Consumer bankruptcy in Canada

Consumer bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act ("BIA"). The legislation is complemented by regulations, as well as directives from the Office of the Superintendent of Bankruptcy that provide guidelines to trustees in bankruptcy on various aspects of the BIA.

For the purposes of the BIA, it is important to be able to distinguish between legal definition of "insolvent person" and one of "bankrupt". Generally, an insolvent person is one who cannot pay his or her debts and may subsequently become bankrupt, either by assigning himself into bankruptcy, being petitioned into bankruptcy by the creditors, or being deemed to assign himself into bankruptcy by defaulting on a Division I proposal.

The person who is unable to pay his obligation is considered to be an insolvent person under the BIA. Under s. 2 of the BIA, an "insolvent person" is a person who is not bankrupt and who resides, carries on business, or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to $1,000, and

Insolvent consumers, according to the BIA, have three main options

The four main players involved in consumer insolvency are Licensed Insolvency Trustee, Debtor/insolvent person, Creditors, Office of the Superintendent of Bankruptcy.

Under s. 2 of the BIA, an "insolvent person" can become "bankrupt" for the purposes of the BIA in three ways:

The bankruptcy process may be divided into three stages:

The bankrupt must:

A bankrupt must also remit to the trustee the amount of his income that is determined to be surplus to his needs, for the benefit of the estate.

Contributions made to Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Deferred Profit Sharing Plans (DPSPs) in the twelve months prior to the date of bankruptcy will be recovered for the benefit of the bankruptcy estate in provinces other than British Columbia, Alberta, Ontario, New Brunswick, and Nova Scotia (where they are exempt from seizure under applicable provincial legislation). The court can extend the one-year recovery period where it is considered appropriate.

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