Duties of the Bankrupt in Canada, Your Legal Obligations

Introduction

Your legal duties begin the moment you file for personal bankruptcy and continue until you are discharged. This page explains those duties in clear, simple language. You will learn about financial disclosure, monthly reporting, working with your bankrupt trustee, and the restrictions placed on undischarged bankrupts.
If you’re considering bankruptcy but you’re worried about what you might have to go through, , what you can keep, and how long the process will last, you’re not alone. Understanding your duties as a person who is bankrupt. When you know what is expected, it becomes easier to reach your discharge and start fresh.

In Canada, all bankruptcies are governed by the Bankruptcy and Insolvency Act, often called the BIA . This law sets out clear rules for both the person filing and the trustee for bankruptcy who manages the process. The legislation is Federal and applies across the country.

What Are the Duties of Someone Going Through Bankruptcy?

These duties are outlined in the Bankruptcy and Insolvency Act and apply to every individual who files, no matter their income or debt level. The key duties are listed below.

Fulfilling these duties is required to receive a discharge from bankruptcy. A discharge is what releases you from most unsecured debts and marks the end of your bankruptcy. If duties are missed or ignored, the process can take longer or become more difficult.

Financial Disclosure and Reporting

Statement of Affairs

One of the first duties in a personal bankruptcy is completing a Statement of Affairs. This is a sworn legal document where you list all of your assets, debts, income, and monthly expenses. It gives a full picture of your financial situation at the time of filing.

This statement must be complete and truthful. Under the Bankruptcy and Insolvency Act, hiding assets or providing false information is considered a serious offence. This applies to all property, even items you believe have little value. Your trustee in bankruptcy relies on this document to administer the bankruptcy fairly.

Monthly Income and Expense Statements

During your bankruptcy, you must submit monthly income and expense statements to your LIT. These reports continue for the full length of your bankruptcy.

You are required to provide proof of income, such as pay stubs, benefit statements, or invoices if you are self employed. You also report necessary living expenses like rent, utilities, and childcare. These reports help your trustee understand changes in your financial situation and apply the rules correctly.

Surplus Income Payments

Surplus income is an important part of bankruptcy and insolvency in Canada. The Office of the Superintendent of Bankruptcy sets income thresholds based on household size. If your income is above the threshold, you must pay 50 percent of the excess into your bankruptcy.

Surplus income can affect both your monthly payments and how long your bankruptcy lasts. For a first‑time bankrupt, having surplus income can extend the bankruptcy from 9 months to 21 months. This is why it’s important to report your income accurately every month.

For example: If the government’s guideline says your household is allowed to keep $2,800 net per month and you earn $3,200, you are $400 over the limit. You would then be required to pay half of that amount; $200 per month, as surplus income.

Because you have surplus income, your bankruptcy would be extended from 9 months to 21 months, and you would continue making those surplus payments during that time.

Everyone’s situation is different. Speaking with an LIT at Farber allows you to understand how surplus income applies to you and what options may reduce financial pressure.

Co-operating With Your LIT

Attend Meetings

You must attend any meetings requested by your trustee for bankruptcy or by creditors. Meetings are not always required, but when they are called, attendance is mandatory. You may also need to meet with your trustee during the process to review documents or discuss changes in your situation.

Failing to attend without a valid reason can lead to problems with your discharge. In some cases, it may result in the LIT opposing your discharge.

Provide Information and Answer Questions

Another key duty is answering questions honestly. Your trustee, creditors, or the Office of the Superintendent of Bankruptcy may ask questions about your finances, property, or actions before filing.

In certain cases, a formal examination may take place. This is a structured process where questions are asked under oath. While this can sound intimidating, your LIT helps you understand what to expect and how to prepare.

Assist the LIT with Asset Administration

You must help your trustee identify and deal with assets that are not protected by provincial exemption laws. In for example, certain assets are generally exempt, including basic household furnishings, tools needed for your job, one vehicle up to a set value, and RRSP contributions older than 12 months.

Your LIT handles the valuation and sale of non exempt assets. Your role is to provide access and information, not to manage the process yourself.

Financial Counselling Sessions

Every person who files for personal bankruptcy must complete two financial counselling sessions. These sessions are required under the Bankruptcy and Insolvency Act and must be completed before discharge.

The first session focuses on the causes of bankruptcy and practical budgeting skills. It helps you understand what led to financial difficulty and how to manage day to day expenses moving forward.

The second session focuses on money management and rebuilding credit after bankruptcy. This includes understanding credit reports, avoiding future debt problems, and setting financial goals.

At Farber, counselling sessions are designed to be supportive and practical. The goal is to help you feel more confident in managing your finances, not judged or overwhelmed. As part of your bankruptcy duties, you’ll also need to destroy any credit cards in your possession. In addition, you are required to disclose any assets that were sold, transferred, or otherwise disposed of in the 12 months before your bankruptcy, as well as during the bankruptcy period.

Restrictions on Undischarged Bankrupts

While your bankruptcy is still active, certain rules apply. These rules are meant to protect lenders and maintain fairness in the system. Many people ask what can a bankrupt do and what is limited during this time.

If you apply for credit over $1,000, you have to disclose that you are an undischarged bankrupt. Failing to do so is a breach of your duties.

In most cases, an undischarged bankrupt cannot act as a director of a corporation. This can affect business owners or those planning to start a company during bankruptcy.

Some professional licenses or regulated roles may also be affected. Self employed individuals should speak with an LIT in bankruptcy to understand reporting duties and any industry specific rules.

Travel outside Canada is not restricted during bankruptcy. You can leave the country if you choose.

However, you must still be available to meet your duties. This includes attending any required meetings and staying in contact with your trustee. You must also continue to provide any information or documents your trustee asks for, even if you are away.

If you plan to travel, it is important to make sure it does not affect your ability to meet these responsibilities.

What Happens If You Do Not Fulfill Your Duties?

Failing to meet your bankruptcy duties can have serious consequences. If reports are missed or information is withheld, the trustee or a creditor may oppose your discharge. This means your bankruptcy lasts longer and may include additional conditions.

In more serious cases, non-compliance can result in penalties or charges under the Bankruptcy and Insolvency Act. These situations are uncommon but highlight why communication is important.

Farber’s team works closely with clients throughout the process. If a problem arises, addressing it early often prevents more serious outcomes.

Achieving Your Discharge from Bankruptcy

A discharge from bankruptcy is the legal release from most unsecured debts. It means your bankruptcy is finished, and you can start rebuilding; things like improving your credit, saving again, and planning your finances without past debts holding you back.

For first time bankrupt with no surplus income, discharge usually occurs after 9 months. If surplus income applies, the timeline extends to 21 months.

Second time bankrupt persons face longer timelines and may have additional duties.

Completing all required duties is the key factor in reaching discharge as quickly and smoothly as possible. Keeping open contact with your trustee makes this much easier.

Get Help Understanding Your Options With Farber

If you are considering bankruptcy, Farber is here to help. Our LITs offer free, confidential consultations, available both in person and virtually across Canada.

Many Canadians discover that a consumer proposal or other debt relief Canada options, such as debt consolidation, may be a better fit than bankruptcy. A Farber trustee can walk you through every option at no cost and help you choose the best path forward.

Frequently Asked Questions About Bankruptcy Duties

What happens if I forget to submit my monthly income statement?

Missing a report can delay your discharge. Contact your trustee right away so the issue can be corrected.

Do I have to attend every creditor meeting?

Only if a meeting is formally called. Most bankruptcies do not involve creditor meetings.

What is the difference between my duties and my rights as a bankrupt?

Duties are what you must do. Rights protect you from collection action and provide a clear path to discharge.

Can I travel outside of Canada during my bankruptcy?

Yes, you can travel outside of Canada during your bankruptcy.

You do not need your trustee’s approval to leave the country. However, you must still meet all of your duties. This includes attending required meetings and counselling sessions, staying in contact with your trustee, and providing any information or documents when asked.

If you plan to travel, make sure you can still meet these responsibilities while you are away.

What assets can I keep when I file for bankruptcy in Ontario?

Most basic household goods, certain vehicles, tools of the trade, and older RRSPs are generally protected.

How do surplus income payments affect how long my bankruptcy lasts?

If your income is above a set limit, you may need to make surplus income payments. This can extend the length of your bankruptcy.

This applies to first, second, and third bankruptcies. Your trustee will review your income and explain how it may affect your timeline.

What happens after I am discharged from bankruptcy?

You are released from most unsecured debts and can begin rebuilding credit and financial stability.