Understanding the Purpose and Scope of the Bankruptcy and Insolvency Act (BIA) in Canada
The Bankruptcy and Insolvency Act (BIA) is Canada’s primary law for dealing with personal and business debt problems. It aims to:
- Help individuals who can’t repay their debts start fresh financially.
- Ensure creditors are treated fairly by creating an organized process for collecting money owed.
This law strikes a balance—offering protection to debtors while giving creditors a chance to recover part of what they’re owed.
What Does the BIA Cover?
The BIA applies to both individuals and businesses facing financial hardship:
- Individuals can use solutions like bankruptcy or a consumer proposal to deal with personal debt.
- Businesses can use structured processes to either wind down operations or restructure their debts through a Division I proposal or business bankruptcy.
Types of Insolvency Proceedings Under the BIA
There are four main ways to resolve debt under the BIA:
- Personal Bankruptcy
A legal process that clears most unsecured debts. In return, the person gives up some assets and may have to make monthly payments based on income. - Consumer Proposal
A formal offer to repay part of your debt through manageable monthly payments over a set time (up to 5 years). - Division I Proposal
Similar to a consumer proposal but used by those with more than $250,000 in debt or more complex financial situations. - Business Bankruptcy
Used when a company cannot restructure and needs to sell off its assets to repay creditors fairly.
Note: Larger corporations may also restructure under a different law—the Companies’ Creditors Arrangement Act (CCAA)—which allows them to continue operating while managing their debts.
Who’s Involved? Key Roles in the BIA Process
- Debtor: The person or business that owes money.
- Bankrupt: A debtor who has officially filed for bankruptcy.
- Creditors: The individuals or companies owed money. These are divided into:
- Secured creditors (e.g., mortgage lenders),
- Preferred creditors (e.g., CRA),
- Unsecured creditors (e.g., credit cards).
- Licensed Insolvency Trustee (LIT): A government-regulated professional who manages the insolvency process.
- Office of the Superintendent of Bankruptcy (OSB): Federal agency that licenses trustees, oversees the system, and keeps public records.
- The Court: Sometimes involved in approving proposals, settling disputes, or granting discharges.
Rules and Protections Under the BIA
- Asset Surrender: If you declare bankruptcy, you must give up certain non-exempt assets, which are sold to repay creditors.
- Exempt Assets: Some items—like personal essentials, retirement savings, and part of your home equity—may be protected depending on provincial laws.
- Surplus Income: If you earn above a set income threshold, you may have to make extra payments. These payments can also extend the bankruptcy timeline.
- Stay of Proceedings: Once you file, creditors must stop collection calls, lawsuits, and wage garnishments.
- Creditor Rights: Creditors can attend meetings, vote on proposals, and receive payment from the estate if funds are available.
- Debtor Duties: You must cooperate with your trustee, provide full financial disclosure, attend financial counselling, and follow instructions.
Procedural Highlights in a Bankruptcy or Proposal
- Creditor Meetings: May be held to review the case. Creditors can appoint inspectors to monitor how the trustee handles your case.
- Examinations: You may be asked questions under oath about your finances, especially if there are concerns.
- Discharge: Once your obligations are complete, you’ll get a Certificate of Discharge (in bankruptcy) or a Certificate of Full Performance (in a consumer proposal), which legally releases you from most debts.
- Proof of Claim: Creditors must file this document to show what they’re owed and participate in the process.
- Voting on Proposals: In consumer and Division I proposals, creditors vote based on how much they’re owed. If over 50% approve, the deal becomes binding for all.