Can Bankruptcy Erase a Judgment in Ontario?

People searching "can bankruptcy erase a judgment Ontario" are usually dealing with a court order they cannot easily pay, often after a collision where no insurance was in place. This guide explains what the statutes say. It is general information only. It does not tell anyone whether bankruptcy is right for them.

Can bankruptcy erase a court judgment in Ontario?

The starting rule is broad. Once discharged, a bankrupt is generally freed from every claim that can be proved in the bankruptcy, "subject to" the exceptions listed in section 178(1) (the release itself is in section 178(2)) of the Bankruptcy and Insolvency Act (BIA). Section 121 deems debts and liabilities existing on the day of bankruptcy, or arising before discharge from earlier obligations, to be provable claims. An unpaid money judgment is generally the kind of debt that section describes, though each case turns on its facts.

So the real question is rarely "can a judgment be included?" It is "does an exception apply?" That depends on the type of debt, and on what the court actually decided.

Which debts does a bankruptcy discharge not release?

Section 178(1) lists debts that survive a discharge. In summary:

Note the wording of the damages category: it refers to bodily harm "intentionally inflicted" and to sexual assault. The paragraph does not, on its face, mention injury caused by carelessness. Whether a particular judgment falls inside or outside the list turns on the court's findings and the wording of the judgment, so it should be confirmed with a lawyer rather than assumed either way.

What about the driver's licence suspension?

For Ontario judgments for injury, death or property damage caused by a motor vehicle, the Highway Traffic Act (section 198) provides for licence suspension when a final judgment goes unsatisfied for fifteen days after it becomes final, once the Registrar has given notice. The suspension continues until the judgment is paid or discharged, with the Insurance Act minimum limits as the measure, and the text excludes "a discharge in bankruptcy" from the ways it can end. On the wording of the section, a bankruptcy discharge is not one of the listed ways for the suspension to end, but how the two statutes interact in a particular case should be confirmed with a lawyer or licensed insolvency trustee. The section has its own exceptions, including one for people indebted to the Motor Vehicle Accident Claims Fund and a court process for paying in instalments (subsections 198(2) and (3)). Our guide on judgment enforcement and licence suspension walks through the section.

What happens to collection when someone files?

The BIA contains "stay" provisions. On the bankruptcy of a debtor, creditors generally cannot start or continue actions, executions or other proceedings to recover a claim provable in bankruptcy (section 69.3). That stay ends for a creditor on the day the trustee is discharged. A similar stay applies after a consumer proposal is filed and lasts until the proposal is withdrawn, refused or annulled, or the administrator is discharged (section 69.2). Both sections contain exceptions, including for secured creditors in the case of bankruptcy (section 69.3(2)), so what happens to a particular garnishment or writ is a question for a trustee or lawyer.

What is a consumer proposal?

A consumer proposal is an offer to creditors, made through an administrator, as an alternative to bankruptcy. In outline:

1. The person must be a "consumer debtor": an insolvent or bankrupt individual with total debts of no more than $250,000 (or another prescribed amount), not counting debts secured by the principal residence (section 66.11). Confirm the current figure.
2. The proposal is made to creditors generally, and it must provide for performance to be completed within five years (section 66.12).
3. If no obligation to call a creditors' meeting has arisen by the end of the 45 days after filing, the proposal is deemed accepted (section 66.18). A meeting must be called if the official receiver directs it or if creditors representing at least a quarter of the value of proven claims request one (section 66.15); at a meeting, creditors accept or refuse the proposal by ordinary resolution (section 66.19).
4. An accepted (or deemed accepted) and court-approved (or deemed approved) proposal binds creditors on all unsecured claims, and on secured claims where a proof of claim was filed (section 66.28).

An "administrator" means a trustee, or a person the Superintendent appoints or designates for consumer proposals (section 66.11).

Importantly, the BIA also says an approved proposal does not release a debt of the types listed in section 178(1) unless the proposal explicitly compromises it and that creditor voted for acceptance (section 66.28(2.1)). The same list of exceptions therefore matters for proposals.

How long is a judgment good for in Ontario?

Section 16 of the Limitations Act, 2002 provides that a court order can be enforced with no limitation deadline. Some features of the enforcement tools still have time limits:

Because interest runs from the date of the order, the amount owing later can be higher than the original award. A creditor's figures can be checked against the order. For judgments obtained without a defence being filed, see the guide on default judgments and setting them aside.

Does a writ affect property after a long time?

Under the Execution Act, a writ of execution against personal property binds it from the time the writ is filed with the sheriff and entered in the index, and a writ against land generally binds it from the effective date noted in the index (section 10). Small Claims Court writs of seizure and sale of personal property are treated differently under that section. Since a writ is renewable, a long-standing writ may still be on the index. Whether a particular property is affected is a question for a lawyer who can search the index and the title.

When it is worth talking to a lawyer or insolvency trustee

Professional advice is typically sought when:

• a judgment is unpaid and the person is weighing bankruptcy, a consumer proposal or neither;
• it is unclear whether the judgment falls within a section 178(1) exception;
• a licence suspension notice, garnishment, writ or examination notice has arrived;
• the judgment is old and the person is unsure whether it can still be enforced;
• a creditor's calculation of principal, interest or costs seems wrong.

A licensed insolvency trustee can advise on bankruptcy and proposals. A lawyer can advise on how the judgment was framed and on the court process.

What to gather

• The judgment, reasons for decision and any later orders
• The statement of claim and the defence, if one was filed
• A list of all debts with creditors' names and amounts
• Recent income, expense and asset information
• Any garnishment notices, writs or letters about licence suspension