What Bankruptcy Protection Does The Bankruptcy & Insolvency Act Provide?
Bankruptcy is a financial state that many individuals and businesses may find themselves in at some point in their lives. It is a legal process that provides protection and relief to debtors who are unable to pay off their debts. In Canada, the Bankruptcy & Insolvency Act (BIA) is the legislation that governs bankruptcy and insolvency proceedings. This article will delve into the various bankruptcy protections provided by the BIA and how they can help individuals and businesses in times of financial distress.
Understanding Bankruptcy Protection
What is Bankruptcy Protection?
Bankruptcy protection refers to the legal safeguards and rights that are granted to debtors under the BIA. These protections are designed to provide debtors with a fresh start by eliminating or reducing their debts and protecting their assets from seizure by creditors. Bankruptcy protection allows debtors to regain control of their financial future and work towards rebuilding their lives.
Automatic Stay of Proceedings
One of the key bankruptcy protections provided by the BIA is the automatic stay of proceedings. When an individual or business files for bankruptcy, the BIA imposes an immediate stay on all legal actions and collection efforts by creditors. This means that creditors cannot pursue legal action, garnish wages, or seize assets during the bankruptcy process. The automatic stay provides debtors with a much-needed breathing space to assess their financial situation and work towards a solution.
Discharge of Debts
Another important bankruptcy protection offered by the BIA is the discharge of debts. A discharge releases the debtor from the legal obligation to repay certain debts. In most cases, unsecured debts, such as credit card debt and personal loans, can be discharged through bankruptcy. However, certain types of debts, such as child support payments and student loans, are generally not eligible for discharge. It is important to consult with a Licensed Insolvency Trustee to understand which debts can be discharged in your specific situation.
Assets Exemption
Bankruptcy protection also includes exemptions for certain assets, allowing debtors to retain essential items needed for daily living. The BIA provides guidelines on the value and types of assets that can be exempted from the bankruptcy estate. These exemptions may include a primary residence, necessary clothing and furniture, tools of the trade, and certain retirement savings. The exemptions vary by province, so it is crucial to consult with a Licensed Insolvency Trustee to understand the specific exemptions applicable to your situation.
Rehabilitation and Restructuring
The BIA not only provides protection for debtors but also offers opportunities for rehabilitation and restructuring. For individuals and businesses facing financial difficulties, bankruptcy can be a chance to start afresh and rebuild their financial lives. Through the bankruptcy process, debtors have the opportunity to work with a Licensed Insolvency Trustee to create a plan to repay their debts or reorganize their business. This can involve negotiating with creditors, developing a manageable repayment plan, or restructuring the business to become more financially viable.
Bankruptcy Protection for Self-Employed Contractors
WSIB Coverage Requirement
In the construction industry, self-employed contractors are required to have Workplace Safety and Insurance Board (WSIB) coverage in Ontario. This coverage is mandatory and contractors must have a WSIB Clearance Number or Certificate in order to continue with their contracts and be paid. The WSIB clearance number is valid for 90 days and is issued to contractors in good standing with reporting and payments. While this requirement has its benefits, it can also lead to challenges for independent contractors who encounter cash flow and debt problems.
Cash Flow Challenges for Self-Employed Contractors
Self-employed contractors often face cash flow challenges due to various factors such as unexpected job costs, delayed or non-payment from customers, periods without contracts, weather delays, and start-up costs. These cash flow issues can be exacerbated when a contractor is unable to work because they cannot obtain a clearance certificate. Additionally, if a contractor is unable to pay their WSIB premiums, it is likely they are carrying other debts such as HST, credit cards, and bank loans.
Bankruptcy Protection for WSIB Debts
It is important for self-employed contractors to understand that WSIB debts can be included in a personal bankruptcy or a consumer proposal. According to WSIB’s current policy, a new WSIB account number will be issued after a bankruptcy, while the same account number will be maintained for someone in a consumer proposal. In a consumer proposal, WSIB allocates the arrears to a sub-account, making it appear as if the account started at zero. If a self-employed contractor is struggling with their debts, including WSIB premiums, a consumer proposal or personal bankruptcy may be a viable solution.
Considerations for Self-Employed Contractors
If you are a self-employed contractor facing debt problems, it is crucial to ensure that your WSIB filing and reporting are up to date. Additionally, it is important to prioritize the filing of your HST and personal tax returns. Reviewing your business and projected cash flow is essential to ensure the success of your future business ventures and the ability to stay current with WSIB and tax remittances. Seeking the guidance of a bankruptcy trustee can help you develop a plan to deal with both your business and personal debts, providing the fresh start you need for your business and personal life.
Conclusion
The Bankruptcy & Insolvency Act provides essential protections for individuals and businesses facing financial distress. Bankruptcy protection includes the automatic stay of proceedings, the discharge of debts, exemptions for certain assets, and opportunities for rehabilitation and restructuring. Self-employed contractors in the construction industry must be aware of the WSIB coverage requirement and the potential impact on their cash flow and debts. By understanding the bankruptcy protections available and seeking professional advice, individuals and businesses can navigate through difficult financial situations and find a path towards a brighter financial future.
