Types of Bankruptcy in Canada

Are you considering filing for bankruptcy? Are you curious about bankruptcy and how it applies in different arenas? In this article, we’ll look at the requirements to file for personal bankruptcy. In addition to personal bankruptcy, we’ll look at the types of discharges, as well as small business bankruptcy and corporate bankruptcy.

Personal Bankruptcy

Bankruptcy involves a legal process through which a person resolves all or part of his or her debts. If you cannot repay your creditors, you may be able to file bankruptcy. However, you should evaluate all other options before resorting to this method. Bankruptcy can affect many aspects of your life, such as your credit score and ability to use credit or make big purchases in the future.

Requirements to file for personal bankruptcy in CA

The Bankruptcy and Insolvency Act (BIA) lists the requirements to file for personal bankruptcy in Canada. In order to file for bankruptcy, you must be a Canadian resident, you’re not able to pay your bills as they come due, and you owe more than $1,000 in debt.

Please note that just because you meet the requirements for personal bankruptcy, it doesn’t mean it’s the best option for you. You’ll want to speak with a Licensed Insolvency Trustee (LIT) to make sure you’re making an informed decision before you file for bankruptcy.

Types of discharge

Discharge is an important step in the bankruptcy process. When you’re discharged from bankruptcy, you’re released from any debts covered by your bankruptcy.  It also removes restrictions that come with bankruptcy. For example, a person who declares bankruptcy isn’t allowed to borrow over $1,000 without letting the lender know that they went bankrupt (if you fail to do that you could be fined, imprisoned or both under the BIA).

Now that you have a better understanding of what discharge means, let’s take a look at the types of discharge.

Absolute

An absolute discharge is the best type of discharge to get. It’s when you’re released from all the outstanding debts you incurred before declaring for bankruptcy, except for certain types of debt not included in bankruptcy outlined in the BIA. In most instances, personal bankruptcies are granted absolute discharge.

Conditional

A conditional discharge is when the court imposes certain conditions you must meet in order for your discharge to become absolute.  For instance, you may have to make extra payments to distribute to your creditors. Once you’ve met these conditions, the court should grant you an absolute discharge.

Suspended

A suspended discharge is a variation of an absolute discharge. Essentially, it’s an absolute discharge that doesn’t come into effect until a later date. Reasons that the court may declare a suspended discharge include a criminal investigation, a breach of your duties under the BIA or a previous bankruptcy.

Discharge refused

It’s fairly uncommon, but the court could refuse to grant you a discharge. If this occurs, I’d encourage you to speak to your LIT to discuss your next course of action.

Small Business Bankruptcy

If you’re a small business owner, filing for bankruptcy should be considered your very last resort. That’s because when your business is set up as a sole proprietorship or partnership, you can’t hold the assets of the business separate and apart from the your personal assets. In essence, when you file for bankruptcy for your small business, it’s the same thing as filing for personal bankruptcy. For that reason, small business owners should speak with a LIT before considering filing for small business bankruptcy.

Corporate Bankruptcy

Unlike a sole proprietorship or partnership, when your business is incorporated, it’s considered a separate legal entity, giving you bankruptcy protection. However, the process of filing for bankruptcy for a corporation is more complicated than filing for personal bankruptcy. A director of a corporation filing for bankruptcy may still be held personally liable for certain debts of the business. Debts you may still be on the hook for include any loans you’ve personally guaranteed, any outstanding HST that hasn’t been remitted and any unpaid source deductions from payroll.

Which type of bankruptcy should I file?

Filing for bankruptcy is just one of the many different debt solutions. An alternative to filing for bankruptcy is a consumer proposal. A consumer proposal, in essence, is a negotiated settlement with your creditors.

 

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