Bankruptcy Is Not Just “Bankruptcy”
What is it Then?
Bankruptcy is commonly used to describe one of the government law processes available in federal legislation known as the Bankruptcy and Insolvency Act (BIA). The BIA regulates the options available to deal with businesses and individuals experiencing financial difficulties. Only Licensed Insolvency Trustees (Trustees) are allowed to administrate the options in the BIA.
Individuals seek the assistance of a Trustee to obtain protection from their creditors and get a fresh start.
What Are My Options?
The 2 common options for individuals are a consumer proposal or personal bankruptcy which are both processes over time. Either of these 2 options stops collection action from all unsecured creditors with minor exceptions like child and spousal support, some student loans, debts as a result of fraud and secured creditors.
What About Secured Creditors?
Secured creditors hold a physical asset as security for the loan to you, such as a bank holding a mortgage on your residence or a lender holding security on your vehicle. You have to continue making payments to secured creditors if you wish to keep the asset the secured creditor holds for security.
If you cannot afford to pay your unsecured creditors normally or negotiate payments with all of your creditors, either of the two options is designed to deal with all unsecured creditors at once.
A proposal is a way to avoid bankruptcy by offering a payment to creditors which is more than they would likely get if you went bankrupt. Most proposals offer monthly payments over time. The creditors get to vote on the acceptance of the proposal. If a majority of creditors who vote are in favour of the proposal, then all unsecured creditors are bound by the proposal. When the payment terms of the proposal are completed, the remainder of the debt to unsecured creditors is legally ended.
The Last Resort
The alternative, bankruptcy, should be a last resort if you cannot afford a proposal.
Bankruptcy typically costs you less than a proposal to obtain a fresh start but restricts you more while you are bankrupt prior to being discharged which is when the debt is discharged.
In either option, you are allowed to keep the basic assets that are protected from your creditors by provincial or federal law which the Trustee is obligated to follow.
What is My Next Step?
For a thorough explanation of how these options would affect you in your specific situation, contact a LIT near you.