How Bankruptcy Works Step by Step
- Shawn A. Stack
- 3 hours ago
- 4 min read
One of the biggest fears people have about bankruptcy is not knowing what happens next.
The good news is that bankruptcy follows a very structured process. While every file is unique, most consumer bankruptcies follow the same sequence of events.
1. A Statement of Affairs is Prepared
The first step is preparing a Statement of Affairs.
This document lists all of your creditors, assets, income, expenses, family size, employment information, property sold or transferred in recent years, assets you expect to receive, and the circumstances that led to your financial difficulties.
Think of it as a financial snapshot of your life on the day you file.
2. You Meet With a Licensed Insolvency Trustee and Sign the Bankruptcy Documents
Once the information has been gathered and reviewed, you meet with a Licensed Insolvency Trustee (LIT) and sign the bankruptcy documents.
The legal term is "making an assignment into bankruptcy."
3. The Trustee Files the Bankruptcy Electronically
The Trustee files the documents electronically with the Official Receiver, which is part of the Office of the Superintendent of Bankruptcy (OSB).
This is the moment your bankruptcy officially begins.
4. The Stay of Proceedings Takes Effect
Once the bankruptcy is accepted, the OSB issues an Appointment of Trustee.
This triggers the Stay of Proceedings.
Collection calls stop.
Lawsuits stop.
Wage garnishments stop.
Creditors lose the ability to continue enforcing their claims.
5. Creditors Are Notified
Within five days, the Trustee sends notice of the bankruptcy to your creditors.
They receive a copy of the Statement of Affairs and are advised of your anticipated discharge date.
For most first-time bankruptcies, this is either 9 or 21 months depending on income.
6. A Meeting of Creditors May Be Held
The law permits creditors to request a Meeting of Creditors.
In most consumer bankruptcies this never happens.
If a meeting is required, it is generally held within 21 days of filing.
7. Monthly Reporting Begins
Throughout the bankruptcy you are required to report your income and expenses each month.
Supporting documents such as pay stubs and bank statements may also be requested.
These reports are used to determine whether surplus income payments apply.
8. Monthly Payments Are Made
If payments are required, they are calculated using the Superintendent's Standards and the surplus income provisions of the Bankruptcy and Insolvency Act.
The amount can change if your income changes during the bankruptcy.
9. The Trustee Files Your Pre-Bankruptcy Tax Return
The Trustee prepares and files the income tax return covering the period from January 1 to the date of bankruptcy.
Any refund relating to that period belongs to the bankruptcy estate.
10. First Counselling Session
You must attend a financial counselling session within the first 60 days of the bankruptcy.
The session focuses on budgeting, financial behaviour, and rebuilding financial stability.
11. Second Counselling Session
A second counselling session is typically completed around the sixth month.
The focus shifts toward future planning and avoiding financial difficulties after discharge.
12. The Trustee Reviews the File
For a first-time bankruptcy without surplus income, the review generally occurs around the eighth month.
The Trustee verifies that you have completed all required duties and determines whether you qualify for an automatic discharge.
13. Automatic Discharge (9 or 24 Months)
If you have completed all duties and surplus income does not apply, you will receive an Automatic Discharge after:
9 months for a first bankruptcy
24 months for a second bankruptcy
At that point the bankruptcy is complete.
14. Automatic Discharge (21 or 36 Months)
If surplus income applies, reporting and payments continue for a longer period.
Discharge generally occurs after:
21 months for a first bankruptcy
36 months for a second bankruptcy
provided all duties have been completed.
15. What Happens if There Is Not Enough Money in the Estate?
In some cases the estate may not contain enough funds to pay the minimum trustee remuneration contemplated by the legislation.
If that occurs, the Trustee may discuss a Section 156.1 agreement with you. This allows additional time for payments to be made into the estate.
I discuss this issue in more detail in the article, "When Voluntary Payments Aren't Really Voluntary."
16. What Happens if Surplus Income Has Not Been Fully Paid?
If all duties have been completed but surplus income remains outstanding, the Trustee may apply for mediation through the Official Receiver.
A repayment arrangement is often established, and discharge is granted once the surplus income obligation has been satisfied.
17. What Happens if the Bankruptcy Is Opposed?
If duties have not been completed, a creditor opposes your discharge, or the Trustee believes the Court should review your conduct, your discharge may be opposed.
A Court hearing will then be scheduled.
18. The Court Decides the Outcome
The Court may grant:
Absolute Discharge – you are finished bankruptcy.
Suspended Discharge – your discharge is delayed for a specified period.
Conditional Discharge – you must satisfy certain conditions before receiving your discharge.
Adjourned Sine Die – the matter is postponed indefinitely until required duties are completed.
Refused Discharge – in rare cases, the Court refuses to release you from your debts.
19. The Credit Bureau Reporting Period Begins
Once you are discharged, the bankruptcy remains on your credit report for a period of time.
Generally, a first bankruptcy remains for 6 years after discharge and a second bankruptcy remains for 14 years after discharge.
Although the bankruptcy is reported, your legal obligation to repay the discharged debts has ended.
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