Does bankruptcy clear every debt?

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In Canada, bankruptcy mainly wipes out unsecured debts like credit card balances and personal loans. However, secured debts such as mortgages and car loans require negotiation or asset forfeiture to manage. Debts like child support and court fines remain unaffected, and student loans have specific discharge criteria.

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Question

Does bankruptcy clear every debt? Does bankruptcy eliminate all types of debts, or are there exceptions to what gets cleared?

From: Anonymous Question, Toronto, Ontario (ON) Topic: *[debt discharge](/articles/solutions/debt discharge//)

Debt Insiders Answer

Bankruptcy isn’t quite the clean slate for all debts. In Canada, it typically wipes out unsecured debts—think credit card balances, personal loans, and a few past-due bills. But when it comes to secured debts like your home mortgage or car loan, they’re not going anywhere unless you work out a deal or decide to let go of the asset. And some debts just won’t budge, such as child support, alimony, and court-imposed fines. Student loans are a bit tricky—they might be discharged if specific conditions are met, but usually, they stick around too. Curious for more details? Swing by Does bankruptcy clear every debt? for the lowdown.

From: Insider Adam

Office of the Superintendent of Bankruptcy (OSB) Answer

Bankruptcy does not clear every debt. Certain types of debts remain unaffected by bankruptcy. According to the Bankruptcy and Insolvency Act (RSC 1985, c 6, s 178), debts that are not discharged include:

1. Debts arising from fraud, embezzlement, or misrepresentation.
2. Alimony and maintenance obligations.
3. Student loans, if the borrower has not been out of school for at least seven years.
4. Debts incurred through willful misconduct or injuries caused by the debtor.

These exceptions specify the types of debts that bankruptcy cannot eliminate.

From: OSB Helper

Related Questions

Here are the top 5 most frequently asked questions related to the topic of whether bankruptcy clears every debt, based on common queries and concerns in the context of Canadian debt and insolvency:

1. Does bankruptcy clear all debts?

No, bankruptcy does not clear all debts, as some debts such as student loans less than 7 years old, child and spousal support, and fines are not dischargeable[1][2][5].

2. What debts are not discharged in bankruptcy?

Debts not discharged in bankruptcy include student loans less than 7 years old, child and spousal support, fines, court-ordered restitution, and debts arising from fraud or embezzlement[1][2][5].

3. Does bankruptcy clear CRA debt?

Yes, bankruptcy can clear most CRA debts, including income tax, GST/HST, and certain penalties and interest, but not debts related to fraud or tax evasion[1][4][5].

4. Does bankruptcy affect secured debts?

Bankruptcy does not automatically clear secured debts; secured creditors may still have a claim on the collateral, such as a house or vehicle[1][2][5].

5. How does bankruptcy impact credit score?

Bankruptcy significantly impacts your credit score, with the bankruptcy notation remaining on your credit report for 6 years after discharge, or 14 years for a second-time bankruptcy[2][5].

If you have a question about debt see our debt questions or ask your own debt related question.

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