Drafting a Will While Going Through Bankruptcy in Ontario

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Going through bankruptcy in Ontario does not prevent you from drafting a valid Will. However, any non-exempt assets you own or inherit before your discharge legally belong to the Licensed Insolvency Trustee. Your chosen executor must be prepared to work closely with the trustee to manage your estate.

Filing for bankruptcy is one of the most stressful financial experiences a person can endure. For individuals in cities like Hamilton, Windsor, or Sudbury trying to rebuild their financial lives, estate planning often feels completely irrelevant. You might assume that because a Licensed Insolvency Trustee currently controls your finances, you have lost the legal right to draft a Last Will and Testament. Fortunately, this is entirely false. Every capable adult in Ontario has the fundamental right to dictate who will manage their affairs after death, regardless of their credit score.

As of May 2026, drafting a Will during an active, undischarged bankruptcy requires specialized legal caution. Your current financial status dictates that most of your assets are frozen or slated for liquidation to satisfy your creditors. If you unexpectedly pass away before receiving your absolute discharge, your appointed executor will face a highly complex administrative situation. Partnering with a knowledgeable law firm ensures your Will is structured correctly, protecting your few exempt assets and ensuring your chosen executor is prepared to interact seamlessly with the insolvency process.

Step-by-Step Process in Ontario

Drafting a Will while bankrupt requires transparency. Whether you live in Mississauga or Thunder Bay, you must coordinate your estate planning with the strict rules of the federal Bankruptcy and Insolvency Act.

Step 1: Understand the Role of the Insolvency Trustee

💼 First, you must accept that while you are an undischarged bankrupt, your estate does not belong to you-it belongs to your Licensed Insolvency Trustee (LIT). If you die, your LIT remains in full control of your non-exempt assets. Your newly appointed estate executor will not have the power to distribute money to your children until the LIT has finished paying off your creditors and the bankruptcy is officially discharged by the courts.

Step 2: Identify Your Exempt Assets

Not everything you own is taken in a bankruptcy. Under the Ontario Execution Act, certain assets are exempt from seizure. This typically includes a primary vehicle worth up to a certain limit (often around $7,117 CAD), basic clothing, household furnishings, and most importantly, certain RRSPs and life insurance policies with preferred beneficiaries. You can use your Will to specifically direct what happens to these legally protected items.

Step 3: Appoint a Resilient Executor

Choosing the right Estate Trustee is critical. Do not choose someone who is easily overwhelmed by paperwork. Your executor will have to act as a liaison between your grieving family, the Superior Court of Justice, and your Licensed Insolvency Trustee. They will need to file terminal tax returns with the CRA and help the LIT finalize the bankruptcy discharge on your behalf.

Step 4: Include Future Acquired Wealth Clauses

Your bankruptcy will not last forever. Your Will must be drafted to look toward the future. A lawyer will include “residuary clauses” that dictate what happens to your wealth after your bankruptcy is discharged. This ensures that if you rebuild your finances, buy a new house, and pass away decades later, your Will perfectly covers your new, debt-free estate without needing immediate rewrites.

Step 5: Execute the Will with a Law Firm

🔒 Avoid cheap online kits, as they do not account for insolvency laws. Sit down with an Ontario estate lawyer and disclose your bankruptcy immediately. Once the document is properly drafted to reflect your limitations, you will sign it in the presence of two witnesses, ensuring it is legally ironclad.

How Much Does it Cost in Ontario?

Managing costs is vital during a bankruptcy. Fortunately, establishing your basic estate plan is not prohibitively expensive.

Standard Will Drafting: A professionally drafted Will protecting your exempt assets typically costs $400 to $900 CAD.
Licensed Insolvency Trustee Fees: You do not pay the LIT out of your pocket for estate work. Their fees are drawn directly from the liquidation of your non-exempt assets as regulated by the federal government.
Probate Fees (Estate Administration Tax): Because your estate value is virtually zero (or negative) during bankruptcy, your executor will likely pay $0 CAD in provincial probate taxes if you pass away before discharge.

How Long Does the Process Take?

Drafting the Will itself is fast, usually taking 2 to 4 weeks. However, the timeline of your financial restriction depends entirely on your bankruptcy status. In Canada, a first-time bankruptcy typically takes 9 to 21 months to reach an absolute discharge. Once you receive that discharge paper, your estate becomes your own again, and your Will operates normally without the interference of the LIT.

Frequently Asked Questions (FAQ)

Does my executor inherit my unpaid debts?

No. Under Ontario law, neither your executor nor your family members are personally responsible for your debts. The creditors can only collect from the assets held within your estate. If the estate runs out of money, the remaining debts are simply written off.

What if I inherit money while I am bankrupt?

If you receive an inheritance before you are officially discharged from bankruptcy, that money is legally considered “after-acquired property.” You cannot keep it; it must be surrendered immediately to your Licensed Insolvency Trustee to pay your creditors.

Are my RRSPs completely safe?

Generally, yes. Under federal law, RRSP contributions made more than 12 months before your bankruptcy filing are exempt from seizure. You can freely name a beneficiary for your RRSP in your Will, and those funds will bypass your creditors.

Can I name my Licensed Insolvency Trustee as my executor?

No, this represents a massive conflict of interest. Your LIT’s legal duty is to recover money for your creditors. Your executor’s duty is to protect the interests of your beneficiaries. You must choose an independent person to act as your executor.

Should I update my Will after my bankruptcy is discharged?

While a properly drafted Will includes future clauses, it is always best practice to review your estate plan with your lawyer after your absolute discharge. This ensures your newly unburdened financial status is perfectly aligned with your family’s needs.