How does the Bankruptcy and Insolvency Act protect me in a Bankruptcy or a Consumer Proposal?

The cost of living has skyrocketed and forced many Canadians to take on additional debt to cover everyday expenses. High interest rates are also increasing the cost of that debt, which is making it more challenging for many households to make ends meet. You and many others may be struggling with financial stress, missing payments — and receiving calls from your creditors as a result.

Filing for Bankruptcy or a Consumer Proposal can protect you from your creditors and help you take the first steps toward a debt-free future. Both processes are governed by the Bankruptcy and Insolvency Act (BIA) and provide protection to both creditors and debtors in Canada.

We’ve summarized the protections the BIA provides and the three major players in the insolvency system to help you make an informed decision about your next step forward.

What is the BIA?

Like the Highway Traffic Act and the Insurance Act, the BIA exists to protect Canadians — in this case, from the harms of unmanageable debt and the risks of lending.

The BIA is a legal framework that provides protection to both creditors and debtors through processes such as Bankruptcies or Consumer Proposals. It ensures creditors are treated fairly and recover some of the money they are owed. The BIA also protects debtors from legal actions and prevents debt from gaining interest after filing for insolvency.

Who are the major players in the BIA?

Three major players are responsible for governing the process and maintaining the integrity of the insolvency system — the Licensed Insolvency Trustee (LIT), the Office of the Superintendent of Bankruptcy (OSB), and the courts.

Licensed Insolvency Trustees (LITs)

LITs are the only professionals authorized by the BIA to administer proceedings such as Consumer Proposals or Bankruptcies. The LIT must follow all the duties and responsibilities outlined by the BIA. LITs are also subject to the Rules of Professional Conduct and Ethics of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) to carry out their duties in an ethical and independent manner.

LITs must complete a rigorous educational program and gain the necessary experience required to gain the CIRP designation. They must also continue to pursue ongoing professional development requirements throughout their career.

The Office of the Superintendent of Bankruptcy (OSB)

The OSB is responsible for maintaining the integrity of the insolvency system. It oversees the LITs administration of estates, licensing, regulating, and professional conduct. It also ensures all parties follow the rules outlined by the BIA (including debtors, creditors, and LITs) by investigating complaints and offenses, or by intervening in court if necessary.

Superior Court of Justice (the court)

The court makes the final decision in any matter related to the BIA to maintain the integrity of the insolvency system and protection of the public.

How can the BIA help me get a fresh financial start?

Canadians who are unable to repay their debts can receive debt relief through the rules established by the BIA. This generally results in creditors being unable to recover some or all of the money owed to them — and the BIA balances protecting the creditor as well as the debtor.

Protection for creditors

The BIA protects creditors by providing:

• The right to petition a debtor or company into Bankruptcy
• A claims process administered by the LIT ensuring all creditors are treated fairly
• A fair mechanism to recover a portion of the money owed to them
• An inquiry into the affairs of the debtor by an LIT
• The ability to participate through creditor meetings
• The right to make applications to the court for a lifting of stay
• The right to oppose a discharge or request an examination in a Bankruptcy
• The right to vote on matters including the acceptance of Proposals

Protection for debtors

If you are struggling to repay your debts, you may be facing pressure from your creditors through collection calls, legal actions, asset seizures, or wage garnishments. Additionally, the high interest rates on your debt may be piling up quickly — leaving you feeling trapped in a hopeless situation.

When you file for Bankruptcy or a Consumer Proposal, the provisions of the BIA provide an automatic stay of proceedings against most creditors — which can stop your creditors from commencing or continuing legal actions against you. It also stops interest from accruing as of the date you file for insolvency.

The BIA protects debtors by providing:

• An automatic stay of proceedings to protect against creditors
• Exemptions for certain types of property in a Bankruptcy such as registered retirement and disability savings plans, pensions, exempt life insurance policies, and other property you may need to maintain a reasonable standard of living
• The ability to retain a portion of income to maintain a standard of living
• Retention of assets through a Proposal filing
• A legal release from debts

Take control of your financial future

You have the right as a Canadian or resident to seek protection from your creditors through the filing of a Bankruptcy or Consumer Proposal. A Bankruptcy filing does not require approval from your creditors and provides a legal release from your debts — as long as you comply with your duties and make the payments as required by the BIA.

A Consumer Proposal is a compromise offer made to your creditors with the assistance of a Proposal Administrator. If your creditors accept your Proposal, you will receive a certificate of full performance when the amount you agreed upon has been paid — providing a legal release from your debts.

If you are struggling with debt, filing for Bankruptcy or a Consumer Proposal can help you take the first steps toward a fresh financial start. An MNP LIT can help you review your options to make an informed decision on the solution that works best for you.