Personal Bankruptcy in Canada and Quebec
Personal bankruptcy is a legal process that is available for an individual who is overextended financially and unable to pay his or her debt. The individual can file for bankruptcy in order to seek to legally eliminate some or all of his or her debt.
Over the past two decades, personal bankruptcy rates have risen dramatically in Canada. It is believed that there are two main reasons for this. First, the fact that the availability of unsecured consumer credit has expanded widely and the widespread adoption of credit cards as a method of payment. Second, it seems as if bankruptcy has lost some of its once formidable stigma.
Personal bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA), the law does not generally distinguish between corporate and consumer bankruptcies. There are, however, a few differences and these are:
a) the simplified consumer proposal and summary administration are available only to individuals;
b) for individuals certain assets of the bankruptcy estate are exempt from seizure under provincial legislation and thus exempt from distribution to creditors;
c) Individuals are also entitled to keep a portion of income earned to maintain a reasonable standard of living in accordance with standards set by the Office of Superintendent of Bankruptcy. Any surplus income must be surrendered to the Trustee; and
d) A first time bankrupt individual is automatically discharged from bankruptcy after nine months (if there is no opposition) in order to provide him or her with “a fresh start” in order to assist the debtor’s reintegration into society.
A debtor can commence a voluntary insolvency by making an assignment into bankruptcy. This is in essence an agreement to turn over all assets to a Trustee for sale and distribution to the creditors. The trustee acquires control of all assets that are not exempt from seizure under provincial law. Each province has different exemptions, but most will allow the debtor to keep a basic stock of clothing, furniture, tools and maybe a car, as well as basic household appliances. An involuntary insolvency is commenced when a creditor petitions a debtor into bankruptcy.
A wage earner who has declared bankruptcy or is petitioned into bankruptcy by a creditor can continue to work and make money, but the trustee or the court may require that some payments are made to the trustee for the creditors before the final discharge can be granted. An increasingly used procedure under the BIA is consumer proposal. This allows an individual in financial distress can make a formal proposal of a payment plan. If the creditors agree, no bankruptcy occurs and the individual will remain in control of his or her assets. The assistance of a qualified Licensed Insolvency Trustee is instrumental in formulating a relevant proposal.