I have always thought one of the disadvantages of living next to the largest economy (and media market) in the world is the fact that Canadians end up using American terms for things they may be looking for. The use of Chapter 7 and Chapter 13 bankruptcy wording is an excellent example.
Since many people use these insolvency terms in Canada, I will give a brief explanation of how the different types of bankruptcy compare.
Chapter 7 vs Personal Bankruptcy
When a person finds themselves in deep financial trouble in the United States they may file personal bankruptcy under Chapter 7, Title 11 of the United States Code. Overtime this has simply come to be known as Chapter 7 bankruptcy.
In Canada it is simply called filing for (personal) bankruptcy. The law is known as the Bankruptcy and Insolvency Act of Canada, or BIA for short, but the only people that refer to the law are professionals working in this area.
Chapter 13 vs Consumer Proposal
Chapter 13 is the section of US law that allows people to re-organize or settle their debts. In Canada this is called a Consumer Proposal. A re-organization or settlement is a plan whereby a person repays a portion (perhaps all) of what they owe over a period of up to 5 years. It is designed for people that can afford to repay part of their debt and avoid filing for bankruptcy.
Bankruptcy Lawyer vs Bankruptcy Trustee
Of course there are differences between how bankruptcy law works in the US and in Canada. The most obvious is the fact that in the US, to file either Chapter 7 bankruptcy or Chapter 13 the first step is to hire an insolvency lawyer. The lawyer helps you prepare the documents in order to apply to the Court for approval of your plan. The creditors have the right to appear in Court and proposal alternate arrangements, after which the Court issues an Order and assigns your file to a Bankruptcy Trustee.
In Canada you attend directly at a Bankruptcy Trustee’s office in order to file personal bankruptcy or a consumer proposal. Lawyers and the Court only become involved in very complex cases after you file. (In my firm, we handle 3,000 cases per year as bankruptcy trustees – lawyers become involved in fewer than 50 cases per year, usually in cases of alleged impropriety).
The Canadian approach was designed to reduce the costs of filing bankruptcy or a consumer proposal so that more of your money can go to repaying your debts.
If you reside in Canada and you require relief from your debts then you should research personal bankruptcy and consumer proposals. If the article starts referring to Chapter 7 or Chapter 13, (or 11 or 12 for that matter) you’re likely on a US page and need to refine your search.