How to Handle Tenant Bankruptcy in Ontario: What Landlords Should Know

Tenant bankruptcy is one of the most complicated situations a landlord can face in Ontario. When a tenant files for bankruptcy, rent payments can stop suddenly, leases may become unenforceable, and eviction procedures require special handling under federal law.

Landlords must balance their rights under the Residential Tenancies Act (RTA) with the rules in the Bankruptcy and Insolvency Act (BIA). Understanding how the two interact can prevent financial loss and help property owners navigate a stressful process with confidence.

1. What Happens When a Tenant Declares Bankruptcy

When a tenant declares bankruptcy, they are placed under the protection of the Bankruptcy and Insolvency Act. This federal law overrides most provincial enforcement actions, including some landlord remedies.

As soon as the bankruptcy is filed, an automatic stay takes effect. This stay prevents landlords from pursuing rent arrears, enforcing judgments, or evicting the tenant for past non-payment without permission from the Office of the Superintendent of Bankruptcy (OSB) or the Landlord and Tenant Board (LTB).

The landlord becomes an unsecured creditor and must submit a Proof of Claim to the bankruptcy trustee if rent is owed. Unpaid rent up to the date of bankruptcy is considered part of the bankruptcy estate and may not be collectible directly from the tenant.

2. Future Rent Obligations

Bankruptcy only covers debts up to the date of filing. Rent that becomes due after bankruptcy remains the tenant’s responsibility.

If the tenant continues to occupy the unit after declaring bankruptcy, they must still pay rent on time. Failure to do so allows the landlord to issue an N4 Notice for Non-Payment of Rent and proceed through the normal LTB process. The automatic stay does not protect tenants from eviction for new arrears.

If the tenant has abandoned the unit or vacated voluntarily, the landlord can re-rent the property immediately without waiting for discharge.

3. Security Deposits and Last Month’s Rent

Ontario law treats security deposits differently from other provinces. Landlords can only collect last month’s rent deposits, which must be applied to the final rental period, not as general security.

If a tenant files for bankruptcy before the end of the lease, the landlord can use the deposit for the last month of occupancy. However, if no rent is owed for that period, the trustee may require it to be returned to the estate.

To avoid confusion, landlords should keep clear records showing how deposits are applied and when rent was last paid.

4. Lease Termination and Eviction

When a tenant files for bankruptcy, the lease is not automatically terminated. The trustee has the option to “disclaim” (cancel) the lease if it is burdensome to the bankrupt estate, but this is rare for residential tenancies.

If the tenant continues to occupy the property, landlords must still follow the RTA for any termination or eviction. The LTB can issue an eviction order if:

1. The tenant fails to pay rent after bankruptcy.
2. The tenant causes damage, harassment, or illegal activity.
3. The trustee confirms the tenant no longer has rights to the property.

Landlords should avoid changing locks or removing belongings without a valid LTB order, as this could be considered an illegal eviction under the RTA.

5. Collecting Unpaid Rent

Unpaid rent before bankruptcy becomes part of the bankruptcy estate. Landlords can file a claim with the trustee but should understand that unsecured creditors often recover little or nothing.

Rent that accrues after bankruptcy can be pursued through the LTB. If the tenant vacates, the landlord can apply the last month’s rent deposit, file for an LTB order for damages, and re-rent the unit.

Working with a property management company can help document losses accurately for potential tax deductions or insurance claims.

6. Landlord’s Rights Under the Law

The Bankruptcy and Insolvency Act aims to give honest debtors a fresh start, but it also protects landlords by allowing new rent collection and lease enforcement after the bankruptcy date.

Landlords are allowed to:

1. Collect rent due after the bankruptcy date.
2. Apply for eviction for non-payment of post-bankruptcy rent.
3. Re-rent the unit if the tenant abandons it.
4. File a claim with the trustee for arrears owed before bankruptcy.

However, landlords cannot harass tenants for pre-bankruptcy debts, seize belongings, or apply pressure through illegal eviction methods.

7. How Royal York Property Management Handles Bankruptcy Cases

At Royal York Property Management, we handle tenant bankruptcies through a structured and compliant process that protects our clients’ financial interests.

Our in-house legal and property management teams:

1. Review trustee notices and confirm the date of bankruptcy filing.
2. Communicate directly with the trustee to confirm the tenant’s obligations.
3. Continue lawful rent collection for post-bankruptcy periods.
4. Coordinate LTB filings for non-payment or property abandonment.

Because Royal York manages over 25,000 properties across Ontario, our systems ensure that no rent, documentation, or claim opportunity is missed. Landlords remain informed and protected throughout the process.

Final Thoughts

Tenant bankruptcy is one of the few situations where federal and provincial laws overlap. The automatic stay under the Bankruptcy and Insolvency Act can limit a landlord’s ability to recover unpaid rent, but it does not erase future rent obligations or the landlord’s right to re-rent.

Clear documentation, timely communication with the trustee, and proper legal procedures are essential. Partnering with a professional property management company like Royal York helps landlords navigate bankruptcy cases confidently while staying compliant with both federal and provincial requirements.

Royal York Property Management ensures that every landlord remains protected; financially, legally, and operationally, no matter how complex the situation becomes.