Understanding the Bankruptcy and Insolvency Act

Decoding the Bankruptcy and Insolvency Act

Have you ever wondered what happens when an individual is incapable of repaying their debts? In such scenarios, the Bankruptcy and Insolvency Act comes into play. This law offers two legislative solutions: the consumer proposal and bankruptcy to help individuals or businesses alleviate their financial stress.

If you’re looking to understand these debt relief options or thinking about professional financial assistance, this article will provide you insightful information to kickstart your journey.

Demystifying Insolvency

Often, people find themselves in financial troubles, failing to meet their financial responsibilities or repaying their debts. This situation is officially termed as ‘Insolvency’. It is crucial to understand insolvency as it is the first step towards seeking financial help.

If you’re defaulting on your debt payments or maxed out your credit cards and unable to make ends meet, chances are you might be insolvent. However, it’s essential to know that there are specific federally governed programs designed to help insolvent individuals. A trustee can guide you through these programs.

The Purpose of the Bankruptcy and Insolvency Act

The Bankruptcy and Insolvency Act is a law implemented to safeguard all parties involved in a consumer proposal or bankruptcy — including the debtor, creditors, and the Licensed Insolvency Trustee, who manages the process. The Act establishes guidelines and procedures for all stakeholders to follow.

In case of insolvency, the debtor’s assets are assessed to determine their value and whether they can be sold off to repay some debts under bankruptcy. The Act ensures fair treatment and representation of the debtor during a consumer proposal or bankruptcy.

Aiding Debt Reduction: Consultation Options

If you’re struggling with debt, it is advisable to explore your options with a financial expert. Book a free consultation.

Role of a Licensed Insolvency Trustee

A Licensed Insolvency Trustee (LIT) is a professional who is granted a license by the Office of the Superintendent of Bankruptcy. They are the only professionals legally authorized to administer a bankruptcy or proposal. An LIT ensures that your rights as a debtor are respected while also protecting the rights of the creditors.

Debt Relief Options Under the Bankruptcy and Insolvency Act

The Bankruptcy and Insolvency Act offers three ways to proceed with insolvency. The choice entirely depends on your financial situation and the amount of debt. In some cases, you might need to surrender your assets or agree to terms that favor the creditors. An LIT will review your financial state and explain the options legally available to you.


Consumer Proposal: A consumer proposal can be filed if you owe between $1,000 – $250,000 in unsecured debt. An LIT prepares an offer to your creditors based on your financial review, which allows you to pay a percentage of what you owe.

Division I Proposal: This option is available if your unsecured debts exceed $250,000. A Division I proposal considers the high debt amount and offers options for debt repayment.

Bankruptcy: The process of personal bankruptcy may release you from the obligation to repay certain debts. However, you would need to surrender some assets, which would be sold to pay off your creditors.


Understanding the Stay of Proceedings

Regardless of the chosen process, a stay of proceedings will be filed on your behalf. This protects you from further legal actions from your creditors. It essentially informs your creditors that you’re working with an LIT to resolve your debt issues. Here’s what a stay of proceedings will stop:


  • Interest payments.
  • Wage garnishments (except for support payments such as child support).
  • Calls and contact from collection agencies and creditors.
  • Legal actions due to unpaid debts.
  • Actions by Canada Revenue Agency to collect owed taxes.


Exceptions to the Stay of Proceedings

While a stay of proceedings offers protection, it doesn’t cover all aspects. For instance, a secured creditor can take your vehicle if you have a car loan. You must continue with spousal or child support, and certain fines or penalties are not forgiven. An LIT will review your financial situation to determine which debts can be included in your bankruptcy filing.

Impact of Bankruptcy on Your Assets

Under bankruptcy, your assets will be reviewed by the LIT to determine if they can be repossessed or sold to cover your debts. The exemptions depend on provincial law. You can find more about personal exemptions by province on our bankruptcy exemptions page.

Your Duties Under Bankruptcy

If you file for bankruptcy, you must provide monthly income statements so an LIT can determine whether you need to make additional payments to your creditors. You are required to attend two financial counselling sessions with an LIT or a licensed credit counsellor.

If your debts are overwhelming your finances and you’re unsure how to tackle them, it is advisable to seek professional help. A Licensed Insolvency Trustee can guide you through the Bankruptcy and Insolvency Act and help you determine whether a bankruptcy or consumer proposal is the right choice for you.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

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