Did you know about the “Bankruptcy and Insolvency Act”? This law is important if you’re familiar with terms like bankruptcy. It exists to help people who are struggling to pay their debts.
Under this act, there are two main options for those in financial trouble: a consumer proposal and bankruptcy. Basically, this means that if you owe money and can’t pay it back, there are laws and rights that can help you either reduce or completely get rid of your debts if you really need financial help.
What is the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act’s meaning revolves around its role in protecting everyone involved in a consumer proposal in Toronto or bankruptcy. This includes the person who owes money, the creditors, and the Licensed Insolvency Trustee who oversees the process. The Act establishes the rules and procedures that all parties must adhere to.
To be considered insolvent means you can’t pay your debts and bills. If you’re in this situation, your assets are checked to see if they have value and if they can be sold to pay off some of your debts in a bankruptcy. When you file for a consumer proposal or bankruptcy, the Bankruptcy and Insolvency Act makes sure you are treated fairly and represented correctly.
The Bankruptcy and Insolvency Act also helps businesses that need to suggest a plan to pay off debts (a Division 1 Proposal) or declare bankruptcy. A Licensed Insolvency Trustee can help explain what legal options are available for businesses dealing with debt. For those seeking out a personal bankruptcy service in Toronto can provide tailored assistance and guidance through the process.
Role of the Licensed Insolvency Trustee (LIT)
A Licensed Insolvency Trustee (LIT) is someone who gets their license from the Office of the Superintendent of Bankruptcy to work under the Bankruptcy and Insolvency Act in Canada. They are the only ones legally allowed to manage a bankruptcy or proposal. An LIT helps you, the person in debt, by making sure your rights and the rights of the people you owe money to are looked after. If you decide to go ahead with a consumer proposal or bankruptcy, an LIT guides you through the whole process and assists you in sorting out your finances during and after the process.
Debt Relief Options Under the Act
Insolvency proceedings can unfold in three main ways, depending on your financial status and debt levels. A Licensed Insolvency Trustee (LIT) will first examine your financial details—like debts, assets, and income—and then outline your legal options under the Bankruptcy and Insolvency Act.
Consumer Proposal
If your unsecured debts range from $1,000 to $250,000, excluding mortgage insolvency or car loans, you can opt for a consumer proposal. In this case, an LIT will devise a plan where you repay a portion of your debts through monthly payments over up to five years, without having to give up any assets. Creditors will vote on whether to accept your proposal. If they agree, you’ll be free from these debts once the payment term ends.
Division I Proposal
This is suitable if your unsecured debts are above $250,000. A Division I proposal aims to create a repayment arrangement that can manage the larger amount of debt.
Bankruptcy
Filing for bankruptcy can clear certain types of debt, though not all are covered. You might have to give up some assets, which are then sold to pay off creditors. The specific assets you’ll need to surrender can vary based on your location. Additionally, you might need to make payments from any excess income during the bankruptcy period.
For assistance in navigating these options, credit counselling services in Toronto can provide professional guidance. They can help you understand which insolvency process might be most suitable and support you in managing your financial recovery.
Impact of a Stay of Proceedings
No matter what method you use, when you file under the Bankruptcy and Insolvency Act, a stay of proceedings will be put in place for you. This means you’ll be protected from your creditors, stopping them from taking any more legal steps against you. Essentially, the stay of proceedings shows creditors you’re working with a Licensed Insolvency Trustee (LIT) to sort out your debts, and they need to halt their legal actions.
Here’s what this means for you as someone owing money:
- Your interest payments won’t increase.
- Any wage garnishments will stop, except for things like child support.
- You won’t get calls or messages from collection agencies or creditors.
- Any lawsuits against you over unpaid debts will be put on hold.
- The Canada Revenue Agency will pause any efforts to collect taxes you owe.
A pause in legal proceedings under the Bankruptcy and Insolvency Act doesn’t protect everything. For example, if you owe money on a car loan from a secured lender, they can take the car back. You must also keep paying any child support or spousal support, and certain fines or penalties are not excused. A Licensed Insolvency Trustee (LIT) will examine your finances to see which debts can be included in your bankruptcy filing. If a creditor disagrees with a part of the pause, they can present their case to a judge who will decide on the matter.
How Bankruptcy Affects Your Assets
When you file for bankruptcy under the Bankruptcy and Insolvency Act, an LIT will submit your bankruptcy papers electronically to the government to start the process. They will check your assets to decide which ones can be taken or sold to pay off your debts and which ones are protected. The items that are safe from being taken vary by provincial laws. You can look up what’s protected in your area on our bankruptcy exemptions page.
Your Responsibilities Under Bankruptcy
When filing for bankruptcy, you are required to submit monthly income statements so a Licensed Insolvency Trustee (LIT) can assess if you need to make additional payments to your creditors under bankruptcy laws. You must also participate in two financial counselling sessions led by a LIT or a qualified credit counsellor. These sessions will help you explore the reasons behind your financial difficulties and offer guidance on managing debt and credit to rebuild your financial stability post-discharge. Once you fulfill all obligations of the bankruptcy, you will receive a certificate of discharge.
If you’re unsure how to manage your debt, remember that many are in the same situation. Consulting a professional to evaluate your financial circumstances and explore your options, including the corporate proposal service, is a crucial step toward financial recovery.
Conclusion
The Bankruptcy and Insolvency Act serves as a vital legal framework designed to support individuals and businesses grappling with insolvency in Canada. By offering structured paths such as consumer proposals, Division I proposals, and bankruptcy proceedings, the Act ensures that debtors can navigate financial hardships with dignity and a structured plan. Licensed Insolvency Trustees play a critical role in this process, ensuring that all parties are treated fairly and that the procedures set forth by the Act are followed meticulously. Additionally, If you are struggling with credit card debt in Toronto, an LIT can assist in navigating through consumer proposals or bankruptcy options that may offer you a way out of debt.
FAQs
Filing for bankruptcy can have significant long-term effects on an individual’s credit score and financial stability. It typically remains on your credit report for up to seven years, affecting your ability to obtain future loans and credit cards, and sometimes impacting job prospects in sectors that check credit histories. However, it also provides a fresh start by clearing many outstanding debts and offers a structured path to rebuilding financial management skills.
Yes, there are alternatives to bankruptcy if you are struggling with debt. One such alternative is a consumer proposal, which allows you to consolidate and reduce your debts without losing any assets. It involves making an offer to creditors to pay a portion of your debts over a specified period. Another option is seeking advice from credit counselling services, which can help you with debt management plans and negotiate with creditors on your behalf.
Filing for bankruptcy does not generally affect your current employment; however, it may impact future job opportunities, especially in industries that require a clean financial record, such as finance or law. Some employers perform credit checks as part of their hiring process, and a bankruptcy record could influence their decision. It’s advisable to be upfront about your bankruptcy if it is likely to be discovered during background checks.
