Bankruptcy is often one of the most difficult things someone will have to go through in their lives. Thankfully, the Canadian bankruptcy system has been designed to move individuals through quickly and painlessly, with the goals of protecting the bankrupt individual’s assets while providing as much restitution as possible to creditors. Right Legal can help you connect with lawyers who have experience in both personal and corporate bankruptcy, to help you deal with this difficult time as best as you can, and get you or your business back on your feet.
What is bankruptcy and bankruptcy law?
When an individual or company owes more money to creditors and lenders than they can possibly repay, they are “insolvent”. An insolvent individual can go through a formalized proceeding to register as a “bankrupt”, indicating that they are not capable of paying back their creditors,. The bankruptcy proceeding includes placing the individual or corporation in “receivership”, where the designated receiver takes over management of the bankrupt’s assets.
When bankruptcy is declared, creditors have a right to the bankrupt’s assets to reclaim part of the money that they have lent. Any creditor who has signed an agreement to grant them “security” in the individual’s assets will have priority on the assets they “secured”, such as a house (mortgage), vehicles or heavy mechanical equipment.
Bankruptcy cases do not generally require lawyers if the bankrupt is an individual. The bankruptcy system in Canada is set up in a way that minimizes costs for the bankruptcy process, so as much of the bankrupt’s remaining net worth as possible can be returned to creditors. However, in more complicated bankruptcy proceedings, such as corporate bankruptcies or proceedings involving multiple secured creditors, bankruptcy lawyers may need to become involved.
What laws govern bankruptcy in Canada?
The Federal Bankruptcy and Insolvency Act establishes the rules governing bankruptcy across Canada. The Act governs the procedure by which an individual or corporation may be placed into bankruptcy, as well as the duties of the bankrupt. Each province will have legislation which establishes the assets that an individual may retain even when placed into bankruptcy. A bankruptcy proceeding will allow the bankrupt individual to retain some value of assets, including a vehicle (up to a certain value), an amount of equity in their home, and assets required for the individual to make a living. Furthermore, a bankrupt will not lose any provincial or federal child care or family benefits. For example, in Alberta, the statute in question is the Civil Enforcement Act, in Ontario, the statute is the Execution Act.
The Federal Companies’ Creditors Arrangement Act provides an alternative to corporate bankruptcy. Under that Act, an insolvent corporation may submit a proposal for restructuring, which will involve a proposal to all creditors to give the corporation more opportunities to pay back its debts. The proposal must be accepted by two-thirds of all creditors, or the corporation will be immediately placed into bankruptcy. While the Bankruptcy and Insolvency Act also has provisions for restructuring proposals, the CCAA is tailored towards large, complex corporations, with outstanding liabilities of $5 million or more.
What sort of work would bankruptcy lawyers be involved in?
A bankruptcy lawyer might be involved in contesting the way certain assets are being classified or surrendered to creditors. When representing bankrupt corporations, lawyers will also be responsible for drafting restructuring schemes and negotiating with creditors to ensure that restructuring proposals are successful. When representing creditors, bankruptcy lawyers will attempt to recover as much of the debt owed by the debtor as possible, relying on previous agreements between the creditor and debtor, including filing to seize any secured assets.
Points of Interest
The bankruptcy system in Canada has been developed to eliminate opportunities for bankruptcy fraud (such as declaring bankruptcy to avoid paying off debts but retaining the benefits you acquired from taking on those debts). For example, student loans cannot be discharged by bankruptcy until the individual has been graduated for more than seven years.
Here’s more information on how to connect with a bankruptcy lawyer in Edmonton, Alberta.