Bankruptcy and Insolvency Act

If you live in Canada, you may be aware of the laws regarding the act of declaring bankruptcy. Declaring bankruptcy occurs when a person or organization cannot repay his or her debts. While this used to mean that the debts were forgiven on the basis of insufficient funds, recently there has been a stronger focus on restructuring the debts in an effort to recoup some of the money owed - as well as analyze the underlying issues that caused the bankruptcy and prevent it from happening again.

For Canadians, bankruptcy is dealt with by the federal government, and the Bankruptcy and Insolvency Act is applied to both businesses and individuals. It is this act that details the responsibilities and the powers of the Office of the Superintendent of Bankruptcy, which is a federal agency that ensures the fair and orderly administration of bankruptcies.

How The Bankruptcy and Insolvency Act Is Designed

The Bankruptcy and Insolvency Act is designed to benefit both the creditor and the debtor. The debtor’s assets are preserved - as many as possible - and the unpaid debt is forgiven. This pulls the weight off the shoulders of the debtor so that they can return to being productive members of society.

This act continues to evolve, as amendments have been made in recent years. One such amendment helps businesses that still have viability to survive restructuring procedures, and for individual consumers, it helps them make arrangements with creditors where they repay the debt and avoid declaring full bankruptcy. This act does not apply to the following types of businesses, however:

• Banks

• Insurance companies

• Trust companies

• Loan companies

• Railways

In addition, farmers and fishermen cannot be forced into bankruptcy. They are able to declare voluntarily, but they cannot be forced. Unlike in the United States, however, Canadians may be able to include student loan debts in their bankruptcy declaration. If you have been out of college for more than five years, you are allowed to claim hardship and attempt to have your student loans discharged in bankruptcy court. However, the court will have to determine whether or not you made a good enough attempt to repay the loans, as well as the length and severity of your financial hardship.

Bankruptcy and Insolvency Act Benefits

The Bankruptcy and Insolvency Act also arranges the payments that you will make to your trustee. When you declare bankruptcy, your debts go to a trustee, who works with the creditors to repay the debt. Your trustee will determine when your wage garnishments will end, lawsuits, and payments made on unsecured debt. In addition, he or she will arrange your surplus income payments. The Bankruptcy and Insolvency Act considers any income over $200 of what your family needs for basic living expenses to be surplus income.

The act is designed to help facilitate bankruptcy in Canada. If you are a citizen of Canada and you are experiencing financial hardship, review the terms and conditions of the bankruptcy and insolvency act.