In Canada, the laws governing bankruptcy and insolvency are regulated by a statute known as the Bankruptcy and Insolvency Act (BIA).
This statute covers laws relating to bankruptcy, commercial and consumer proposals, and also receiverships. It also regulates the operation of the Office of the Superintendent of Bankruptcy, a federal agency which ensures that bankruptcies, proposals, and receiverships are administered in an orderly, fair manner.
The purpose of the Act is to provide a self-contained regime for liquidation and reorganization proceedings. Characterized by a rules-based approach, the Act covers debtors owing $1000 and includes provisions for debtors to propose adjustments to their debts. It is includes provisions for realizing on the assets belonging to the debtor in order to pay priority and secured creditors.
The Act covers all persons residing or who have resided, or carried out business, in Canada.
It also covers a number of other entities such as heirs, executors, or liquidators of estates, partnerships, unincorporated or incorporated associations, organizations or societies, and successors of partnerships or associations.
Exceptions include banks, loans companies, and insurance companies who are instead covered under the Winding-Up and Restructuring Act and railways which are covered under the Canada Transportation Act.
Farmers can enter bankruptcy willingly, but cannot be forced into bankruptcy by creditors: They are covered under the Farm Debt Mediation Act.
Bankruptcy can be invoked willingly by the debtor or by their creditors in the case of a debt exceeding $1000 and committing an act of bankruptcy.
Division I Proposals made under the Act which fail for any reason may also result in a ruling of bankruptcy if not accepted. Once bankruptcy has been invoked, many items belonging to the debtor may be realized to assist in payment towards their debts. This includes:
- Income tax refunds for the fiscal year in which bankruptcy is declared and any incomplete prior returns.
- Powers over property which are for debtor’s own benefit
- Property which has been transferred undervalue
Items which are held in trust for somebody else are excluded, along with exempt items such as personal effects, pensions, and a basic primary vehicle.
Realized property first goes to pay priority creditors which includes:
- Wages, commissions, salaries, and compensation owed to employees, not to exceed the amount of $2000 per employee (not including officers and directors)
- Reimbursement of expenses incurred by salesman during their work to a maximum of $1000 per employee (not including officers and directors)
- Payroll deductions or contributions owed to pension plan
Once these amounts are paid, remaining assets will go pay debts to secured creditors and preferred creditors which include:
- Trustee expenses and fees
- Legal expenses
- Superintendent’s levy
- Wages, commissions, compensations, salaries, and reimbursements remaining above priority payments
- Child support, alimony, spousal support, or maintenance payments
- Rent due and unpaid, for a maximum of 3 months as well as accelerated rent for a maximum of 3 months
- Legal costs incurred by creditor invoking bankruptcy on your behalf
- Municipal taxes, due and unpaid for, for up to 2 years
- Claims for employee loss not covered by workers compensation
With so many exceptions and information revolving around the BIA, it’s understandable that so many people get confused when dealing with it. Instead of having to struggle through the details, your best bet is to contact a bankruptcy trustee and get back on the path to healthy finances as soon as possible.