What is Bankruptcy Law?

Bankruptcy in Canada is regulated by the Bankruptcy and Insolvency Act and remains relevant to business enterprises and private individuals. Individuals and corporations may file for bankruptcy after becoming insolvent and are not capable of paying their debts.

Wikipedia described that a federal agency, the Office of the Superintendent of Bankruptcy is responsible for overseeing that bankruptcies are administered in a fair and orderly manner by all licensed Trustees in Canada. Trustees in bankruptcy actually administer the bankruptcy estates and are governed by the Bankruptcy and Insolvency Act of Canada.

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This article will discuss the major features of the Bankruptcy Law in Canada, the assets that are exempted from bankruptcy in Canada as well as the concept of consumer proposal. The explanations that will be provided can hopefully enlighten Canadian consumers regarding the merits of and vital issues in bankruptcy.

What are the Essential Aspects of the Bankruptcy Law in Canada?

First of all, there are two primary laws that govern bankruptcies in Canada – the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. The first was instituted by the federal government to assist unlucky but sincere individuals recover from their financial predicament. The law underscores responsibilities and rights of all the people involved in solving debt problems – the Superintendent of Bankruptcy, official receivers who represent the Superintendent of Bankruptcy, the court, licensed bankruptcy trustees, and consumers.
The Companies’ Creditors Arrangement Act is a federal bankruptcy law that governs insolvency of companies and corporations. It preserves the rights of companies and creditors, or people they owe money to, and details responsibilities of the court, corporation, and creditors.

It has three components, namely:
  1. Compromises and Arrangements govern agreement between the company and creditors for debt repayment.

  2. Jurisdiction of Courts controls powers and responsibilities of the court, and discusses the court’s role in international insolvencies.

  3. General discusses how this act interacts with others and other information not covered in the other sections.

Provincial laws deal with bankruptcy and debt solutions in provinces. These acts of legislation are more about property and how to handle your assets and income during the period of bankruptcy.

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What are the Exemptions?

Some assets are exempted from bankruptcy in Canada. The Bankruptcy and Insolvency Act defines these exemptions:

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  • Property held in trust for other persons.

  • GST credit payments and prescribed payments relating to essential needs of families.

The provinces and territories generally define “other exempt property” to include the following, up to limited values, which vary greatly from province to province:
  • Food, clothing and heating fuel needed by you and your dependants

  • Household furnishings and appliances

  • One motor vehicle

  • Medical and dental requirements

  • The tools of your trade: tools, equipment, and books needed to earn money from your non-farming occupation.

  • Farm property: and required operating equipment, livestock, and other property.

  • Your principal residence (house or mobile home).

  • Sentimental items, including pets.

  • Pensions or retirement savings.

  • Miscellaneous categories in some provinces.

What is a Consumer Proposal?

In Canada, a person can file a consumer proposal as an alternative to bankruptcy. A consumer proposal is a negotiated settlement between a debtor and their creditors. A typical proposal would involve a debtor making monthly payments for a maximum of five years, with the funds distributed to their creditors. Even though most proposals call for payments of less than the full amount of the debt owing, in most cases, the creditors will accept the deal. If they do not, the next alternative may be personal bankruptcy, where the creditors will get even less money. The creditors have 45 days to accept or reject the consumer proposal. Once the proposal is accepted by both the creditors and the Court, the debtor makes the payments to the Proposal Administrator each month (or as otherwise stipulated in their proposal), and the general creditors are prevented from taking any further legal or collection action. If the proposal is rejected, the debtor is returned to his prior insolvent state and may have no alternative but to declare personal bankruptcy. A consumer proposal can only be made by a debtor with debts to a maximum of $250,000 (not including the mortgage on their principal residence).

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The Value of Learning about

It is imperative that consumers get to know the legislation on Bankruptcy as well as the important concerns and issues surrounding the BIA. The Consumer Proposal is another vital aspect in Bankruptcy since it is a way of resolving this problem. The bottom line for consumers is to be very careful to avoid the pitfalls of this economic failure.

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