Three Things to Know About Insolvency
The topic of insolvency does not come up all that often in regular conversation or in everyday life, which is good. No one ever sets out thinking about becoming insolvent. As a result, we often find that people have heard bits and pieces about financial insolvency law that one of their friend’s friends may have run into. As we have heard many myths and false statements, here are three good things to know about insolvency.
1. The Canadian System is Excellent
The Canadian insolvency system is well respected by other countries. It is seen as a fair system that balances the interests of both creditors (the lenders) and debtors (the borrowers). This Federal law is determined by parliament and can be found in the Bankruptcy and Insolvency Act Canada (BIA).
Insolvencies in Canada are administered by Licensed Insolvency Trustees (LITs). In fact LITs are licensed by the Office of the Superintendent of Bankruptcy (OSB) which is the Federal Government department responsible for overseeing the integrity of the insolvency system.
Most LITs also have training as a professional accountant. We then have to proceed through another multi year layer of training and practical experience before gaining the chance to sit in front of an oral board of examiners. Once this exam is successfully passed the OSB will issue a license.
In subsequent years, LITs have to maintain a certain amount of professional development courses and face regular audits done by the OSB.
For difficult business or personal insolvencies, each province has a Bankruptcy Court where matters are heard. However, it is far more common that insolvency matters do not proceed to Court.
This combination of Federal law overseen by a regulator (OSB), administered by highly trained professionals (LITs) and with oversight provided by the Court – produce a functioning insolvency system that is an important part of a modern economy.
There are several different types of insolvency proceedings. For businesses that are corporations these would include:
- CCAA – Companies Creditors Arrangement Act
For consumer insolvency, there are also different types of proceedings:
- Consumer Proposals
- Division 1, or Ordinary Proposals
Confused yet? Don’t worry, we often see these terms mixed up. Let’s take a closer look at what insolvency actually means.
2. What Insolvency Actually Means
When we meet with people to discuss their situations, we sometimes hear things like “I want to file for insolvency”. The definition of insolvency is actually a condition that exists when your debts exceed your assets and you are unable to pay your bills as they come due. If this is the case for you then you are experiencing a condition of financial insolvency and you should take steps to get some relief. This starts by talking with a LIT.
It really does not matter if you owe $10,000 or $100,000 or $1,000,000. You could be technically insolvent at any of those points depending on your assets and your cash flow.
It is very easy to qualify to file for Bankruptcy protection in Canada. You need to owe only one thousand dollars and be unable to meet your debts as they fall due.
Therefore, you could be insolvent for a fairly long time and not be bankrupt. Bankruptcy vs insolvency involves two distinctly different things. A person or a company that is insolvent may file for Bankruptcy protection. That Bankruptcy filing occurs when it is filed by a LIT and registered by the OSB.
The most common consumer insolvency filing in Canada is a Consumer Proposal. This provides the same protection that a Bankruptcy filing does but is technically different. A Consumer Proposal allows you to make an offer, or a proposal, to repay some or all of your debts over time. The single monthly payment is designed to fit your budget. Also, there is no interest on the debt.
3. Life Will Go On
Our economy is designed on a risk and reward basis. All through life we are faced with decisions that involve risk and that risk can often come with taking on debt. This would include decisions involving:
- Student loans
- Mortgages for houses
- Loans to start a business
Many people who are considered successes today have been involved in an insolvent situation in their past. They took advantage of the tools available in the Federal law to reorganize and move forward.
Before you make a big decision like this we feel it is important to learn as much as you can. That is likely why you are reading this now.
Contact Us – We are Here to Help!
Too much debt can create a high amount of stress. If you are currently insolvent you may be having difficulty sleeping or having difficulties in your personal relationships.
At Derek L. Chase & Associates, we offer a free initial assessment where we will analyze your finances and provide you with information on what options are available to you.
Filing a Consumer Proposal or a Bankruptcy in Canada is designed to provide the honest by unfortunate person a fresh financial start. Is this you? Reach out to one of our convenient offices and start your journey to a new financial life. You will be glad you did!