When Your Tenant Files Bankruptcy: What Ontario Landlords Need to Know

When a tenant falls behind on rent, it can already place a landlord in a stressful position. But when that same tenant files for bankruptcy, the situation becomes even more complicated. Many landlords ask:

• Can I still terminate the tenancy?

• Will the Landlord and Tenant Board (LTB) continue my application?

• Do I lose my right to collect rent arrears?

• What happens to future rent payments?

This post explains, in practical terms, what happens when a tenant files bankruptcy in Ontario, what “stay of proceedings” really means, and what steps a landlord can take.

Bankruptcy Does Not Erase Rent — But It Changes How You Can Collect

When a tenant assigns into bankruptcy, all of the tenant’s assets form what is called a “bankrupt estate.” A Licensed Insolvency Trustee (LIT) is appointed to:

• administer the estate

• liquidate assets if needed

• distribute funds to creditors according to priority rules

If the tenant owes you rent, you are legally considered a creditor.

How landlords are ranked as creditors

In bankruptcy, creditors are generally classified as:

Secured creditors-Debts backed by collateral (e.g., a mortgage). They are paid first.

Preferred creditors-Unsecured creditors with statutory priority.

Landlords fall into this category for up to three months of unpaid rent prior to the bankruptcy.

Unsecured creditors-All remaining creditors with no security.

Any rent arrears beyond the three-month preferred portion are treated as unsecured debt.

What a landlord receives will depend on how much money is available in the estate and how many creditors are ahead in priority.

What Is a “Stay of Proceedings” — and How Does It Impact Your LTB Case?

Once a tenant files bankruptcy:

Any legal action or debt collection activity relating to debts incurred before the bankruptcy is generally stayed (paused) until the tenant is discharged or the Court orders otherwise.

For landlords, this means:

• If your LTB application seeks:

  • termination of the tenancy and

  • payment of rent arrears that arose before the bankruptcy→ the money-collection portion is stayed, because those arrears must now be dealt with in the bankruptcy process, not at the LTB.

The LTB does not have jurisdiction over pre-bankruptcy rent arrears once bankruptcy is filed.

However, this does not automatically prevent a landlord from pursuing issues related to:

• current rent owing after the bankruptcy, or

• termination based on ongoing non-payment going forward

The key distinction is:

• pre-bankruptcy arrears → handled in bankruptcy

• post-bankruptcy arrears → may still support a new LTB application

  
  

How Will a Landlord Know the Tenant Filed Bankruptcy?

You will normally receive written notice.

The trustee in bankruptcy will send you:

• a notice advising that the tenant has filed bankruptcy

• information about whether a creditors’ meeting will occur

As a landlord, you should:

File a Proof of Claim

You will need to calculate:

• total arrears up to the date of bankruptcy

Your claim will typically include:

• up to 3 months of unpaid rent as a preferred claim, and

• any remaining arrears as an unsecured claim

The trustee will later distribute available funds according to creditor priority.

What If You Already Served a Notice for Non-Payment or Filed an LTB Application?

This is a common situation.

If you served a notice to terminate for non-payment of rent, or you already filed an LTB application, and you then learn the tenant has gone bankrupt:

The trustee should be added as a party

Because the trustee steps into the tenant’s position for debt-related purposes, the landlord should:

• amend the notice and/or application to add the trustee in bankruptcy

• mark the documents as “AMENDED”

• serve:

  • the trustee at their business address, and

  • the tenant

The LTB cannot decide the pre-bankruptcy arrears

Those arrears are now:

• a provable claim in bankruptcy

• under bankruptcy court jurisdiction

The effect is:

• the arrears portion of the LTB application is stayed

• the Board may still consider issues relating to the tenancy itself, where appropriate

There cannot be two parallel proceedings addressing the same pre-bankruptcy debt.

What If There Was a Mediated Settlement and the Tenant Later Files Bankruptcy?

Sometimes a landlord and tenant sign a mediated LTB agreement that includes:

• a payment plan for arrears, and

• conditions for ongoing tenancy

If the tenant later files bankruptcy and breaches the agreement:

• the landlord may re-open the LTB matter or file an ex parte request for termination only

However:

• The LTB cannot order payment of pre-bankruptcy arrears, because those arrears must now be dealt with through the bankruptcy claim process.

What Happens to Rent Paid After Bankruptcy Is Filed?

Payments made after the bankruptcy filing date are normally applied to:

• current rent owing

Unless the tenant or trustee clearly directs otherwise.

Bankruptcy does not eliminate the tenant’s obligation to continue paying rent going forward.

What If the Tenant Fails to Pay Rent After Filing Bankruptcy?

Bankruptcy only affects debts incurred before the bankruptcy filing date.

If the tenant fails to pay rent after filing:

• those arrears are new debts

• you may serve a new notice for non-payment

• and file a new LTB application based on post-bankruptcy arrears

These amounts are not covered by the original stay of proceedings.

In other words:

• Bankruptcy may affect past arrears

• It does not give the tenant a free right to remain without paying rent afterward

  
  

Practical Guidance for Landlords

When a tenant files bankruptcy:

1. Confirm the bankruptcy date and trustee information

2. File a Proof of Claim for arrears up to the bankruptcy date

3. Understand that:

   • pre-bankruptcy arrears belong in the bankruptcy process

   • post-bankruptcy arrears may still support new LTB action

4. Monitor ongoing rent payments closely

5. Keep thorough documentation

6. Seek legal advice where appropriate — especially if termination and bankruptcy issues overlap

   
   

Final Takeaway

For landlords, the most important distinctions are:

• Pre-bankruptcy arrears→ become a bankruptcy claim and cannot be enforced through the LTB

• Post-bankruptcy arrears→ may still justify new LTB notices and applications

Bankruptcy may pause or redirect how arrears are handled — but it does not prevent a landlord from enforcing ongoing rent obligations or, where appropriate, seeking termination of the tenancy going forward.