The Bankruptcy and Insolvency Act is the legislation set by the Canadian government that forms the backbone of the legal process of filing both bankruptcy and consumer proposals. Bankruptcy is typically a last resort when it comes to debt relief, but for many it means the start of a fresh financial future. It is the premise of assigning any non-exempt assets over to a Licensed Insolvency Trustee, who will use their value as part of the repayment to creditors. This in exchange for being cleared of any unsecured debts. The Bankruptcy and Insolvency Act itself is a long and complex document, but in this article we summarize all the key information you need to know.
What is the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act is the legislation that rules any bankruptcies and consumer proposals in Canada. It helps to lay out the roles of each person involved in a bankruptcy or consumer proposal, from a debtor to their creditors, Licensed Insolvency Trustees, and even the court. It is essentially legislation that helps to clarify each step of the debt relief process. It is set out to help debtors gain debt relief in a manner that is fair to all those involved. Bankruptcy law ultimately allows anyone struggling with overwhelming debts to either file bankruptcy or to agree to a consumer proposal.
What is in the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act lays out the different legal debt relief options (bankruptcy and consumer proposals). It also covers the various different roles and responsibilities of all stakeholders involved in the process. Inside, you will find fourteen different sections, including the following:
- Roles of all included in the bankruptcy or consumer proposal, including debtors and Licensed Insolvency Trustees
- How bankruptcy works, and how to file
- What consumer proposals are, and the roles of stakeholders involved
- How your property will be handled
- How your estate, assets, and money are handled (see our notes on your assets and bankruptcy, and assets and consumer proposals)
- The rights of those filing bankruptcy
- The role of the court in Canada
- The consequences of not following the legislation of the Bankruptcy and Insolvency Act
- Miscellaneous topics, including the rights of banks
- Bankruptcy alternatives
- How property and assets are handled with creditors
- Dealing with security firms during bankruptcy
- Handling the international filing of bankruptcy
- Handling the bankruptcy process
What do you need to know about the Bankruptcy and Insolvency Act?
As you can imagine, a lot of the Bankruptcy and Insolvency Act contains technical and legal jargon. It is legislation that helps Licensed Insolvency Trustees and the court to unpick exactly what is permitted or not permitted when it comes to filing bankruptcy or a consumer proposal. For everyone else, however, there are various key points of information that may determine whether or not you wish to file bankruptcy. Below, we have indicated the top points:
Revealing your income
In Canada, if you file bankruptcy, you must reveal all of your income. Should you have a surplus income of more than $200, your bankruptcy period will be extended to 21 months for first bankruptcy, or 36 months for any subsequent bankruptcies.
Assets will be seized in bankruptcy
If you file bankruptcy, some assets including tax refunds will be seized as part of repayment to your creditors. In a consumer proposal, it works differently and in most cases you can keep your assets.
Student loans will be discharged
If you have been out of school for seven years, your student loans will be automatically discharged. Learn more about student loan debt.
RRSPs are exempt
If you have been out of school for seven years, your student loans will be automatically discharged in bankruptcy. Learn more about student loan debt.
Secured lenders cannot terminate your contracts
If you file bankruptcy, it does not mean that secured lenders can also automatically end your contract. Bankruptcy typically covers most unsecured debts – not secured debts which are those associated with an asset, e.g. a car loan or a mortgage. So long as you are current on your payments, this should not impact your secured loans.
Consumer proposal debt limits
If you are considering a consumer proposal over a bankruptcy, it is important to note that the debt limit in order to qualify for a consumer proposal is $250,000 for an individual personal bankruptcy.
Are there any other bankruptcy acts?
As well as the Bankruptcy and Insolvency Act, each province has its own law that deals with bankruptcy slightly differently. Should there ever be any discrepancies between provincial law and federal law, federal law will overrule. If you are looking to learn more about commercial bankruptcy, the Companies’ Creditors Arrangement Act (CCAA) covers everything you need to know about companies gaining debt relief.
If you want to learn more about the Bankruptcy and Insolvency Act, or are looking to file bankruptcy, speak to Spergel. Our experienced Licensed Insolvency Trustees have helped over 100,000 Canadians become debt free. Book a free consultation with us today – you owe it to yourself.