Like most federal legislation, the Bankruptcy and Insolvency Act (BIA) is a complicated set of laws that can be difficult to understand. However, knowing your rights and responsibilities as they are defined by the law is important if you plan on filing bankruptcy.
Like most Canadians, you may be unfamiliar with the legal definition of many of the words related to bankruptcy. Insolvency, debtor, and super-priority creditor are not words that come up in everyday conversations and can be difficult to understand. These are some of the most important words and terms you should know:
- Bankrupt—The legal status of a person who can no longer pay their debts and has declared bankruptcy
- Consumer Proposal—A legal settlement between a debtor and creditors that allows the debtor to settle their debts for less than they owe.
- Discharge—The release of the bankrupt from bankruptcy
- Insolvency—Being unable to repay what was borrowed in a timely way
- Statement of Affairs—A document provided by the bankrupt describing their financial situation
Knowing these basic terms can help you better understand the Bankruptcy and Insolvency Act.
Help for Debtors in Trouble
The BIA offers hope to Canadians saddled with unmanageable debt. If you can’t afford to pay back your creditors, the law provides individuals with two legal options to deal with a debt crisis—bankruptcy and a consumer proposal.
If you have a steady income or enough resources to pay back a part of your debt, a consumer proposal may be the answer for you. If accepted, your proposal allows you to pay back only a part of what you owe. As long as you make timely payments, your creditors must stop their collection efforts and abandon lawsuits and garnishments.
Bankruptcy is a little different. In exchange for surrendering your assets as payment, your creditors agree to forgive your debts. Proceeds from the sale of your possessions are used to pay off your creditors. Once your bankruptcy is discharged, you have a clean, debt-free slate and can begin rebuilding your credit and finances.
The BIA and Your Responsibilities as a Debtor
The opportunity for a fresh start and freedom from the harassment of bill collectors are rights and protections that come through the BIA. As a debtor you also have responsibilities that are set out under the law. You are required to honestly represent your financial situation and truthfully report all of your income and assets.
If you are making payments to your trustee, either for a consumer proposal or surplus income, they should be on time and for the full amount agreed upon. The BIA protects you as long as you honor the agreements you have made.
The Bankruptcy and Insolvency Act was made into law so that good Canadians with bad debt can recover from their debt problems.