You can read more about the 2026 Bankruptcy Guidelines on our surplus income payments page, or you can use our surplus income calculator to do the math for you.

Numbers are nice, but what does this mean to you? Here’s the simple explanation:

If you declare bankruptcy, the more you earn, the more you pay.  It’s that simple.

So, if you are a single parent with one child, you are a family of two, so your surplus income limit is $3,381 per month. If your net earnings (your income after tax, less child care and medical costs) are $3,718 per month, you are $337 over the limit, so you have $337 of surplus income.

If you are bankrupt you are required to pay half of your surplus income to your creditors, so in this example you would be making a surplus income payment of $168.50 per month.

If your income goes up, you pay more.  If your income goes down, you pay less.

If you are considering bankruptcy, you should estimate your income during the bankruptcy period, so you can estimate your surplus income and therefore the cost of your bankruptcy.  If you get a bonus, or work overtime at certain times during the year, or if you get laid off for part of the year those factors will influence your surplus income.

If you expect your income to increase and you are worried that you may pay a lot in surplus income, you could consider a consumer proposal as an alternative to bankruptcy.  We negotiate a settlement with your creditors up front, so if your income increases later your payments don’t increase.

Which option is best for you?  Contact us today and one of our professionals will calculate your options and help you decide which option is best for you.

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In a recent Report of the Official Receiver regarding a consumer proposal filed in Alberta, the court was asked to consider a fundamental question:

Will a consumer proposal receive court approval if the debtor refuses to disclose payments made to a third-party service provider?

The answer in the recommendation was unequivocal: no.

As the Official Receiver stated:

“A debtor unwilling to make full disclosure of [her] financial affairs is entitled to no relief under the BIA.”

This recommendation reinforces a core principle of the Bankruptcy and Insolvency Act (BIA): full financial transparency is not optional.

For those interested, here is the Report re Debtor and Metus Lykos Debt Law Firm.

What Happened in This Case?

In this instance, the debtor disclosed in her Statement of Affairs that she had retained the services of Metus Lykos Debt Law Firm (“Metus”, formerly known as GEM Debt Law) regarding her financial situation prior to filing.

However, the debtor refused to disclose:

• How much had already been paid to the Service Provider
• How much remained payable
• The underlying contract
• Whether ongoing monthly payments existed outside the proposal

When questioned at the reconvened meeting of creditors, the debtor, on objection from Metus representatives, refused to answer questions regarding Metus’s services, asserting “privilege”.

The Official Receiver took the position that the court should refuse approval of the proposal because there had been material non-disclosure of the debtor’s financial situation.

Why Disclosure Matters

Under subsection 66.24(2) of the BIA, the court must refuse approval if the proposal:

• Is not reasonable
• Is not fair to the debtor or creditors
• Or fails to meet statutory requirements

The Official Receiver noted:

“Neither the court nor creditors are in a position to divine a debtor’s finances; therefore, good faith transparency of a debtor’s affairs is essential to the operation of the consumer proposal process.”

In this case, the debtor’s Monthly Income and Expense Statement showed a surplus of only 16 cents per month.

If there were undisclosed ongoing payments to the third-party service provider of $230–$263 per month (as suggested in the Report), that would materially affect the feasibility of the proposal and whether funds were being diverted away from creditors.

The court, and creditors, could not properly assess:

• Whether the proposal is viable
• Whether the debtor can complete it
• Whether creditors are being treated fairly

…if material financial information is withheld.

“Privilege” Does Not Override Disclosure Duties

A central issue was whether solicitor-client privilege prevented disclosure of the fee arrangement.

The Official Receiver addressed this directly:

“While the BIA’s consumer proposal regime does not compel the disclosure of privileged legal advice, it does require a debtor applicant to make the statutory disclosure in order to obtain court approval of the proposal.”

And further:

“A consumer debtor should not expect her proposal to be approved if she cloaks relevant information about her expenses under an assertion of privilege.”

In short, the Act does not require disclosure of legal advice. But it absolutely requires disclosure of financial obligations.

Fee payments are financial obligations.

The Integrity of the Insolvency System

The Report repeatedly emphasizes that transparency is fundamental to the integrity of Canada’s insolvency system.

The Official Receiver cited established case law confirming that relief under the BIA is reserved for the “honest but unfortunate debtor.”

Justice Yamauchi was quoted approvingly:

“Unless they are prepared to be honest with their creditors and with the court, then sought relief under legislation to ensure the integrity of the bankruptcy law is maintained… a debtor unwilling to make full disclosure of his financial affairs, is entitled to no relief under the BIA.”

This is not a technicality. It goes to the foundation of the process.

How This Relates to Our Earlier GEM Debt Law Review

Several years ago, we reviewed a GEM Debt Law contract (now operating as Metus Lykos Debt Law Firm) and raised concerns about:

• Significant third-party fees layered on top of consumer proposal payments
• Payment structures that diverted funds before creditors were paid
• The need for greater regulatory oversight

At that time, our focus was primarily on cost and value.

This case shifts the conversation.

The issue is no longer simply whether a theses services are necessary or cost-effective. The court is now addressing whether undisclosed third-party service provider fees can undermine the court approval process itself.

When payments to a third party:

• Reduce the funds available to creditors
• Affect proposal feasibility
• Or create a potential preference

…those payments become directly relevant to court approval.

Practical Implications for Consumers

If you are considering filing a consumer proposal:

1. All payments made to third parties must be disclosed.
2. Fee arrangements are financial obligations, not privileged advice.
3. A proposal can be rejected even if creditors vote in favour.
4. Court approval requires transparency and good faith.

As the Official Receiver concluded:

“Without accurate and complete disclosure of expenses, no restructuring regime would be able to function properly.”

Our advice continues to be to work directly with a Licensed Insolvency Trustee when exploring your debt relief options. Licensed Insolvency Trustees are federally regulated professionals, and all provide free initial consultations.

Final Thoughts

I have written extensively about the limited value proposition and often duplicative nature of ‘debt relief’ services provided by third-party service providers in the consumer proposal process. These services frequently overlap with work already performed by Licensed Insolvency Trustees, while adding additional cost to financially vulnerable individuals.

I am encouraged to see the Office of the Superintendent of Bankruptcy taking steps to address and curtail these practices in order to protect the integrity of the insolvency system, debtors and creditors.

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Below, we’ll cover:

• Ontario bankruptcy exemptions at a glance
• What happens to your house, car, and RRSP
• Frequently asked questions (e.g., “Will they take my tax refund?”)
• How a consumer proposal lets you keep everything

Quick Facts: Ontario Bankruptcy Exemptions

In Ontario, provincial law (the Execution Act) sets specific limits for what you can keep in a bankruptcy. Federal law also protects certain assets like portions of RRSPs. Here’s an at-a-glance list of major Ontario bankruptcy exemptions:

1. Clothing – Unlimited value (for you and your dependants)
2. Household Furnishings & Appliances – Up to $17,091
3. Tools of the Trade – Up to $17,362
4. One Motor Vehicle – Up to $8,578 in value (net of any loan)
5. Home Equity – If that equity is under $12,997
6. RRSP / RRIF – Fully exempt except contributions made in the last 12 months

Note: The prescribed limits set out by Ontario law are based on resale value on an as-is basis.

What Assets Can They Take in Bankruptcy?

Even though personal bankruptcy is governed by federal law (the Bankruptcy and Insolvency Act), the type and amount of property you can keep is heavily influenced by Ontario’s exemptions. Non-exempt assets (anything above these limits or not specifically protected) become part of your bankruptcy estate. Your Licensed Insolvency Trustee (LIT) may sell those assets or ask you to “buy back” the portion above the exemption limit if you want to keep them.

Examples of Potentially Non-Exempt Items

• Extra Vehicles or vehicles worth more than $8,578
• High-Value Collections (coins, art, jewelry)
• TFSAs, RESPs, and Other Investments that aren’t protected
• Second Property or principal residence with equity exceeding $12,997

If you have assets above these exemptions, you can still keep them by paying the difference into your bankruptcy estate, or by filing a consumer proposal.

Will I Lose My House?

This is often the #1 concern if you’re a homeowner. Ontario’s home equity exemption is $12,997. That means if your equity (home value minus what you owe) is less than $12,997, your home is considered exempt.

If you have a lot of home equity you don’t want to risk you can:

• pay the difference or “buy back” the non-exempt portion to keep the home
• look at a consumer proposal to protect your property altogether

If you are missing mortgage payments your lender may still foreclose, so it’s essential to stay current on your mortgage.

What Happens to My Car?

In Ontario, you can keep one vehicle worth up to $8,578 (based on its as-is resale value).

• If it’s worth more, you can pay the difference or surrender the car to the trustee.
• Leased or financed vehicles are treated differently. If you’re current on payments, you can typically keep the lease or loan.

What Happens to My RRSP in a Bankruptcy?

You keep all registered pension p RRSP, RRIF and DPSP (Deferred Profit Sharing Plan) savings except contributions made in the 12 months before your bankruptcy. RESP, TFSA and other investment savings are not exempt.  Read more about this asset in our post: RRSP and bankruptcy law in Canada

Other Common Questions

Keep Everything with a Consumer Proposal

If you have assets above Ontario’s bankruptcy exemptions or simply want to avoid surrendering anything, a consumer proposal is a powerful alternative to bankruptcy. Here’s why:

• No Asset Surrender: You keep your home, car(s), investments—everything.
• Lower Debt Repayment: You repay only a portion of your total debt, often interest-free.
• Creditors Vote: If majority agree, all unsecured creditors are bound by the proposal.
• No Surplus Income: You don’t worry about monthly income thresholds.

Proposals are legally binding, stop collection calls, and can protect your assets in a way bankruptcy may not.

Talk to a Licensed Insolvency Trustee

Every situation is different, and it’s crucial to get personalized advice. A Licensed Insolvency Trustee will review your assets, explain exactly what’s exempt, and recommend solutions based on your unique financial situation —whether that’s bankruptcy or a consumer proposal.

Ready to get started?

At Hoyes Michalos, we help Canadians find genuine relief from debt since 1999. If you have questions about bankruptcy, consumer proposals, or other debt relief options, speak with one of our experienced Licensed Insolvency Trustees so you can make an informed decision.

Take control of your finances and start fresh

The post Ontario Bankruptcy Exemptions: What Can They Take and What Assets You Keep appeared first on Hoyes, Michalos & Associates Inc..

A word of caution: Filing for bankruptcy can be a complicated process that can’t be fully understood by skimming through a few articles. We strongly suggest that you take your time and do your research to determine which debt management options are best for your unique situation. Ontario bankruptcy trustees are the best place to go when seeking detailed information about bankruptcy. At Hoyes Michalos we offer you a free initial consultation, which is great because it means that you can test the waters prior to making any commitments.

Bankruptcy costs

Read Transcript

The cost of bankruptcy includes fees that need to be paid when declaring bankruptcy such as government filing fees, court fees, and other administrative fees. The average bankruptcy will require a minimum payment of around $250 per month to cover these costs.

You will also be required to pay something called surplus income. Under the rules of the Bankruptcy & Insolvency Act, you are required to remit to your trustee 50% of your net income over a set minimum threshold. This calculation can become quite complicated and can increase the cost of your bankruptcy so you should always take to your trustee about the possibility of having to make surplus payments.

Another important point to mention is that if you file for bankruptcy you’ll be losing any assets that are non-exempt. You either surrender these assets to the trustee or can make additional payments to pay the trustee their fair market value if you want to keep those assets.

Not all assets are forfeit. Exempt assets in Ontario are covered in the Ontario Execution Act and the Bankruptcy & Insolvency Act. Some of the exemptions  (updated for 2015 limits) include:

• unlimited clothing;
• $8,578 of vehicles;
• $17,091 of furnishings & appliances;
• $17,362 of equipment that you use for your career (tools of the trade)
• RRSPs and similar pension funds except contributions made within the last year.

Particular kinds of life insurance are also exempt.

What happens to my tax refunds?

Another complicated area in bankruptcy is tax refunds and HST credits. If you file for bankruptcy you won’t be eligible for some tax refunds or HST credits. You’ll also lose any windfalls during your bankruptcy. Windfalls include money that you’ve inherited from a family member or the lottery. The moment you’re aware of these, you must tell your trustee immediately.

Are there any debts I still have to pay?

Since secured loans, child support and alimony and some other debts cannot be included in a bankruptcy, you will still need to make your regular payments on these obligations even if you declare bankruptcy.

How can I lower my monthly payments if I have surplus income or assets?

If your income is high enough to trigger surplus income, or you have assets like equity in your home or investments that you would like to keep, talk to your trustee about a consumer proposal. A consumer proposal is an offer to your creditors as an alternative to bankruptcy.  The amount you offer will still be based on what bankruptcy might cost as this is the minimum your creditors will expect. However, with a consumer proposal, you can spread this cost over five years, making the monthly payment much more affordable.

In order to understand how much you’ll repay once you’re bankrupt, your trustee will talk to you about your income, the size of your family and your assets as well as other considerations.

If you would like a personalized assessment of how much bankruptcy might cost for you, call us at 1-866-747-0660 for a free consultation with an Ontario bankruptcy trustee.

The post What Does it Cost to File for Bankruptcy in Ontario? appeared first on Hoyes, Michalos & Associates Inc..

Gambling Debt is More Common Than You Think

Gambling debt usually starts with small wagers, such as lottery tickets, scratch tickets, or online card games. Over time, what seemed like harmless entertainment can spiral into significant financial trouble. According to Statistics Canada, around two-thirds of Canadians aged 15 or older have participated in some form of gambling, highlighting how widespread gambling activities have become.

The truth is, anyone can find themselves struggling with gambling debt, often quietly. It’s essential to know that Licensed Insolvency Trustees (LITs) provide judgment-free help, offering compassionate guidance to those needing debt relief.

Why Gambling Debt Happens

Several factors can lead individuals into serious gambling debt:

• Easy Credit Access: Credit cards and payday loans make funds readily available, facilitating continuous gambling even when personal resources are exhausted.

• Chasing Losses: Many gamblers continue betting in hopes of recovering previous losses, inadvertently deepening their financial problems.

• Mental Health Connections: Issues such as anxiety, depression, or attention deficit disorders (ADD) can contribute to gambling behaviors.

What To Do If You Have Gambling Debt

If you’re dealing with gambling debt, it’s important to know that solutions are available, and it’s never too late to start turning things around. Below, we’ve outlined practical steps you can take right away to start managing your debt and regain control of your financial future.

Protect Yourself Financially

Your first step is to acknowledge you have a gambling problem and take steps so your financial situation does not become worse:

• Freeze Access to Credit: Prevent further debt accumulation by limiting your access to new credit sources or freezing existing credit accounts.

• Self-Exclusion Programs: Voluntarily exclude yourself from online and physical gambling locations.

• Talk With a Professional: Seek professional help to address underlying gambling addiction issues. If you are struggling with debt repayment, consider contacting a Licensed Insolvency Trustee. LITs are experienced in helping people find debt solutions and offer credit counselling advice is a non-judgmental manner.

Explore Debt Relief Options

Gambling debts are generally treated like other unsecured debts in Canadian insolvency proceedings. This provides a fresh start for people struggling with gambling-related financial problems.

When talking with your LIT, they can help you explore two primary options to deal with gambling debt:

• Bankruptcy: Bankruptcy does discharge gambling debts in Canada, however you must disclose to your LIT if the primary cause of your debts was due to gambling. In some cases the courts may require additional conditions for you to obtain your bankruptcy discharge. It is rare for the court to refuse a bankruptcy discharge due to gambling debts alone.

• Consumer Proposal: Unlike bankruptcy, there’s no court process involved when filing a consumer proposal – it’s more of a negotiation directly with your creditors. Basically, you work with a Licensed Insolvency Trustee who helps you put together an offer to pay back a portion of what you owe (often 30-50%) over a period of up to five years. As long as creditors holding the majority of your debt agree to the proposal, it becomes binding for all unsecured creditors – including gambling debts. This means you can settle your gambling debts for less than you owe while avoiding the more severe consequences of bankruptcy. Plus, you get to keep your assets, and the payment plan is designed to be manageable based on your actual income. Many people find consumer proposals less stressful since they provide debt relief without the stigma or restrictions that come with bankruptcy.

Case Study: Beau’s Journey from Gambling Debt to Recovery

Beau Humphreys, featured on our Debt Free in 30 podcast, began gambling as a child, initially buying lottery tickets. By university, Beau’s gambling escalated to online card games and sports betting, funded by easy access to credit cards. Eventually, he amassed $40,000 in gambling-related debts.

Beau chose a consumer proposal, reducing his debt significantly and fixing monthly payments at an affordable amount ($300 per month over 50 months). He credits the consumer proposal with giving him the financial stability to address his gambling triggers and rebuild his life and credit.

During his consumer proposal, Beau benefited significantly from credit counselling sessions. Our credit counsellors provided valuable financial education, helping him better understand how to manage money, rebuild his credit score responsibly, and recognize triggers for his gambling issues. Through counselling, Beau developed healthier financial habits, giving him the tools and confidence needed to maintain financial stability long after completing his proposal.

Is a Consumer Proposal Right for You?

A consumer proposal may be ideal if you want to:

• Keep your assets like your home and vehicle.

• Reduce the total amount owed without interest.

• Have fixed and manageable monthly payments.

• Rebuild your credit faster.

Licensed Insolvency Trustees can guide you through the consumer proposal process, clearly explaining every step and provide advice on how to get your finances back on track.

Where to Get Help in Ontario

At Hoyes Michalos, our Licensed Insolvency Trustees offer professional and empathetic advice, guiding you to the best debt relief solution tailored specifically for your needs. Hoyes Michalos has helped thousands of Canadians successfully eliminate their debt with a 99% proposal acceptance rate.

You’re not alone in your struggle with gambling debt.

Book Your Free, No-Obligation Consultation Today and reduce the financial impact of problem gambling.

The post How to Get Out of Gambling Debt in Canada appeared first on Hoyes, Michalos & Associates Inc..

You may still have equity, but if you don’t have the credit score or income to access it affordably, a second mortgage could make your situation worse. In these cases, a consumer proposal — even one where you repay 100% of what you owe — may be the better solution.

Using Home Equity to Pay Off Debt

There are three ways to use your home equity to pay off debt:

1. Refinance your existing mortgage. When you refinance to pay down consumer debt, you replace your current mortgage with a new mortgage with new terms. Your lender typically gives you a cash lump sum which you use to pay off your credit card debt. The maximum amount you can refinance with a first mortgage is 80% of the appraised value of your home.
2. Consolidate with a Home Equity Line of Credit. To avoid pre-payment penalties with changing the terms of your existing mortgage, you can consider consolidating debt with a home equity line of credit. A HELOC is a stand-alone line of credit secured against your home’s equity. The maximum loan-to-value ratio for a line of credit is 65% of your home’s value. This means you need much more equity in your home to qualify for a home equity line of credit.
3. Second Mortgage Home Equity Loan. If you can’t refinance with your current lender, another option is to get a second mortgage using your home’s equity. You can borrow up to 90% of the market value of your home with a second mortgage. However, if you are using a higher-ratio mortgage and because second mortgages sit behind the first mortgage lender when it comes to payout in the event of default, interest rates are much higher on second mortgages.

Can You Qualify for a Home Equity Loan?

Not everyone qualifies for a traditional home equity loan. Even if you have enough home equity, lenders typically look at factors like:

• Your credit score
• Your income stability
• Your debt-to-income ratio
• Whether you can pass the mortgage stress test

If you fall short in any of these areas, you may still be offered a loan — but often through a private lender with high interest rates and fees. High ratio second mortgages often come with much higher interest rates — sometimes between 10% and 29% — plus added fees. That extra cost can erase any benefit you were hoping for.

Whether you’re denied outright or the cost of borrowing is simply too high, a second mortgage isn’t always the best way to deal with debt. The solution can come from a discussion with a Licensed Insolvency Trustee. Specifically, we can help you look at a consumer proposal as a viable option.

What Is a 100% Consumer Proposal?

A consumer proposal is not a consolidation loan. It is a negotiated repayment plan with your creditors.

Through a consumer proposal, you may be able to make an interest-free offer to your creditors. While this often involves paying less than you owe, if you have sufficient equity, your creditors may require a 100% debt repayment through the proposal.

This isn’t a discount — but it can still be a better deal than a high-interest loan.

• You make a fixed monthly payment – no surprises or rate increases.
• You don’t need to borrow more money or deal with lender conditions.
• You keep your home and other assets.
• You don’t pay any interest.
• Collection calls and legal actions stop as soon as the proposal is filed.

Certain aggressive creditors, if they make up the majority of your debts, may also ask you to increase your proposal payments enough to cover government filing levies, credit counselling and trustee fees deducted before they receive any funds from your proposal.

How a Consumer Proposal Treats Home Equity

If you’re a homeowner, your equity matters — even in a consumer proposal. While a proposal doesn’t require you to sell your home, your creditors will expect to be repaid at least as much as they would receive in a bankruptcy, where your share of home equity could be used to repay debts.

Here’s how it works:

• You don’t lose your home in a proposal — you keep it, just like in a refinancing.
• But creditors still consider your available equity when reviewing your offer.
• If you have more equity than debt, your creditors will likely expect a 100% repayment proposal — meaning you repay the full amount you owe (but still interest-free).

This is a fair compromise: you protect your home, avoid high-cost borrowing, and eliminate your debt without interest or new loans.

Let’s look at an example:

Jonas owes $50,000 in credit cards, payday loans, and tax debt. He has about $65,000 in home equity but a poor credit score, so he doesn’t qualify for a second mortgage with a bank. A private lender offers him a second mortgage at 14% interest — which would cost him over $900/month and $17,000+ in interest.

Instead, Jonas files a 100% consumer proposal: $50,000 paid over 60 months, at $835/month — no interest. It’s the same principal, but he saves thousands in interest and avoids putting his home at risk.

Why Would I Pay 100% If I Can’t Get a Loan?

It may seem strange to repay 100% of your debt through a consumer proposal if you’re already struggling. But even without a discount, a proposal can still be the smarter and safer option compared to borrowing through a high-interest second mortgage.

Here’s why:

• No new loan. You’re not taking on more debt or dealing with lender fees and loan conditions.
• No interest charges. Every dollar you pay goes directly toward your debt — not toward servicing interest.
• Fixed monthly payments. Your payments stay the same throughout the proposal, with no surprise increases.
• Legal protection from creditors. As soon as your proposal is filed, collection calls stop and wage garnishments are halted.

Even in a 100% repayment scenario, you’re paying off debt on your terms, not theirs — and keeping your home out of the equation.

When to Consider Each Option

A Second Mortgage May Be Better If:

• You qualify for a low interest rate through a bank or credit union
• You have enough equity to pay off all your unsecured debt
• You’re confident you can afford your mortgage payments over the long term
• You don’t want the credit impact of a proposal

A Consumer Proposal May Be Better If:

• You need lower payments to make your budget work
• You want to stop collection calls or wage garnishments
• You can’t access your equity (either your loan was denied or it’s co-owned and you can’t refinance)
• You’ve been offered high-interest borrowing from a subprime lender
• You want a fixed, interest-free path to being debt free
• You don’t want to risk losing your home if your situation worsens

Final Thoughts

Both a second mortgage and a consumer proposal can help you consolidate debt — but they carry very different risks and long-term consequences. A proposal isn’t just for people who owe more than their home is worth. Even if you repay 100% of what you owe, it can be a way to leverage your home equity for debt relief when traditional mortgage options fail.

A Licensed Insolvency Trustee can walk you through both choices and help you decide what’s best based on your income, equity, and goals. We’ll never push you into one option or the other. Our job is to help you make the decision that fits your financial situation. Contact us today for a  no pressure, no judgment, free consultation.

The post Second Mortgage Home Equity Loan or Interest-Free Consumer Proposal? appeared first on Hoyes, Michalos & Associates Inc..

In this article, I’ll explain how second mortgage debt consolidation works, when it makes sense, and when it might lead to more financial stress.

What is A Second Mortgage?

A second mortgage is a loan secured against your home, behind your existing first mortgage. It can give you a lump sum of money that you can use to pay off credit card debt, payday loans, or unpaid bills. Unlike a home equity line of credit (HELOC), a second mortgage has a fixed term or amortization period and regular monthly payments. Because the lender takes on more risk, second mortgage rates are usually higher than first mortgage rates.

A second mortgage is different from refinancing your existing mortgage. With a second mortgage, you don’t have to break your first mortgage — which can save you money on prepayment penalties and legal fees. However, second mortgages usually come with higher interest rates than refinancing your existing mortgage, especially if your credit isn’t strong. The savings from avoiding penalties may be offset by the cost of borrowing at a higher rate.

Can You Consolidate Debt With a Second Mortgage?

Yes. If you have enough equity in your home, a second mortgage can allow you to pay off multiple high-interest debts and roll them into one lower monthly payment.

The amount of home equity you have determines how much you can borrow with a second mortgage. A second mortgage can allow you to access up to 90% of your home value for a debt consolidation mortgage.

Is Getting a Second Mortgage to Pay Off Debt a Good Idea?

While borrowing to pay down debt through a second mortgage can be risky, it can work well if:

• You have sufficient available equity to cover the amount you are asking to borrow.
• You have a solid employment history, stable income and acceptable debt-to-income ratio, generally below 43%, including any new financing.
• Your credit score is decent (typically in the low to mid- 600’s depending on the lender).
• You can afford your new mortgage payments.

The Risks of Using a Second Mortgage to Consolidate Debt

Using a second mortgage for debt consolidation isn’t always the right solution — even if you technically qualify. If the cost or risk outweighs the benefit, it may do more harm than good in the long run.

Here are some reasons why a second mortgage might not be the right choice for debt consolidation:

1. You risk your home: When you consolidate unsecured credit card debt into a second mortgage you convert unsecured debt into secured debt. If you miss payments, there is a risk your lender will take your house through a foreclosure or power of sale proceeding.
2. You may not actually save money: Second mortgages charge a higher interest rate than a first mortgage. If you get a mortgage with bad credit, this rate can be very high. I have seen people take on a second and even third mortgage with a rate of 29% or more. If your mortgage rate is high because you are a high credit risk, there may not be enough savings to make a long-term difference in your ability to get out of debt.
3. You can’t borrow enough: If you don’t have sufficient equity in your home to repay all your outstanding credit card debt (or whatever debts you want to put in your consolidation loan), then this is a non-starter. It generally does not make sense to consolidate some but not all your debts.
4. Financial conditions can change: A second mortgage can be a risky way to consolidate if it doesn’t help your long-term financial goals. If interest rates rise, or the housing market crashes and the market value of your home declines, or you lose your job, your financial situation may become even worse.
5. You may not solve the root problem – If your debt was caused by income loss or overspending, a second mortgage won’t fix the issue. Without budgeting changes, you could end up deeper in debt.

Should You Talk To Alternative or Subprime Lenders?

If you don’t qualify for a second mortgage through a bank or credit union, you might be tempted to turn to an alternate or “B” lender. These lenders are easier to qualify with but often charge much higher interest rates — sometimes between 10% and 29% — plus fees.

If a traditional lender turns you down for a second mortgage, they are doing so because they believe the risk of lending you more money is too high. They are concerned about your ability to make your future mortgage payments.

Your primary mortgage lender will often give you a reason why you are being denied a debt consolidation loan through your mortgage. It could be because you do not have enough equity to pay off your debt or because they are not convinced your income will be enough to make the payments, even if you have the equity.

Before accepting an offer from a subprime lender, it’s wise to explore all your options, including an interest-free consumer proposal.

When Not to Use a Second Mortgage

There are four situations when you should not get a second mortgage to pay off debt:

1. You have some equity in your house, but you can’t borrow enough to pay off all unsecured debts.
2. You don’t have the income or credit to qualify for a second mortgage.
3. The interest rate is so high you won’t be able to afford the monthly mortgage payment.
4. You are using a second mortgage to cover monthly expenses because your budget is not balanced, and consolidating other debt into a second mortgage won’t solve that.

There are inherent risks with a second mortgage, even if you qualify and can afford the payment today. Although you can get rid of credit card payments and overdue bill payments with a second mortgage, you now have two mortgages to pay. Stress test your decision based on what may happen in the future.

What If You Don’t Qualify For A Second Mortgage?

If you don’t qualify for a second mortgage or the payments are too high, you have other options. A consumer proposal is one alternative that allows you to consolidate your debts into one affordable, interest-free payment — without putting your home at risk.

A consumer proposal allows you to stay in your house and make a repayment plan with your creditors to pay back what you owe over up to five years.

There’s no interest on consumer proposal payments, unlike a second mortgage that could carry a higher interest rate, which means all your payments go towards paying down the principal of your debt.

How much of a debt settlement you may be able to offer, if any, depends on your income and home equity. It is possible to file a 100% consumer proposal instead of creating another mortgage to pay.

Where to Seek Advice

A second mortgage can be a useful tool for debt consolidation, but it’s not without risk. If you have high consumer debt balances and own a home with positive equity, I generally recommend talking with a mortgage broker first to see how expensive a second mortgage may be. If you don’t qualify or can’t afford the payments, it’s time to speak with a Licensed Insolvency Trustee about the benefits of filing a consumer proposal instead.

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Is Bankruptcy Private in Canada?

Your initial debt consultation with a trustee in bankruptcy is between you and your Licensed Insolvency Trustee (LIT). This confidential, one-on-one, meeting is designed to review your debt relief options.

If you decide to file, both a consumer proposal and bankruptcy are a legal process, and like most legal proceedings, they become part of the public record.

While bankruptcies are part of the public record in Canada, that doesn’t mean your filing is broadcast online or published in the newspaper. In reality, only the people who need to know are notified. For everyone else, finding out takes time, effort, and usually a fee.

Who Is Legally Notified When You File for Bankruptcy?

From a practical point of view, only those who need to know will be informed that you filed insolvency:

• your bankruptcy or proposal documents are electronically filed with the federal government through the Office of the Superintendent of Bankruptcy. This is the official start of the process.
• creditors will be notified so they can file a claim in your bankruptcy or vote in your proposal;
• if your dealing with collections, a notice will also be sent to the collection agency. This is for your benefit as it will also stop further collection calls.
• The Canada Revenue Agency is notified as there are tax returns to be filed as part of the process;
• the government sends a notice that you filed insolvency to the credit bureaus;
• the only time your employer will be notified is if you ask to have a wage garnishment stopped as part of the bankruptcy process.

Does Bankruptcy Show Up On Your Credit Report?

Once you file a bankruptcy or proposal, the OSB updates a federal database and sends information to the two major credit bureaus in Canada: Equifax and TransUnion.

The information includes:

• Whether you filed a bankruptcy or consumer proposal
• The filing date and the Licensed Insolvency Trustee handling your file
• The date of your discharge (for bankruptcy) or completion (for a proposal), once finalized

This information creates a record on your credit report that affects your credit score. However, it does not include specific details like how much debt you had, or a list of creditors – that’s information that is already present on your credit report as reported by your creditors.

How long does this notice stay on your credit report?

• Bankruptcy remains for 6 years after discharge for a first bankruptcy, and 14 years for any subsequent bankruptcies.
• A consumer proposal stays on your report for 3 years after completion or 6 years from the filing date, whichever comes first.

Keep in mind: only those with a legitimate reason, like lenders or landlords you’ve given permission to, can access your credit report.

Will My Employer Be Notified?

In most cases, your employer will not be notified that you filed for bankruptcy.

The only exception is if you have a wage garnishment that you want stopped.  In this case, your LIT will contact your employer’s payroll department to stop the deductions. Otherwise, there’s no reason your employer would know.

Will My Family or Friends Know?

Not unless you tell them.

Contrary to a popular bankruptcy myth, in personal insolvency cases, a notice does not appear in the newspaper signifying that you filed insolvency. This can be the case for business bankruptcies or if the value of your assets (excluding secured assets) will exceed $15,000, but this does not happen in most individual bankruptcies. A consumer proposal is never reported in the newspaper.

Unless someone is specifically looking for this information, they’re very unlikely to find out.

Can Someone Search for My Bankruptcy Records?

Technically yes, but practically, unlikely.

If someone wants to see if you filed insolvency, they must do a bankruptcy search through the Bankruptcy and Insolvency Records. 

They would have to:

1. Create an account with the Office of the Superintendent of Bankruptcy,
2. Pay a fee (currently $8 per search), and
3. Know your full name and likely your birthdate or city of residence.

Even then, the information they receive from the insolvency records is limited to basic details like total debt, total assets, and filing date.

Take the First Step—Privately and Confidently

If you are considering bankruptcy, you should consider both the pro and cons of bankruptcy. Bankruptcy offers:

• The elimination of most unsecured debts
• Protection from creditors
• A clear path to rebuilding your credit

Bankruptcy was designed to be a fresh start. Over 100,000 Canadians file for insolvency every year. You are not alone, and there is absolutely no shame in getting help.

At Hoyes Michalos, we understand how stressful financial problems can be. That’s why we offer free, no-obligation consultations with a Licensed Insolvency Trustee with no pressure and no judgment.

If you’re worried about who will know, we can explain exactly what to expect and help you make an informed decision that fits your situation.

Book your free , confidential consultation today and start your path to becoming debt free.

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Purpose and Scope of The BIA

The primary purpose of the Bankruptcy and Insolvency Act is to:

• Provide individuals who genuinely can’t pay their debts an opportunity for a fresh start.
• Ensure creditors are treated fairly by providing an organized way to collect outstanding debts.

The law helps strike a balance between protecting the rights of people who are overwhelmed by debt and ensuring creditors can fairly recover some of the money owed to them.

The BIA covers:

• Individuals facing personal financial hardship who are unable to repay their debts, offering solutions like personal bankruptcy and consumer proposals.
• Businesses that are experiencing financial difficulties and need structured methods, such as bankruptcy or business proposals, to either close operations or reorganize debts.

Insolvency Proceedings Available Under the BIA

There are 4 possible insolvency proceedings individuals or businesses can choose to deal with their debt.

1. Personal Bankruptcy: Personal bankruptcy is a legal process that eliminates eligible debts that were in place when the bankruptcy was filed. In exchange for the elimination of their debts, the bankrupt surrenders certain assets and, depending on their income, may make additional surplus income payments.

2. Consumer Proposal: A consumer proposal allows debtors to offer to repay creditors a percentage of what is owed through a structured payment plan.

3. Division I Proposal: Division I Proposals are typically used by individuals and businesses with higher debt levels (generally over $250,000) or more complex financial situations.

4. Business Bankruptcy: Provides structured liquidation of assets of a corporation to fairly repay creditors when reorganization isn’t feasible.

Companies Creditors Arrangement Act (CCAA) is another piece of federal legislation that enables financially troubled businesses to restructure themselves. In a CCAA restructuring, the debtor company remains in possession of its property and continues to conduct its business.

Roles Under the BIA (Stakeholders)

The BIA defines the roles and responsibilities of various stakeholders, including:

The Debtor: Someone who owes money to a creditor. In a bankruptcy, the debtor is known as insolvent since their liabilities exceed their assets and they don’t have the ability to pay their debts. The debtor files an assignment in bankruptcy or makes a proposal to their creditors.

The Bankrupt: When an insolvent individual files for bankruptcy, they are known as a bankrupt. A bankrupt person must make a full disclosure of all of their assets and debts to the LIT, inform the LIT of any property that was disposed of in the past few years; and give up all credit cards to the LIT.

The Creditors: People that the debtor owes money, goods, or services to. There are 3 types of creditors – secured creditors, preferred, and unsecured. Secured debts are not included in a bankruptcy or consumer proposal.

The Licensed Insolvency Trustee (LIT): Federally licensed professionals who administer bankruptcies and proposals, ensuring compliance and fairness.

Office of the Superintendent of Bankruptcy (OSB): Oversees the administration of the BIA, licenses trustees, and maintains public records of insolvency filings.

Courts: Oversees bankruptcy proceedings, handles disputes, approving proposals, and issues court order and discharge orders.

General Rules and Guidelines in the BIA

The BIA, and related bankruptcy rules and guidelines, outline the rights and responsibilities of debtors and creditors:

Treatment of Assets: A bankrupt must surrender assets owned at the time of bankruptcy for the benefit of creditors. The trustee proceeds to liquidate the property and distribute the proceeds to the creditors in accordance with the distribution priorities prescribed under the BIA.

Federal and provincial law outline which assets are exempt from seizure during a bankruptcy (e.g., personal belongings, certain home equity, retirement savings).

Surplus Income Rules: If your monthly income exceeds a government set surplus income limit determined by your household size, you may need to make additional payments to your creditors. Surplus income payments also extend the length of your bankruptcy.

Stay of Proceedings: When bankruptcy or a consumer proposal is filed, creditors must immediately stop collection activities, lawsuits, and wage garnishments. This legal protection is called a “stay of proceedings.”

Creditor Rights: Creditors have the right to be informed, participate in creditor meetings, vote on proposals, and receive their fair share of any available funds distributed through the bankruptcy or consumer proposal.

Duties of the Debtor: As a debtor, you must cooperate fully, honestly disclose all financial information, attend required financial counselling sessions, and comply with your trustee’s instructions during the bankruptcy or proposal process.

Important Procedural Items

The Act also sets out various procedural items in the administration of an insolvency proceeding:

Meetings: Meetings of creditors may be held and inspectors appointed. If a meeting is called, the bankrupt is required to attend. The job of an inspector is to examine and give direction to the LIT’s administration of the estate of the bankrupt.

Examination of Bankrupt: In certain situations, a bankrupt may be required to undergo an examination. This typically occurs if creditors, the trustee, or the Office of the Superintendent of Bankruptcy (OSB) have concerns or questions about the bankrupt’s financial affairs, property, or conduct.

Certificate of Discharge or Discharge Order: Once the bankruptcy procedure is completed (usually after nine months) the bankrupt will, in most cases, receive a Certificate of Discharge, which means all of the bankrupt’s debts, with certain exceptions, are wiped out. If a bankrupt is not eligible for automatic discharge, the bankrupt can receive an Absolute Order of Discharge issued by the court once all duties are completed. In a consumer proposal this is called a Certificate of Full Performance.

Proof of Claim: Each creditor must file a proof of claim with the trustee confirming how much debt is owing. It allows creditors to participate in the proceedings including filing a vote in a consumer proposal and receive any payments they’re entitled to from the debtor’s estate.

Voting: When you file a consumer proposal or a Division I proposal, your creditors have the right to vote on whether to accept or reject your offer. Each creditor votes based on the dollar value of the debt you owe them. Once accepted by the majority (over 50%), the proposal is binding on all creditors.

List of Key Bankruptcy Offences

The Bankruptcy and Insolvency Act lists several important offences:

Fraudulent Disposal or Concealment of Property: Hiding, selling, or transferring assets before or during bankruptcy to prevent creditors from benefiting.

Falsifying or Omitting Information: Providing false information, omitting debts, or assets intentionally when filing bankruptcy documents or when answering questions from your trustee or creditors.

Failure to Comply with Duties: Not attending required meetings, counselling sessions, or failing to provide requested financial information to your trustee.

Obtaining Credit Fraudulently: Obtaining credit without disclosing that you are bankrupt or providing misleading information to obtain credit during your bankruptcy.

Refusing or Neglecting to Answer Questions: Refusing to answer or deliberately misleading during examinations or trustee inquiries.

Committing these offences can lead to delays in your bankruptcy discharge, court-imposed penalties or conditions, and possible fines or even criminal charges depending on the severity.

Find a Licensed Insolvency Trustee

Hoyes, Michalos & Associates Inc. is an Ontario Licensed Insolvency Trustee with many years of experience. We appreciate that learning about all the aspects of the BIA can seem a bit overwhelming, but we are here to help you. if you are experiencing financial difficulties and are unable to pay your debts, contact us for a consultation on the debt relief options available to you.

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Understanding these rules will clarify what to expect and help you take the right steps toward financial relief.

Here are the top 6 bankruptcy rules you should know:

1. Bankruptcy Discharge Timelines and Surplus Income Payments

When filing for bankruptcy, debtors must contribute a portion of of their income over a set government threshold into their bankruptcy estate. Each month during your bankruptcy, you must report all household income to your Licensed Insolvency Trustee (LIT) so they can calculate this surplus income.

The calculation involves comparing your household’s total monthly income to a standard based on family size. If your income exceeds this threshold, you must pay 50% of this surplus to your LIT for the benefit of your creditors. These surplus income payments continue throughout your bankruptcy period,

Surplus income also extends how long your bankruptcy lasts:

• First-time bankruptcy: Typically lasts 9 months, extended to 21 months with surplus income.
• Second bankruptcy: Lasts 24 months, extended to 36 months with surplus income.

2. Exempt Assets in Bankruptcy

When you file bankruptcy you must surrender certain assets to your LIT however you don’t lose everything. Certain assets are exempt from seizure, meaning you can keep them, including:

• Personal items, household furnishings, tools required for your job (within provincial limits).
• Most RRSP contributions (except those made within the last 12 months).
• Vehicle equity, up to provincial exemption limits ($7,117 in Ontario)
• Home equity, subject to provincial exemptions (up to $10,783 in Ontario)

You must also disclose any assets you’ve sold, transferred, or given away prior to filing bankruptcy. Your Licensed Insolvency Trustee may review transactions from the past 1-5 years, and any sales below fair market value or transfers intended to hide assets can be reversed by the court.

3. Tax Refunds and Bankruptcy

During bankruptcy, tax refunds for the years up to and including the year you file bankruptcy become part of your bankruptcy estate. Future refunds from years after your filing date are yours to keep.

4. Dischargeable vs Non-dischargeable Debts

Bankruptcy eliminates most unsecured debts.

Dischargeable debts (eliminated in bankruptcy):

• Credit cards and lines of credit
• Personal loans and payday loans
• Income tax debt and HST/GST debt
• Student loans if you’ve been out of school more than 7 year)
• Outstanding bill payments
• Most civil judgments

Certain debts are not discharged in a bankruptcy meaning you’ll still owe them after bankruptcy including child support and alimony, court fines and penalties, and debts obtained by fraud.

Can creditors continue to collect after bankruptcy is filed? No. Filing bankruptcy initiates an automatic stay of proceedings, preventing creditors from continuing or initiating legal actions, wage garnishments, or collections.

5. Secured Debts in Bankruptcy (Your Car and Home)

Secured debts (mortgages, car loans) are not included in bankruptcy. A secured creditor cannot terminate your loan simply because you filed for bankruptcy.

You can keep those assets during bankruptcy as long as you remain current on your payments. However, if you have significant equity in these assets beyond any provincial exemption limits, your trustee will need to realize this equity for creditors.

For example, if your home has $50,000 in equity and your province only exempts $10,000, you might need to pay the trustee $40,000 to keep your home—or it could be sold.

A consumer proposal offers an alternative that allows you to keep all your assets regardless of equity, while still reducing your unsecured debts. This makes proposals an attractive option for homeowners or those with valuable vehicles who want debt relief without risking their assets.

6. Bankruptcy Duties You Must Fulfill

When filing bankruptcy, you must complete specific duties to receive your discharge. These include:

• Attending two financial counselling sessions
• Providing monthly income reports and proof of income to your Trustee
• Attending any required meetings of creditors (if called)
• Surrendering all credit cards to your LIT
• Disclosing all assets and debts honestly
• Informing your Trustee of any material change in your circumstances

Failure to complete these duties can result in an opposed discharge, extending your bankruptcy or requiring additional conditions before you’re released from your debts.

Need Personalized Bankruptcy Advice?

Bankruptcy in Canada is a legal process with rules that balance relief for honest debtors with fair treatment of creditors. To file bankruptcy in Canada you must work with a Licensed Insolvency Trustee who will explain how these rules impact your personal financial situation.

As Licensed Insolvency Trustees, we will explain how these rules apply to your situation and whether alternatives like a consumer proposal might better suit your needs.

Take the first step toward financial freedom. Contact us today for a free, confidential consultation.

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