All bankruptcies and consumer proposals in Canada are administered under the Bankruptcy & Insolvency Act (BIA or the Act). This is a federal piece of legislation that governs all aspects of your bankruptcy or proposal. Bankruptcy law was put in place to allow the ‘honest but unfortunate debtor’ to be released from their obligation to pay debts when they are in severe financial trouble.
Our infographic provides a summary of the key points you need to know about the Bankruptcy & Insolvency Act, its key stakeholders and benefits.
If you are an individual who is insolvent, meaning you owe more than you own or you cannot repay your debts as they become due, the two primary tools provided by the BIA are:
- Consumer Proposal
Both proceedings eliminate your debts. A proposal is a way for you to make an offer to your creditors to repay a portion of your debt, in exchange for which they agree to erase your entire loan. Under a bankruptcy, your assets, with some exceptions, are liquidated and the proceeds are distributed among your creditors. After a bankruptcy or consumer proposal is completed, you emerge debt free.
Defining the Rules For Key Participants
The Bankruptcy Act defines the rules surrounding these proceedings, provides a framework within which you, your creditors, the bankruptcy trustee, and the bankruptcy court must comply.
For example it provides the debtor protection from creditors by creating a ‘stay of proceedings’ during which your unsecured creditors cannot take any legal action against you. The Bankruptcy Act does not however apply to secured loans, so creditors like your mortgage holder can continue to foreclose on your home due to mortgage arrears. If however you owe money against debts like credit card debt, the Bankruptcy Act will stop a wage garnishment.
For your creditors it defines what assets can be seized or what monthly payments are required into your bankruptcy ‘estate’. The Act also defines how those proceeds will be distributed among your creditors and how your trustee will be paid from those same proceeds.
A Trustee in Bankruptcy is licensed by the Office of the Superintendent of Bankruptcy to supervise and administer all aspects of the Act. Each trustee must:
- ensure the debtor complies will all required duties (such as attending mandatory credit counselling sessions),
- realize on assets and collect payments in trust,
- review & approve all creditors’ claims against your bankrupt estate and, assuming the file proceeds without any issues,
- pay each creditor their prorated share and issues the debtor their discharge, or in the case of a proposal a certificate of completion.
It is rare that a bankrupt will be required to attend bankruptcy court, although this does happen. In the case of a consumer proposal, once your proposal is accepted by your creditors, it is also approved by the court.
The bottom line is that the Bankruptcy & Insolvency Act was created to provide you with a fresh start. It is not meant to be punitive, but rather to provide a fair and equitable way for you to eliminate your debts and for your creditors to receive their fair share of what you can pay.
If you need help, contact a local bankruptcy trustee today and talk to them about how a bankruptcy, or consumer proposal, can help.