- If formal insolvency proceedings are underway, you are generally treated as one of the contractor's creditors, in line with everyone else the contractor owes money to (suppliers,…
- If the insolvent contractor was a general contractor and subcontractors or suppliers were not paid for work on your property, they may have their own lien rights against your property —…
Halfway through your renovation, the news arrives: your contractor has become insolvent, filed for bankruptcy, or simply shut the business down and stopped responding. You are left with an unfinished project, money already paid, and a genuine question — what happens now, and is any of your money recoverable?
Insolvency changes the legal landscape significantly compared to a contractor who has simply abandoned a job while still solvent. Here is how to think through your options.
Step 1 — Confirm What Actually Happened
"Went bankrupt" gets used loosely. It matters which of these actually occurred:
- Formal bankruptcy or insolvency proceedings — a licensed insolvency process has started, which changes what creditors can do and when (a formal stay typically limits new legal action against the debtor while proceedings are ongoing)
- The business simply closed without any formal insolvency filing — the individual or corporate contractor may still be pursuable directly
- The corporate contractor dissolved, but the individual behind it is still active — this raises the separate question of whether you have any claim against the individual personally, which depends heavily on how the contract was structured and signed
Ask directly (or have a lawyer check available public records) which of these situations you are actually in before deciding your next step, since the right move differs significantly between them.
Step 2 — Understand Where You Stand as a Creditor
If formal insolvency proceedings are underway, you are generally treated as one of the contractor's creditors, in line with everyone else the contractor owes money to (suppliers, subcontractors, lenders, tax authorities, and so on). Unsecured creditors — which is often what a homeowner's deposit claim amounts to — typically recover less than secured creditors, and sometimes very little at all, depending on what assets remain.
This is the hard truth many homeowners do not expect: being right about what you're owed does not guarantee you get paid if the contractor genuinely has no remaining assets.
Step 3 — Look at Whether a Construction Lien Is Still Available
If the insolvent contractor was a general contractor and subcontractors or suppliers were not paid for work on your property, they may have their own lien rights against your property — even though your dispute is with the general contractor, not them. This can mean you face lien claims from parties you never contracted with directly, on top of your own losses.
Separately, if you have not yet paid the full contract price, the statutory holdback obligations under the Construction Act may protect part of what you still owe — that held-back amount is meant to be available to unpaid subcontractors and suppliers with lien rights, rather than disappearing into the insolvency.
Step 4 — Consider a Trust Claim
The Construction Act creates statutory trust obligations over certain funds in the construction payment chain, intended to prevent money meant for a specific project from being diverted elsewhere. Depending on the facts — including how and when money changed hands — there may be an argument that funds you paid should have been held in trust for the project rather than used for other purposes. This is a fact-heavy, technical area, and whether a workable trust claim exists depends entirely on your specific paper trail, so this is a question to bring to a lawyer rather than resolve alone.
Step 5 — Deal With the Unfinished Work
Regardless of what you can recover from the old contractor, you likely need to get the project finished:
- Get an independent assessment of what has actually been completed and to what standard, before hiring a replacement
- Keep every invoice and receipt tied to the completion work — this documents your losses if you pursue a claim
- Check whether any deposits paid to suppliers (appliances, custom materials) were held by the insolvent contractor or paid directly, since this affects whether those goods or refunds are recoverable
Comparing Your Realistic Options
| Option | Likely outcome |
|---|---|
| File a claim in the insolvency proceeding | Possible partial recovery, often modest, and can take time |
| Pursue the individual behind the company personally | Depends heavily on how the contract was structured; not always available |
| Pursue a trust claim under the Construction Act | Technical and fact-specific; potentially stronger than an ordinary unsecured claim if the facts support it |
| Focus on completing the project and cutting losses | Often the most practical path when the amount at stake is modest relative to legal costs |
A lawyer can help you weigh which of these is actually worth pursuing given the amount involved and the realistic odds of collecting anything.
Frequently asked questions
Can I get my deposit back if the contractor has filed for bankruptcy?
You can file a claim in the bankruptcy or insolvency process, but recovery is not guaranteed and often depends on what assets remain and how many other creditors are ahead of you. Some homeowners recover a portion of their loss; others recover very little.
Do I still owe the rest of the contract price if the contractor cannot finish?
Generally, you are not obligated to keep paying a contractor who cannot perform the work, but this depends on exactly what was already invoiced, paid, and delivered. Get advice before making further payments or assuming you owe (or are owed) a specific amount.
Can subcontractors lien my property even though I paid the general contractor?
Yes, potentially — subcontractor lien rights exist independently of whether you paid the general contractor, which is one of the more painful realities of a contractor insolvency for homeowners. This is a separate issue worth understanding on its own; see our companion article on subcontractor lien rights.
Is it worth suing an insolvent contractor at all?
Sometimes, but only if there is a realistic prospect of recovery — either because a formal insolvency process offers some distribution, because an individual behind the company remains pursuable, or because insurance responds. A lawyer can help you assess this before you spend money pursuing a claim that may not be collectible.
This is a litigation question
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