Consumer Bankruptcy in Canada - Purpose and Objectives of The Bankruptcy Process

Purpose and Objectives of The Bankruptcy Process

The purpose of the bankruptcy process is to introduce a legislative mechanism that would provide a fair and peaceful resolution of financial conflict between debtors and creditors, creditors competing among themselves for recovery of their loans and balance public interest in protecting financial security of creditors on one hand and public interest in allowing an insolvent individual to make a fresh start. Generally, the objectives of the bankruptcy process can be summarized as follows:

• To permit an honest, but unfortunate debtor to obtain a discharge of his debts and to make "fresh start";

• Not only to permit an honest debtor to make a fresh start, but also to rehabilitate such a debtor by counseling the bankrupt on managing his financial affairs after discharge in order to prevent subsequent insolvency of the bankrupt;

• To promote a sense of commercial responsibility of the bankrupt and to deter bankrupt from subsequent insolvencies by introducing stricter legislative and judicial treatment of second and ensuing bankruptcies;

• To permit an investigation of the financial affairs of the bankrupt by a mediator, a trustee in bankruptcy, who is given broad powers to facilitate settlement of the claims by way of consumer proposal, to require compliance with bankruptcy procedures, to set aside fraudulent transactions and preferences among creditors and to adjudicate various matters under the BIA;

• To protect the creditors from competing with each other and to secure the debtor from excessive pressure from the creditors attempting to collect their debts first by introducing a priority of distribution of bankrupt’s property scheme under which all creditors are treated equally in accordance with the scheme.