The Bankruptcy & Insolvency Act regulates insolvency law in Canada. This legislation governs both business proceedings and personal procedures. In terms of personal insolvency, individuals have three basic legal measures available to them to obtain relief from creditors. The primary types of insolvency proceedings under the Bankruptcy & Insolvency Act include filing personal bankruptcy, a consumer proposal, or a Division I proposal.
All of these proceedings have common outcomes:
* the elimination of overwhelming unsecured debt;
* protection from creditor actions, including court orders and wage garnishments;
* fair and orderly distribution of funds to creditors; and
* all must be filed through a Licensed Insolvency Trustee.
However, how these objectives are achieved differs depending on which proceeding an insolvent individual chooses to file.
Personal bankruptcy is a legal process whereby the insolvent person surrenders certain assets in exchange for a complete discharge of eligible unsecured debts. Not all assets are seized. Provincial legislation sets out certain exemptions which vary by province but cover most basics such as personal belongings, a motor vehicle up to a certain value and, in many provinces, a certain amount of home equity. In addition, while most unsecured debts are completely eliminated through a personal bankruptcy, there are exceptions, including student loans less than seven years old, child and spousal support arrears, court fines, and penalties.
Upon filing for bankruptcy,bankrupts will be required to complete certain duties. These will include providing proof of income and expenses monthly so that the Licensed Insolvency Trustee can calculate the potential surplus income payments due in a personal bankruptcy if they earn income above the legislated threshold.
Technically, there are two types of personal bankruptcy procedures in Canada: a summary administration and an ordinary administration.
A summary administration occurs when the bankrupt's realizable assets are worth less than $15,000. The vast majority of personal bankruptcies are summary administrations. While the duties of the bankrupt do not change, in a summary administration the trustee is not required to advertise the bankruptcy in the newspaper and the trustee is not required to call a mandated first meeting of creditors.
A bankruptcy becomes an ordinary administration when the bankrupt's realizable assets exceed $15,000 in value...