Canadian Bankruptcy Law
The following will focus on Canadian bankruptcy law as it pertains to consumer debtors (as opposed to businesses).
Canadian Bankruptcy Laws: The Bankruptcy and Insolvency Act
The personal bankruptcy and consumer proposal process in Canada is governed by a federal statute called the Bankruptcy and Insolvency Act (“BIA”). The overall purpose of Canadian bankruptcy law via the BIA is to allow an honest but unfortunate debtor to get a “clean start” by removing the burden of debt so that he/she can once again become a productive member of society.
To achieve this overall goal, Canadian bankruptcy law through the BIA has provisions within it that deal with the following issues:
- Who can file a bankruptcy or a consumer proposal
- What assets become the property of the Trustee upon the filing of bankruptcy and what assets are exempt
- Duties of a bankrupt to provide to the Trustee an accurate accounting of his financial affairs and to assist the Trustee in the realisation of his assets
- Setting aside transfers of assets made by the debtor to non-arm’s length parties for no consideration or nominal consideration. There is a presumption that the transfer was made by the debtor with the purpose of keeping assets out of the reach of his creditors.
- Setting aside preferential payments made to creditors shortly before the filing of an insolvency proceeding
- Procedures to allow the creditors to investigate the affairs of the consumer debtor by way of a meeting of creditors or an examination of the debtor under oath
- Procedures for determining how much surplus income a bankrupt individual is required to pay
- Procedures for filing and administering consumer proposals
- Procedures for the calculation of the Trustee’s professional fees and disbursements
- Procedures at the bankruptcy court
- A list of debts that are not discharged in a bankruptcy or consumer proposal
- A list of offences that if made by the debtor, could result in a fine or imprisonment
The BIA is divided into 14 parts. Parts I to VIII are the parts that mainly deal with individual debtors whereas parts XI to XIV mainly business debtors. Therefore, we shall limit our review of the BIA to parts I to VIII.
Part I: Administrative Officials
Part I deals with the administrative officials that you may encounter during the insolvency process, their responsibilities, and the various powers bestowed upon them by the BIA. This includes:
- The Licensed Insolvency Trustee, who is a person licensed by the OSB to administer insolvency proceedings such as bankruptcies or consumer proposals
- The Official Receiver, who is a person that is employed by the OSB and who is required to monitor the professional practices of the various Trustees under his supervision
Part II: Bankruptcy Orders and Assignments
Part II deals with who can file a a voluntary bankruptcy (called an Assignment in Bankruptcy) and lists the procedures for forcing someone into bankruptcy by way of a Bankruptcy Order issued by the Court.
Part III: Proposals
Part III specifies who is eligible to file a proposal as well as procedures on filing and administering proposals. There are 2 types of proposals:
- Division I of Part III deals with proposals made by: (i) businesses; or (ii) proposals made by consumer debtors whose debts exceed $250,000 (not including a mortgage on a principal residence)
- Division II of Part III deals with consumer proposals. Only a consumer debtor (i.e., a natural person) can file a consumer proposal and only if his debts don’t exceed $250,000 (not including a mortgage on a principal residence).
Part IV: Property of the Bankrupt
Part IV deals with what assets become the property of the Trustee when a bankruptcy occurs and what assets are exempt. It also deals with the steps that the Trustee must take before realising on the assets, such as obtaining approval from the bankrupt’s creditors and the Court.
In addition, Part IV deals with stays of proceedings against the debtor’s assets by his creditors as well as reviewable transactions made by the debtor to non-arms length parties with respect to his assets prior to an insolvency filing.
Part V: Administration of Estates
Part V deals with various administrative aspects of the bankruptcy process, such as holding meetings of creditors, reviewing claims filed with the Trustee by the bankrupt’s creditors, and the distribution of funds from the Trustee’s trust account to the creditors.
Part VI: Bankrupts
Part VI deals with the bankrupt’s duties that he is required to perform when in bankruptcy, including the requirement to attend mandatory credit counselling. It also deals with how a bankrupt obtains his discharge as well as procedures for examining a bankrupt under oath.
Finally, Part VI provides a list of debts that are not discharged in a bankruptcy proceeding.
Part VII: Courts and Procedure
Part VII deals with the powers of the Court in dealing with bankruptcy matters and procedures for doing so.
Part VIII: Offences
Part VIII lists a number of offences that if made by a debtor, could result in a fine and imprisonment.
Canadian Bankruptcy Laws: Provincial Statutes
In addition to the BIA, there are various provincial statutes that deal with the protection of certain debtor assets from being seized by creditors. For example in Ontario, the Execution Act specifies that the following assets are exempt from seizure by creditors (both in a bankruptcy situation and non-bankruptcy situation):
- Household furnishings and appliances up to $13,150
- Your principal residence is exempt from seizure IF the equity in your home does not exceed $10,000. If the equity does exceed $10,000 then your principal residence is subject to seizure and sale
- All necessary clothing
- Tools of the trade up to $11,300
- A vehicle valued up to $6,600