The Bankruptcy and Insolvency Act: Safety net for debtors, assurance for lenders

When individuals can no longer service their debt, it creates significant issues for both the borrower — who may find themselves in an ever-worsening cycle of debt — and their lender(s) who are having trouble recovering the money owed to them. That’s why many countries have some form of legislation to govern such situations. In Canada, that falls under the Bankruptcy and Insolvency Act, or BIA.

What is the BIA and why does it exist?

The BIA is a Canadian federal law that allows honest but unfortunate debtors to address problematic debt and helps lenders to recover a portion of the funds they’re owed. The legislation offers two solutions to help resolve worst-case insolvency situations.

Bankruptcy

Bankruptcy involves a borrower surrendering certain assets and potentially some income for partial repayment of their outstanding debts. Upon conclusion of the Bankruptcy, the borrower will be free of all qualifying debts they owed when they began the process.

 

Read more about Bankruptcy

Consumer Proposal

A Consumer Proposal involves negotiating an interest-free settlement with a borrower’s creditors, which can be paid either as a lump sum or through monthly installments over a period of up to five years. Upon conclusion of the Consumer Proposal, the borrower will be free of all qualifying debts they owed when they began the process.

 

Read more about Consumer Proposals

The BIA exists to help borrowers

Once a you become insolvent, it can be almost impossible to recover without outside help. Rather than forcing you to fall ever deeper into debt and face a lifetime of financial and legal difficulties, the BIA offers the opportunity for a financial reset. It allows you to fulfill your moral and legal duties to repay a portion of what you’ve borrowed. At the same time, it seeks to equip you with the necessary tools to hopefully avoid falling victim to the same pitfalls in the future.

The BIA exists to help lenders

There often comes a point where a lender is unlikely to recover the funds they’re owed. They may pursue borrowers through collections agents or legal challenges, but these processes can be costly and are not always guaranteed to net results.

The BIA offers a legal framework for creditors to receive more money back than they otherwise would have if the borrower simply stopped paying. It also offers peace of mind in knowing this process will be governed by a regulated system which seeks to limit abuses and ensure the equitable distribution of funds.

What role do Licensed Insolvency Trustees play?

Licensed Insolvency Trustees (LITs) help you and your creditors realize the most fair and equitable outcomes in BIA proceedings — often through the administration of Bankruptcies and Consumer Proposals. As the title implies, LITs receive their license through the federal government via the Office of the Superintendent of Bankruptcy. They are held to strict professional standards, including impartiality through the entire process and providing an honest appraisal of everyone’s best interest.

LITs must provide a free consultation to any Canadian debtor who requests one, where they will assess your financial situation and explain all the available options. They must provide an honest opinion not only on whether you qualifies for a Bankruptcy or Consumer Proposal, but whether those would be recommended solutions given all the factors involved.

Conversely, the LIT must present a settlement which is fair for all lenders involved, given the constraints of your financial situation. They must also oppose a your discharge from Bankruptcy or disqualify your Consumer Proposal if you do not meet your legal obligations.    

Life-Changing Debt Solutions

You don’t have to continue suffering with unmanageable debt. The BIA and LITs are here to help you repay what you can and achieve the financial fresh start you deserve. Schedule a Free Confidential Consultation with an MNP Licensed Insolvency Trustee today and find out what solutions might be most appropriate for your unique situation.