:

• Your creditors
• Your Licensed Insolvency Trustee
• The Office of the Superintendent of Bankruptcy

The only exception is an ordinary bankruptcy, which applies when realizable assets exceed $15,000. In those cases, public notices may be required as part of the legal process.

Even though bankruptcy filings are private in the sense that no one is proactively notified, every bankruptcy is part of the public record. That means someone could look it up if they intentionally go through the formal search process and pay the required fee.

Myth 4: “I’ll Never Get Credit Again”

You can absolutely get credit again.

Many people qualify for:

• A secured credit card within months
• A car loan within 1-2 years
• A mortgage within a few years (with good rebuilding habits)

Responsible use of credit after discharge can help you rebuild faster than you might expect. Many lenders are open to working with people post‑bankruptcy because your previous debts have been cleared and they can clearly assess your current financial situation, not because you’re prevented from filing again.

What matters most to lenders is stability, on‑time payments, and responsible use of new credit, all of which help you rebuild over time.

Myth 5: “I’ll Lose My Job If I File for Bankruptcy”

In most professions, bankruptcy has no impact on employment.

Canadian law protects employees from being fired or penalized because they filed for bankruptcy. Exceptions are rare and usually involve roles that require bonding or handling trust funds and even then, a consumer proposal may be a suitable alternative.

For the vast majority of Canadians, your employer will never know, and your job is protected. Bankruptcy is a financial process, not an employment issue, and it does not appear on background checks for standard jobs.

Myth 6: “You Have to Be Completely Broke to File for Bankruptcy”

You don’t need to be destitute.

The requirement is insolvency, meaning you:

• Can’t keep up with your debt payments, or
• Owe more than the value of your assets

Many people who file still have income, jobs, and assets. Bankruptcy is a legal tool designed to help people who are overwhelmed by debt, not just those who have hit rock bottom. In fact, waiting until you are “completely broke” often makes things worse; people drain savings, cash out RRSPs, or take on high interest loans trying to avoid bankruptcy, when earlier intervention could have protected their financial stability.‑interest loans trying to avoid bankruptcy, when earlier intervention could have protected their financial stability.

Myth 7: “Bankruptcy Discharges All Debts”

Most unsecured debts are discharged, but not all.

Debts that usually survive bankruptcy include:

• Child support
• Spousal support
• Court fines
• Fraud related debts‑related debts
• Unpaid student loans when the end of study date is less than 7 years ago

These exceptions exist because certain obligations are considered too important or too specific to be eliminated. Your trustee will review exactly what applies in your situation so there are no surprises. And in some cases, such as student loans, there are hardship provisions that may allow relief earlier than seven years, something many Canadians don’t know.

Myth 8: “Filing Bankruptcy Is Morally Wrong”

This myth is rooted in shame, not reality.

Bankruptcy laws exist because life happens: job loss, illness, divorce, inflation, caregiving responsibilities, and unexpected emergencies. These aren’t moral failures, they’re human experiences that can happen to anyone.

Bankruptcy is a legal right designed to give Canadians a fresh start. It’s not about blame, it’s about rebuilding. Many people who file are hardworking, responsible individuals who faced circumstances beyond their control. The stigma around bankruptcy often comes from outdated beliefs passed down through generations, not from the reality of how the system works today.

Myth 9: “Consumer Proposals Are Always Better Than Bankruptcy”

Consumer proposals are great tools, but not always the best fit.

A proposal may be better if:

• You have stable income
• You want to keep certain assets
• You prefer a structured repayment plan

Bankruptcy may be better if:

• Your income is low
• Your debt is extremely high
• You need relief quickly

Both are legal debt solutions. A Licensed Insolvency Trustee helps you compare them objectively based on your situation. There is no “one size fits all” answer, the right solution depends entirely on your income, assets, and long term goals.‑size‑fits‑all” answer‑term goals.

Myth 10: “You Can Choose What Debts to Include in Bankruptcy”

You can’t pick and choose.

Bankruptcy includes all unsecured debts. Secured debts (like a mortgage or car loan) are treated differently because they’re tied to an asset.

You can choose to keep paying secured debts if you want to keep the asset, but unsecured debts must all be included. This ensures fairness and transparency for all creditors. Trying to exclude certain debts isn’t allowed under Canadian law. Both bankruptcies and consumer proposals are governed by the Bankruptcy and Insolvency Act, which requires the process to be complete and consistent. You can’t pick and choose which eligible debts to include; all qualifying debts must be part of the filing.

Myth 11: “Your Spouse Is Responsible for Your Debts If You File”

Your spouse is not responsible for your debts unless:

• They co‑signed, or
• They are a joint account holder

Your bankruptcy does not affect their credit or their personal financial record. Many couples worry that one person filing will harm the other, but unless the debt is shared, it won’t. Your spouse’s income may be considered for budgeting purposes, but it does not make them liable for your debt.

Myth 12: “You Can’t File Bankruptcy If You’re Self Employed”

Selfe mployed Canadians can absolutely file.‑employed Canadians can absolutely file.

Business debts that you’re personally responsible for are treated like any other unsecured debt. Bankruptcy does not prevent you from continuing to operate as a sole proprietor. Many entrepreneurs use bankruptcy to reset after a difficult period and rebuild their business with a stronger financial foundation. Even GST/HST or source deduction debts can be included, and filing often stops aggressive CRA collection actions immediately.‑deduction debts can be included, and filing often stops aggressive CRA collection actions immediately.

Myth 13: “You Can’t File Bankruptcy More Than Once”

You can file more than once, but the rules change.

A second bankruptcy:

• Lasts longer
• Has different surplus income requirements
• Stays on your credit report longer

Still, it remains a legal option for those who need it. Life doesn’t always unfold in a straight line, and the law recognizes that. Many people who file a second time do so after major life events such as illness, divorce, or job loss, not because of poor financial habits.

Myth 14: “Bankruptcy Means You Failed at Financial Management”

This myth is rooted in stigma, not truth.

Most bankruptcies in Canada are caused by:

• Job loss
• Divorce
• Illness or injury
• Rising cost of living
• Unexpected emergencies
• Reduced income

These are life events, not personal failures. Bankruptcy is a financial reset, not a judgment of your character. Many people who file go on to rebuild strong, stable financial lives. In fact, many report feeling immediate relief once they understand their options, the shame fades when they realize how common and understandable their situation truly is.

Myth 15: “You Don’t Need Professional Help to File Bankruptcy”

In Canada, you cannot file bankruptcy on your own.

Only a Licensed Insolvency Trustee is legally authorized to administer a bankruptcy or consumer proposal. They:

• Explain your options
• Handle all paperwork
• Communicate with creditors
• Ensure the process is fair and compliant

Trying to navigate debt alone often leads to delays, stress, and missed opportunities for relief. A trustee ensures you understand every step and choose the option that truly fits your situation. They also help you compare alternatives: including budgeting support, debt consolidation, and consumer proposals, so you’re not pushed into bankruptcy unnecessarily.

Moving Beyond the Myths

Bankruptcy myths thrive in silence and silence keeps people stuck. The best way to move forward is to get information from a regulated, trustworthy source.

When speaking with a Licensed Insolvency Trustee, consider asking:

• What debt relief options am I eligible for
• How will each option affect my assets
• What will my monthly payments look like
• How long will the process take
• How will this impact my credit

Facts, not fear, should guide your decisions. The sooner you understand your options, the sooner you can regain control of your financial life. And for many people, simply having a conversation with a trustee is the moment everything shifts, the fear lifts, the confusion clears, and the path forward becomes visible.

Conclusion

Bankruptcy myths have real consequences. They keep people in debt longer, increase stress, and prevent Canadians from accessing the help they’re legally entitled to. Understanding the truth allows you to make informed decisions and take control of your financial future.

If debt has become overwhelming, don’t let misinformation hold you back. Book a free, confidential consultation with a Licensed Insolvency Trustee. They can walk you through every option: bankruptcy, consumer proposals, and more, so you can choose the path that truly fits your life. You deserve clarity, support, and a fresh start, and the right information is the first step toward getting there.