Bankruptcy

Bankruptcy represents a legal proceeding that declares the insolvency of a person or a legal entity when their debts or liabilities exceed the available and the expected assets and revenues over a continuous period of time. Individuals and companies can initiate the bankruptcy procedure voluntarily or they can be pressed by the creditors. In Canada, bankruptcy is covered under the Bankruptcy and Insolvency Act. The Office of the Superintendent of Bankruptcy Canada administers the provisions of the Act, investigates complaints, and keeps records of bankruptcy.

People may need to file for bankruptcy for a variety of reasons. Apart from poor financial management, they may face unpredictable and unfortunate circumstances. A major cause for bankruptcy is the loss of job and the subsequent decline in the income level. In this case, people should consider a substantial reduction of their expenses in order to service their debt obligations. Divorce or marriage separation is another major cause for bankruptcy. Couples usually share their rent and other bills. After a divorce or a separation, the partners have to pay bills on their own and the debt servicing becomes more difficult. Finally, medical problems are the third cause for bankruptcy. The good news is that most medical expenses are covered by the Canadian government. However, a person may be unable to work for an extended period of time. Despite the medical insurance, the income reduction impedes the prompt debt servicing.

The bankruptcy process goes through several stages. Individuals may write a consumer proposal and request a new arrangement of affordable monthly payments from the creditors. In case that the consumer proposal is rejected or this option is unavailable, insolvent individuals may file for bankruptcy. At this stage, no person or entity may enforce continued debt servicing. Furthermore, no one can commence or advance existing legal proceedings against the insolvent person. The next step is to assign one’s property to bankruptcy trustee who will distribute it among the creditors. After discharge, the insolvent individual is required to attend counseling regarding adequate financial management. He or she is obliged to inform the creditors of any development related to his or her financial situation. Individuals who declare bankruptcy for the first time are discharged after a period of 9 months. Discharge takes place automatically unless the creditors raise an objection. Individuals who undergo bankruptcy procedures for two or more times should file an application for discharge order, after a period of three months to one year from the date on which bankruptcy was declared.

Every person who owes more than $1000 is eligible for bankruptcy under the present legislation of Canada. Bankruptcy may help individuals to start anew while they keep all exempt property (e.g. life insurance policies and pension plans). The creditors can not commence legal proceedings or continue with the existing legal action against the insolvent individuals. On the other hand, the bankrupt persons lose their rights over non-exempt property. Bankruptcy will be displayed on their credit rating for seven years after the discharge takes place. Furthermore, the bankrupt persons will lose any surplus earnings and property which were attained before the discharge. Finally, they will lose some privileges such as the right to apply for certain positions in the civil sector.



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