Bankruptcy types in Canada

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Deciding to file for Bankruptcy is challenging for most people. It’s when you go in front of a judge and inform them you cannot pay your debts. Hence, relying on your situation, they either erase your debts or create a plan for you to pay them back. There are various reasons why people file for Bankruptcy, like a job loss, a medical emergency, a divorce, or a death in the family. It’s essential to understand what each type of Bankruptcy entails so you can make an informed judgment about whether or not actually to file. What are the various options and types of Bankruptcy available?

Before you can declare Bankruptcy in Canada, you need to work with a Licensed Insolvency Trustee, who analyses your present financial situation and suggests which kind of Bankruptcy you are entitled to.

Contact Dana MacRae Licensed Insolvency Trustee to find the best Bankruptcy option available for you.

There are certain general parameters to qualify for Bankruptcy to decide whether or not you would be able to declare Bankruptcy, including:

  • You must be a Canadian resident
  • You must owe more than $1000 to creditors
  • Your debts are higher than your assets’ value, and you cannot pay your bills when they are due.

The Bankruptcy & Insolvency Act controls all three bankruptcy types. So, what are the types of Bankruptcy?

  • Personal
  • Small business
  • Corporate

Personal Bankruptcy

Personal Bankruptcy is the most common type of Bankruptcy in Canada. If you can determine with any of the following, personal Bankruptcy might make sense. You:

  • Have undergone a loss of income
  • Not able to reduce debt despite making payments
  • Have maxed out your borrowing potential and can’t get any more credit
  • Rely on credit for day-to-day expenses.

The Licensed Insolvency Trustee with whom you work determines which type of personal Bankruptcy you should file for:

Summary Administration Bankruptcy – If once sold, your assets will not exceed $15,000

  • More familiar for individuals
  • The trustee’s fees are determined by bankruptcy legislation and are calculated on the amount realized by the trustee rather than the time spent by the trustee.
  • The majority of assets, including equity in the home and investments, will likely be exempt from seizure.
  • Incorporated businesses file this type.
  • No necessity to advertise your Bankruptcy

Ordinary Administration Bankruptcy – If once sold, your assets will exceed $15,000

  • More used for businesses
  • Trustee fees are usually paid from asset sales, and the trustee’s time is a determining factor
  • More work to file
  • Needed to advertise in a newspaper
  • Must summon a creditors’ meeting
  • May want to consider filing a consumer proposal instead.

Once you finish your Bankruptcy, you get one of four types of discharge:

  • Absolute – The best and the most common outcome automatically released from any legal obligations to repay your debts.
  • Conditional – You must meet prerequisites to receive your Absolute Discharge.
  • Suspended – You do not automatically and instantly receive an Absolute Discharge. Instead, you receive it on a future date.
  • Discharge Refused – If your discharge is refused, you need to work with your trustee to discover a method to receive your discharge, or you should wait and apply again later.

Small Business Bankruptcy

A small business bankruptcy is treated the same as a personal bankruptcy. Business assets and debts are considered the owner’s assets and debts. Business structures like partnerships and sole proprietorships are treated legally the same as if an individual ran them. This is true only in cases where a business is not incorporated. If your business is incorporated, the process is much more tiring and differs from a simple personal bankruptcy.

In most cases, incorporated companies present the business owner liability protection, which means the owner’s assets are not at risk. Like personal Bankruptcy, you receive one of the four discharges mentioned above when you file for small business bankruptcy. You also receive the same benefit of protection against creditors.

Corporate Bankruptcy

Corporate bankruptcies differ because you must find a trustee specializing in corporate filings. Corporations are independent legal entities, so owners are protected from liability. But, if an owner has put up any personal assets like personal property or home as collateral or security for any of the business’s debts, it would be subject to forfeiture. Only the business’ assets will be forfeited, not the owners’.

Which Bankruptcy Should I File?

Your LIT can help you decide which types of Bankruptcy you should consider filing for. Remember, there are some significant disadvantages to filing for Bankruptcy:-

  • Damaging your credit score
  • Potential surrender of assets
  • Releasing your tax information
  • Releasing detailed income/expense information. 

Don’t hesitate to contact Dana MacRae Licensed Insolvency Trustee if you are confused about which Bankruptcy to choose. Call 1-800-665-9965 for more details.

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