Considering filing bankruptcy or a consumer proposal in Canada? These are powerful legal debt relief solutions that can help you erase debt and rebuild your financial future. But before you move forward, it’s crucial to understand what not to do before filing – because certain actions can delay your filing or even disqualify you from debt relief. At Spergel, we’ve helped over 100,000 Canadians get the fresh start they deserve. Based on our extensive experience and expertise, here are the most important things to avoid before filing.
What not to do before filing bankruptcy or a consumer proposal
Before you file, it’s important to avoid certain actions that could complicate or even derail your debt relief process. Here are the most common mistakes to watch out for.
1. Don’t take out new loans or credit cards
Borrowing more money – even just for “breathing room” – is one of the biggest mistakes you can make. Taking on new debt right before filing can be viewed as acting in bad faith and could fundamentally impact your ability to proceed.
2. Don’t make large or unusual purchases
Spending on furniture, electronics, or vacations just before filing can raise serious questions about your intent. These purchases may be scrutinized during your bankruptcy or consumer proposal review.
3. Don’t hide income or assets
You are legally required to disclose all of your income, property, and financial accounts when filing. Attempting to hide anything can result in your filing being denied or overturned – and could have legal consequences.
4. Don’t transfer property to friends or family
Giving away your car, home, or savings to someone else before filing is considered a transfer of assets and may be reversed. These moves can delay your filing or cause additional issues with your Licensed Insolvency Trustee (LIT).
5. Don’t make preferential payments
Paying back a friend, family member, or specific creditor ahead of others – even with good intentions – is called a preferential payment. It’s not allowed under Canadian insolvency law, and these payments can be undone by the court.
6. Don’t stop paying essential bills
Unless your LIT advises otherwise, you should continue to pay rent, utilities, and other basic expenses. Bankruptcy or a consumer proposal doesn’t automatically cancel every payment obligation.
“I didn’t think it would matter, but a few days before my signing appointment, I took out a $5,000 loan to help with rent and groceries. I was just trying to stay afloat, but when I told my Licensed Insolvency Trustee, they had to reassess my entire file. The loan raised red flags and delayed the process. I wish I had known not to do that — it made a tough time even harder.” – Amanda R., Former Client, Toronto
Why these mistakes matter
Filing bankruptcy or a consumer proposal is a legal process governed by the Bankruptcy and Insolvency Act of Canada. The courts and Licensed Insolvency Trustees are required to ensure fairness – and actions taken before filing are part of that review.
Mistakes like taking out loans, hiding money, or making large purchases can:
- Be viewed as dishonest or misleading
- Delay your filing
- Result in your application being denied
- Make your creditors less likely to accept a proposal
- Create legal issues down the line
A $13K mistake that stopped debt relief cold
We were working with someone ready to file a consumer proposal. The paperwork was nearly complete. Then – without consulting their LIT – they took out a $13,000 loan so they could have some “fun money” before the filing took effect.
That single decision disqualified them from moving forward. We had to pause the process, reassess their financial position, and delay their debt relief.
The takeaway? Don’t make any major financial decisions before speaking with a Licensed Insolvency Trustee.
What to do instead
If you’re considering bankruptcy or a consumer proposal, the best thing you can do is slow down and get expert guidance. Here’s what you should do to set yourself up for a smooth, successful path to debt relief.
- Talk to a Licensed Insolvency Trustee first
Only a LIT is authorized to file a consumer proposal or bankruptcy in Canada. They’ll guide you through your options and help you avoid costly mistakes. - Be honest and transparent
Even if your situation is complicated or embarrassing, full disclosure protects you. LITs are here to help – not judge. - Ask questions before making financial moves
Thinking of selling your car? Wondering whether to make a big payment? Ask your LIT first. A quick check-in can save you from serious consequences.
Take the right first step
Making the decision to file for bankruptcy or a consumer proposal takes courage. But that courage can only help you if you take the right steps – and avoid the wrong ones. At Spergel, our experienced Licensed Insolvency Trustees work with you one-on-one to make sure your debt relief plan is done right, from day one.
Book your free consultation today
We’re here to help you move forward – no judgment, no pressure. Book your FREE, no-obligation consultation with one of our experienced Licensed Insolvency Trustees today.
