How to Cash a Check During Bankruptcy in Canada

Cashing a check during bankruptcy or a proposal in Canada requires consulting a Licensed Insolvency Trustee and strictly following legal procedures to avoid potential dismissal of your case or criminal charges.

If you are going through bankruptcy or a proposal in Canada, cashing a check can be a complex proceudre. You need to be very careful because there are strict rules about how you can use your money during this time. The Bankruptcy and Insolvency Act (BIA) has protections in place to make sure your creditors get paid properly. If you cash a check the wrong way, it could cause some serious problems like getting your bankruptcy case dismissed or even facing criminal charges for bankruptcy fraud.

Managing personal finances during bankruptcy or a proposal under the Bankruptcy and Insolvency Act (BIA) can be complex and delicate. These legal proceedings offer relief from overwhelming debt, they also they also have strict rules about how you can handle your assets and income.

If you go through bankruptcy, any assets you have that aren’t exempt get sold off to pay back your creditors. This provides debt relief, but you could lose assets that aren’t protected.

Bankruptcy seriously impacts your personal finances. You have to be really careful about managing your assets and income during these proceedings.

There are a lot of misconceptions about cashing checks during this time. Some people think it keeps the money separate from the bankruptcy estate. Others don’t understand the different rules for income received before filing versus after.  

However, there are several misconceptions surrounding this issue, such as the belief that cashing a check may keep the funds separate from the bankruptcy estate or a misunderstanding of how the BIA treats income received before and after filing.

Potential Problems with Cashing a Check during Bankruptcy

Cashing a check (Improperly) during bankruptcy can lead to potential problems and legal consequences including:

  1. Legal consequences due to violating the rules.
  2. The Bankruptcy and Insolvency Act has automatic stay protections to prevent unauthorized asset transfers or payments after filing.
  3. It’s crucial to differentiate between income received before filing (pre-filing) and after filing (post-filing), as they are treated differently under the law.
  4. Improperly cashing checks can lead to severe consequences.
  5. Your bankruptcy case could be dismissed.
  6. You may be denied a discharge from bankruptcy.
  7. You could face criminal charges for bankruptcy fraud.
  8. If unauthorized check cashing is discovered, the Licensed Insolvency Trustee (LIT) overseeing your case can take legal action against you.
  9. Consequences of bankruptcy fraud include case dismissal, denial of discharge, or criminal charges.
  10. These consequences can have severe and long-lasting impacts.

Important Considerations before Cashing a Check

Here are important considerations to take in account before cashing a check during bankruptcy:

  1. Non-exempt assets and post-filing income are treated differently and have specific rules.
  2. Pre-filing checks or income must be reported to the Licensed Insolvency Trustee (LIT) as part of the bankruptcy estate.
  3. Understand what qualifies as “essential needs” and the allowable limits for spending post-filing income.
  4. Some exemptions may allow protection of a portion of cash or the value of the check.
  5. Calculate the exempt portion of the check based on relevant federal and provincial exemption figures and asset values.
  6. Consider consequences of cashing the exempt portion versus the non-exempt portion of the check.


Bankruptcy Exemptions by Province

Here are bankruptcy exemptions by province in Canada:

ProvinceExempt CashOther Exemptions
All ProvincesUp to a reasonable amount for essential needs (consult LIT)Tools of Trade, Medical Aids
Newfoundland & LabradorUp to $4,000Farming exemptions
Nova ScotiaN/ARRSP/RDSP (clawback applies)
New BrunswickN/ACertain pensions (clawback applies)
Prince Edward IslandN/ARRSP (defined beneficiary condition)
QuebecN/ARRSP/RDSP (clawback applies)
OntarioN/ARRSP (defined beneficiary condition)
ManitobaN/AReligious articles & furniture
SaskatchewanExemptRRSP/RDSP/Pensions (restrictions apply)
AlbertaUp to $4,000RRSP/RIF/RESP/RDSP/Life insurance (restrictions apply)
British ColumbiaN/ARRSP/RDSP (except 12 months’ contributions)

Handling complex legal requirements of asset management during bankruptcy or proposal proceedings can be a complex process. It is highly recommended to consult with a Licensed Insolvency Trustee to ensure proper handling of checks and avoid potential legal pitfalls.

Pre-Steps to Take for Cashing a Check During Bankruptcy

Before trying to cash any check when you’re going through bankruptcy, you absolutely must take these steps to follow the BIA regulations and avoid potential legal issues:

  1. Consult with a Licensed Insolvency Trustee (LIT) to get personalized legal advice.
  2. Ensure you comply with the Bankruptcy and Insolvency Act regulations by following the LIT’s guidance.
  3. Avoid potential legal pitfalls by discussing your situation with the LIT.
  4. Let the LIT guide you on the specific procedures and implications of cashing a check in your unique circumstances.
  5. Be transparent and fully disclose your financial transactions with the LIT.
  6. Tell the LIT upfront that you plan to cash a specific check.
  7. Provide the LIT with all relevant details about the check.
  8. If needed, get permission from the LIT before cashing the check.
  9. Discuss with the LIT how cashing the check could impact your bankruptcy or proposal estate.
  10. Understand and comply with all the rules around cashing checks during bankruptcy or proposal proceedings as per the LIT’s instructions.

Procedure to Cash Cheque During Bankruptcy

Here is the detailed procedure to follow to attempt to cash a check during bankruptcy:

1.    Identify Type of Check and Its Origin

It’s essential to distinguish between checks received before filing for bankruptcy or making a proposal (pre-filing) and those received after filing (post-filing). Examples of pre-filing checks include payments for work done before the legal proceedings began, while post-filing checks may be for work performed after filing. The treatment and reporting requirements differ based on the check’s origin.

2.    Apply for Federal and Provincial Exemptions

Both the federal government and the provinces in Canada have laws that allow you to keep certain assets and money during bankruptcy or a proposal. These are called exemptions. When it’s a check you receive, you can use these exemption laws to protect some or all of the money from being taken away.

You need to look at exemption amounts for both the federal and provincial laws that apply to you. Calculate how much of the check amount is exempt based on these laws. The exempt part, you may be able to cash and use. But the non-exempt part may need to go towards paying your creditors. It’s important to understand the rules around cashing the exempt and non-exempt portions of the check so you don’t get into trouble.

3.    File Required Documentation

Report the check to the LIT and, potentially, the court (depending on the specific situation). Ensure that all financial actions are documented and compliant with legal requirements. Transparency and proper reporting are crucial to avoid any allegations of misconduct or bankruptcy fraud.

Alternatives to Cashing a Check During Bankruptcy

You can explore following alternative to cash a check during Bankruptcy:

1.    Deposit into Restricted Account

Instead of cashing the check directly, consider depositing it into a restricted account managed by the LIT. This process ensures that the funds are properly accounted for and distributed according to the bankruptcy or proposal proceedings. Using a restricted account can provide additional protection and oversight for managing funds during these legal processes.

2.    Use Checks for Essential Needs with Prior Approval

In some cases, it may be possible to use checks for essential expenditures, such as rent, utilities, or medical expenses, with prior approval from the LIT. This approach ensures compliance with BIA regulations while addressing financial needs during the bankruptcy or proposal period.

It’s important to note that the specific steps and procedures may vary depending on the individual circumstances of your case and the authority in which you reside. Consulting with a Licensed Insolvency Trustee is highly recommended to navigate the complexities of cashing a check during bankruptcy or proposal proceedings and ensure compliance with all legal requirements.

Real-Life Scenarios

Here are the examples modified as real-life scenarios of cashing a check during bankruptcy, with changes made to make them easy to understand for a common user and keeping the context the same as the instructions provided:

Case Example 1: Cashing a Pre-Filing Commission Check

Situation: Maria, a real estate agent, had to file for bankruptcy due to a downturn in the housing market. Before filing, she had completed a sale and received a $5,000 commission check.

Exemptions Applied: Maria consulted with her Licensed Insolvency Trustee (LIT) to explore if any exemptions could protect a portion of the $5,000 check. Depending on the province she lived in, there might be one that allowed her to keep a certain amount of cash or assets. Together, they calculated the exempt amount based on the provincial limit.

Steps Taken: Maria reported the $5,000 commission check to her LIT and explained that she had earned it before filing for bankruptcy. After discussing the applicable exemptions, they determined the exempt portion of the check. Maria had a couple of options:

1. Deposit the entire $5,000 check into a restricted account managed by the LIT. She could then request access to the exempt portion for essential expenses like rent or groceries, with the LIT’s approval.

2. Cash the check and use the exempt portion for allowed expenses during bankruptcy, reporting all spending to the LIT to ensure compliance.

Outcome: By following the guidance of her LIT and the bankruptcy regulations, Maria was able to use the pre-filing commission check (or a portion of it) to cover essential needs during her bankruptcy proceedings. The LIT documented the transaction and ensured the remaining funds were used appropriately.

Case Example 2: Cashing a Post-Filing Birthday Gift Check

Situation: David was already in the midst of his bankruptcy proceedings when his aunt sent him a $200 check as a birthday gift.

Exemptions Applied: While birthday gifts are generally not considered income, David and his LIT discussed the specific situation. A small, one-time gift might be viewed differently from regular income under bankruptcy regulations.

Steps Taken: David reported the $200 birthday check to his LIT and provided details about its origin and purpose. After evaluating the circumstances, the LIT might have recommended one of the following options:

1. Allow David to cash the check and use the $200 for essential needs like rent or utilities, with proper documentation of the expenses.

2. Suggest depositing the check into a restricted account managed by the LIT. This would ensure transparency and allow David to request access to the funds for future essential needs purchases, with the LIT’s approval.

Outcome: With the guidance and oversight of his LIT, David was able to receive some financial support from his aunt’s birthday gift while ensuring compliance with the bankruptcy regulations. The LIT documented the transaction and monitored the use of the funds to avoid any potential issues.


In conclusion, cashing a check during bankruptcy or a proposal in Canada requires following specific procedures and regulations outlined in the Bankruptcy and Insolvency Act. It’s crucial to consult with a Licensed Insolvency Trustee (LIT) and understand how to properly report and use the funds from the check, whether it was received before or after filing for bankruptcy or a proposal. The LIT can guide you through applying for exemptions, filing required documentation, and exploring alternatives like depositing the check into a restricted account. By following the LIT’s guidance and being transparent about your financial transactions, you can avoid potential legal consequences and ensure compliance with Canadian bankruptcy laws. Remember, the rules are in place to protect you and your creditors, so it’s important to handle checks responsibly during this challenging financial situation.

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