The Bankruptcy and Insolvency Act (BIA) is the governing set of rules and regulations that guide bankruptcy Canada filings. Managed by the Office of the Superintendent of Bankruptcy, there are specifics in our laws that make bankruptcy in Canada significantly different than bankruptcy in our neighbors to the south – the United States. Here are 7 things you need to know about the BIA and bankruptcy Canada:
1. BIA was constructed to be fair and equitable to both creditor and debtor.
2. Debtors are given an opportunity for a fresh financial start.
3. Creditors are protected to a degree from dishonest filers.
4. Provincial legislation determines the assets you can keep in bankruptcy.
5. Higher income filers are expected to contribute more towards creditor repayment.
6. Bankruptcy filings are handled by trustees licensed by the government, not by lawyers.
7. The law provides for an alternative to bankruptcy – the Consumer Proposal – which allows debtors to protect their assets from seizure and sale in bankruptcy.
Fairness and Equity in the BIA
The Bankruptcy and Insolvency Act governing bankruptcy Canada is meant to be as fair as possible to both sides in a bankruptcy – the debtor and the creditor. While some Canadians are aware the Act is intended to allow honest debtors to get out of a crushing debt load and get a fresh financial start, they are sometimes surprised to learn the Act also provides a certain amount of creditor protection as well.
To those Canadians who are embarrassed by the financial crisis in which they find themselves it might come as a bit of a shock to learn there are other Canadians who think of bankruptcy as nothing more than the cost of living in an exceedingly materialistic world and a temporary annoyance. In the past such people filed for personal bankruptcy multiple times, with little penalty. Today multiple filers will pay more towards their bankruptcies and remain in bankruptcy longer.
Bankruptcy in Canada is not a “Free Lunch”
Some Canadians are under the mistaken impression they can file for personal bankruptcy and walk away from all their debt with no penalty other than a disruption of their credit rating. They are surprised to learn that, depending on income and assets, bankruptcy is not free. It can cost far more than the fee you pay a trustee to handle your bankruptcy. The government allows an income threshold based on family size and location; but if your income exceeds that limit you will be expected to contribute a portion of the surplus towards repaying your creditors for up to 21 months for first time filers. What’s more, if you own valuable assets, you may lose them in personal bankruptcy.
Provincial Differences in Asset Exemption Allowances
There are allowances that enable Canadians to keep some or possibly all of their assets, but there are significant differences in these exemption allowances across Provinces. For example, if you live in Alberta and you have $10,000 in equity in the home you own, you will not lose it in bankruptcy. The housing exemption allowance there is $40,000. But in Ontario, there is no exemption for home equity. A homeowner there who files for personal bankruptcy with $10,000 in equity must contribute $10,000 into the bankruptcy estate in order to keep their home.
The Consumer Proposal –An Alternative to Bankruptcy in Canada
About 15 years ago the BIA was amended to include an alternative to filing for bankruptcy which protects filers with significant assets. With a proposal – also handled by licensed bankruptcy trustees – the debtor proposes to pay back a portion of the total debt owed. If the proposal is accepted, the debtor is protected from the seizure and sale of any assets.
To determine the specifics how bankruptcy Canada law for personal bankruptcy filings or consumer proposals are implemented in your province, meet with a licensed bankruptcy trustee in your area as soon as possible.