Consumer Bankruptcy in Canada - Consumer Basic Concepts

Consumer Basic Concepts

For the purposes of the BIA, it is important to be able to distinguish between legal definition of "insolvent person" and one of "bankrupt". Generally, an insolvent person is one who cannot pay his or her debts and may subsequently become bankrupt, either by assigning himself into bankruptcy, being petitioned into bankruptcy by the creditors, or being deemed to assign himself into bankruptcy by defaulting on a Division I proposal.

The person who is unable to pay his obligation is considered to be an insolvent person under the BIA. Under s.2 of the BIA, an "insolvent person" is a person who is not bankrupt and who resides, carries on business, or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to $1,000, and

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due.

Insolvent consumers, according to the BIA, have 3 main options

1. Declare bankruptcy;
2. Submit a consumer proposal to creditors, Division II proposal;
3. Submit a Division I proposal to creditors;

The 4 main players involved in consumer insolvency are Trustee in Bankruptcy, Debtor/insolvent person, Creditors, Office of the Superintendent of Bankruptcy.

Under s.2 of the BIA, an "insolvent person" can become "bankrupt" for the purposes of the BIA in three ways:

• by a voluntary assignment in bankruptcy
• an application for a bankruptcy order
• by defaulting on a Division I Proposal