Is Insolvency the Same as Bankruptcy?
Although these terms are used in conjunction with one another, insolvency and bankruptcy
are not the same. Many people compare insolvency vs bankruptcy and are unsure of the difference, even though the difference is an important one. Insolvency is a financial state whereas bankruptcy is a legal procedure. While some people who have reached insolvency choose bankruptcy as an option, the two terms are not interchangeable under Canadian bankruptcy and insolvency law. An individual is deemed to be insolvent when he or she owes at least $1,000 and is unable to pay their debts in full as they become due. An individual who is insolvent may choose to file a bankruptcy or a consumer proposal to deal with their debts.
What is Bankruptcy and Insolvency?
The difference between insolvency vs bankruptcy is that insolvency refers to an individual’s financial state. Bankruptcy is a legal procedure. As an insolvency service, bankruptcy is designed to provide an individual with a way to eliminate their unsecured debts and get a fresh start.
Purpose of Bankruptcy and Insolvency Act
The Bankruptcy and Insolvency Act
Canada (BIA) outlines bankruptcy and insolvency rules, including:
- Permitting an honest but unfortunate individual to obtain a discharge from debts, subject to reasonable conditions, to allow the debtor to have a fresh financial start. The financial rehabilitation of an insolvent individual is a fundamental purpose of the BIA;
- To provide for the orderly and fair distribution of property of a bankrupt among unsecured creditors on a pari passu (equal footing) basis;
- to allow for an investigation to be made into the affairs of a bankrupt; and
- setting aside of preferences, settlements and other fraudulent transactions.
All bankruptcy and insolvency general rules are outlined in the act, which governs Canadian bankruptcy and insolvency law. The act also governs the Office of the Superintendent of Bankruptcy, a federal agency responsible for ensuring these processes are administered in a fair and orderly manner.
What's the Difference Between Insolvency and Bankruptcy?
Two terms that are related, yet different, are insolvency and bankruptcy. The difference between the two refers to an individual’s financial state or status and the other refers to a legal procedure under the Bankruptcy and Insolvency Act
(which details the bankruptcy and insolvency general rules). Insolvency is a financial state whereas bankruptcy is a legal procedure. An individual is deemed to be insolvent when he or she owes at least $1,000 and generally can’t pay their debts in full as they become due. An individual who is insolvent may choose to file a bankruptcy or a consumer proposal to deal with their debts. The Bankruptcy and Insolvency Act rules govern both bankruptcies and consumer proposals.
What is a Bankruptcy and Insolvency Act Stay of Proceedings?
A Stay of Proceedings is automatic upon filing an insolvency bankruptcy or consumer proposal. This means that unsecured creditors are prohibited from starting any legal proceedings or continuing with their lawsuits, and from garnishing your wages. Under the Bankruptcy Insolvency Act, secured creditors can still seize assets you’ve provided security for if you fail to maintain your payments as required. The Bankruptcy and Insolvency Act rules outline all aspects of the process.
What is Government of Canada Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act Canada (BIA) is a federal statue. It outlines bankruptcy and insolvency rules. The BIA governs all bankruptcies and proposals filed within Canada. The BIA allows the “honest but unfortunate debtor” relief from their financial burden by offering them a “fresh start” in terms of managing their financial affairs. The act also defines the roles and protects the rights of all stakeholders involved in insolvency proceedings, including creditors, debtors, trustees, the Court and the Superintendent of Bankruptcy.