Unveiling the Top 6 Bankruptcy Rules in The BIA of Canada
Canada’s bankruptcy law is controlled by federal legislation called The Bankruptcy and Insolvency Act (BIA). In this guide, we’ll dive into the top 6 bankruptcy law rules embedded in the BIA that could significantly influence your decision to opt for bankruptcy as a solution to your financial troubles.
An Overview of Bankruptcy Law in Canada
Bankruptcy law in Canada is standardized under the BIA. This legislation offers a legal framework for individuals struggling financially to either come up with a financial proposal or file for bankruptcy. As an individual overwhelmed by debts, these rules are your legal pathway to financial relief.
The Bankruptcy and Insolvency Act (BIA)
The BIA is a federal law designed to provide financial relief to honest Canadian citizens who unfortunately find themselves in financial strife. It safeguards the rights of indebted individuals and their creditors, ensuring that all stakeholders, including the Licensed Insolvency Trustee (LIT), the debtor, and the creditors, abide by the bankruptcy laws, rules, and guidelines.
Dismantling the Top 6 Bankruptcy Law Rules
Here’s a breakdown of the top six bankruptcy rules that could significantly influence your decision to choose bankruptcy as a solution to your financial hardships:
Student loans: After a seven-year period, student loans are automatically discharged.
Registered Retirement Savings Plans (RRSPs): RRSPs are exempt from seizure during bankruptcy, subject to specific conditions.
Asset seizure: Certain assets, like tax refunds, are seized in a bankruptcy. However, all assets can be retained in a consumer proposal.
Contract Termination: A secured lender cannot terminate a contract simply due to the filing of bankruptcy, as long as you’re up-to-date with your payments.
Income declaration: You’re required to reveal all your income when you file for bankruptcy in Canada.
Consumer proposal debt limit: To qualify for filing, the debt limit for an individual is $250,000 and $500,000 for a joint proposal.
A Glimpse Into The Bankruptcy and Insolvency Act for Ordinary Folks
The BIA is a comprehensive set of rules and regulations that govern all insolvency proceedings in Canada. It is designed to protect the rights of both the debtor and the creditor, ensuring a fair process for all involved parties.
The Purpose of the Bankruptcy & Insolvency Act
The BIA, informally referred to as the “Bankruptcy Act,” is a federal law established to assist Canadians who have unfortunately run into financial difficulties. It safeguards the rights of individuals in debt and their creditors and ensures that trustees and the court fulfill their responsibilities and duties.
Bankruptcy Options Under the BIA
The BIA provides three possible insolvency proceedings individuals can choose to manage their debt: personal bankruptcy, consumer proposal, and Division I proposal.
Personal Bankruptcy: Personal bankruptcy offers a legal pathway for Canadians to be cleared from the obligation to repay the eligible debts present when the bankruptcy was filed.
Consumer Proposal: A consumer proposal is an offer to creditors to repay a fraction of the debt owed.
Division I Proposal: A Division I proposal is an insolvency option available to individuals when their debts exceed $250,000.
Business Bankruptcy Options Under the BIA
Businesses, whether incorporated or unincorporated, have different insolvency options under the BIA. Incorporated businesses can file for bankruptcy, make a Division I Proposal, or file something called a CCAA Plan of Arrangement under the Companies’ Creditors Arrangement Act.
Key Stakeholders in Insolvency Proceedings
The main parties in an insolvency proceeding are the debtor, the creditors, and the Licensed Insolvency Trustee.
The Debtor: A debtor is an individual who owes money to a creditor.
The Bankrupt: When an insolvent individual files for bankruptcy, they become a bankrupt entity.
The Creditors: Creditors are individuals or companies that the debtor owes money, goods, or services to.
The Licensed Insolvency Trustee (LIT): LITs are court officers licensed by the Office of the Superintendent of Bankruptcy (OSB).
The Bankruptcy Process: A Brief Overview
Both a bankruptcy and a consumer proposal can only be made through a Licensed Insolvency Trustee or LIT.
Stay of Proceedings
A Stay of Proceedings is a legal benefit that provides debtors with creditor protection in Canada.
Role of a Stay of Proceedings
The debtor provides the trustee with a list of all legal actions against them, and the involved parties are notified that a proposal or bankruptcy filing has been made and that the stay is in place.
What a Stay of Proceedings Can and Cannot Do
A Stay of Proceedings offers immediate relief from wage garnishments, collection activity, threats of legal action, and enforcement of court orders. However, it cannot stop court orders for child or spousal support, halt actions concerning certain types of debt, prevent a secured creditor from repossessing property, remove a lien that is already registered, or recover property that has already been taken.
The Bankruptcy Process
To file for bankruptcy, the debtor provides the Licensed Insolvency Trustee with a list of debts and assets. Bankruptcy proceedings begin with an electronic filing of bankruptcy documents with the Canadian government through the Office of the Superintendent of Bankruptcy Canada.
The Role of the Bankrupt
Meetings of creditors may be held and inspectors appointed. If a meeting is called, the bankrupt is required to attend.
Certificate of Discharge or Discharge Order
Once the bankruptcy procedure is completed, the bankrupt will, in most cases, receive a Certificate of Discharge, which means all of the bankrupt’s debts, with certain exceptions, are wiped out.
An Overview of a Consumer Proposal
A consumer proposal is available to debtors who owe less than $250,000, excluding mortgages. It constitutes a legally binding agreement between the debtor and the creditors.
How a Consumer Proposal Works
The proposal administrator examines the insolvent’s debts, income, and assets and helps the individual structure the proposal.
The Claims of the Creditors
In order to make a claim, each creditor must file a proof of claim with the trustee. The claim is then evaluated by the trustee who has the right to either allow or disallow the claim.
Order of Payment to the Creditors
Generally speaking, this is the order of priority of payments to creditors:
- Secured creditors.
- Certain classes of preferred creditors.
- Unsecured creditors.
The BIA and Corporations
In Canada, a business will officially become bankrupt under one of following scenarios:
- The company has attempted to reorganize itself under the proposal provisions of the BIA but the reorganization has failed.
- The corporation voluntarily takes the legal steps to become bankrupt.
- One or several of the corporation’s creditors obtains a Bankruptcy Order against the corporation.
The Companies Creditors Arrangement Act (CCAA)
The Companies Creditors Arrangement Act (CCAA) is another piece of federal legislation that enables financially troubled businesses to restructure themselves.
Concluding Thoughts
If you’re experiencing financial difficulties and are unable to pay your debts, understanding the bankruptcy law rules in The Bankruptcy and Insolvency Act is crucial. It’s always beneficial to consult with a Licensed Insolvency Trustee to explore the debt relief options available to you.
