How Do I Know If I'm Insolvent?   

Insolvency is a term that’s used when someone is unable to pay the money that they owe.

Essentially, it refers to a situation in which your debt becomes unmanageable.

Formal insolvency occurs when you file for bankruptcy or make a consumer proposal but, in reality, you could be insolvent far sooner than this if your debts are spiralling out of control.

If you’re experiencing financial problems, it’s important to address them as quickly as possible.

By acting swiftly, you’ll have a great range of options when it comes to debt solutions.

Furthermore, acting quickly means you can prevent your financial difficulties from worsening.

As your debt problems increase, you’ll move closer towards a state of insolvency.

Unfortunately, many people don’t realize this until they experience serious financial hardship.

If you want to avoid this, it’s important to ask the question: how do I know if I’m insolvent?

By recognizing your financial problems for what they are, you can access the help and assistance you need to move towards a debt-free lifestyle.

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What is Insolvency?

There are two ways to determine if you’re insolvent:


  1. The amount of your total debts exceeds the amount of your total assets, or,
  2. You are unable to pay your debts as they are due because of poor cash flow or low income.


So, if you have assets worth $100,000 but debts totaling $200,000, this would mean that you’re insolvent.

This type of insolvency is referred to as ‘asset insolvency’ because realizing your assets would not enable you to repay your debts.

Alternatively, if you can’t repay your debts on time because you don’t have the funds, you are technically insolvent.

This type of insolvency is known as ‘income insolvency’ because your incoming funds aren’t enough to fund your essential living expenses and your debt repayments.

This is a situation that lots of people find themselves in, so there’s no need to panic.

As household debt in Canada continues to rise, record numbers of people are becoming insolvent.

Although insolvency is becoming increasingly common, you will need to find an effective way to deal with your financial issues.

Should You File Insolvency?

Being insolvent and filing insolvency are two different things.

Being insolvent refers to your financial situation while filing insolvency means formally filing for bankruptcy or making a consumer proposal.

You could be insolvent for quite some time before deciding that filing insolvency is the right thing for you.

Often, people try to avoid filing for insolvency, despite technically being insolvent.

Alternatively, they might try other forms of debt resolution, such as credit counselling or debt management plans, rather than filing insolvency.

However, if you are insolvent or you are close to becoming insolvent, actually filing insolvency might be a viable way for you to deal with your situation.

By filing for bankruptcy, for example, you could eradicate the vast majority of your liabilities and reset your finances, for example.

There are some tell-tale signs to look out for if you’re concerned about your financial situation.

The following scenarios often indicate than an individual is insolvent or at risk of becoming insolvent:


  • You pay for everyday living costs with credit.
  • You pay off one debt with another form of credit.
  • You can only access high-interest credit (e.g. payday loans).
  • You are barely keeping up with minimum repayments or you have fallen behind with payments.
  • You have used all of your credit facilities and cannot access more credit from a reputable lender.


If you recognize these scenarios, there’s a good chance that you’re already technically insolvent.

Due to this, you may want to consider filing insolvency in order to resolve your financial problems.

How to File Insolvency

When you file insolvency, you’ll have the choice to either file for personal bankruptcy or make a consumer proposal.

Both of these options are considered to be formal insolvencies, and both must be dealt with by a licensed insolvency trustee (LIT).

However, bankruptcy and consumer proposals are very different and have varying impacts on your debts, so it’s important to understand how each process works.

What is Personal Bankruptcy?

When you file for personal bankruptcy, you assign all of your assets to your trustee.

If your assets are exempt from bankruptcy proceedings, they will be returned to you.

Non-exempt assets may be realized, and the funds distributed amongst your creditors.

Upon discharge from your personal bankruptcy, your unsecured debts are eliminated, and you will no longer be liable for them, although there are certain provisions for some types of unsecured debt, such as student loans.

However, personal bankruptcy will remain on your credit file for quite some time, so it will have an impact on your ability to access credit.

Despite this, it is possible to rebuild your credit score after filing for personal bankruptcy.

What is a Consumer Proposal?

A consumer proposal essentially means that you offer to repay your creditors a portion of what you owe them, rather than the full amount.

In some cases, it is possible to reduce your debts by 70-80% by making a consumer proposal.

You will not need to relinquish any assets when you make a consumer proposal, although you will need to make pre-agreed monthly payments for a set amount of time in order to pay off the remainder of your debts.

Once you have fulfilled the terms of your consumer proposal, the outstanding debts are eliminated, as per your original agreement.

A consumer proposal will also stay on your credit file for quite some time, although you can begin to rebuild your credit rating.

Talk to a Licensed Insolvency Trustee Now

If you’re technically insolvent or you think you’re at risk of becoming insolvent, it’s important to seek guidance.

By talking to a licensed insolvency trustee now, you can find out what debt solutions are available to you and what impact they would have on your lifestyle and finances.

Why wait?

Contact Bankruptcy Canada at (877) 879-4770 and talk to a trustee today.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

Need a Licensed Insolvency Trustee?

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